Merck CEO Ken Frazier gets 32% pay bump on strong Keytruda sales, cancer M&A

Merck & Co. previously eliminated a policy that required the retirement of its CEO at age 65 so that Ken Frazier could remain at the top job beyond 2019. Now that he’s celebrated that birthday, staying on looks even more attractive for Frazier, what with a 32% raise.

In 2019, Frazier’s total compensation hit $27.65 million, up from $20.93 million in 2018, according to a securities filing (PDF). Of the 2019 package, $15.93 million came from stock and option awards at grant value.   

His cash rewards jumped 50%, reaching $4.61 million, thanks to better-than-expected revenues driven mainly by immuno-oncology star Keytruda, achieving key clinical milestones and dealmaking that expanded Merck's pipeline.

Last year, Merck grew sales by 11% to $46.8 billion, ahead of the board’s target of $44.2 billion. Two other items on the evaluation card—pre-tax income and pipeline accomplishments—also beat their goals. That led to a 184% payout on a base of 150% of Frazier’s base salary, which increased 3.1% year-over-year to $1.67 million in 2019.

Keytruda contributed most of the growth, as its sales swelled 55% to $11.1 billion. While it’s expanding a strong foothold in the U.S. lung cancer market, the PD-1 inhibitor in 2019 also bagged approvals in previously untreated head and neck cancer and newly diagnosed kidney cancer, as well as the first nod—and so far, still the only nod—for an immuno-oncology agent in the all-important front-line non-small cell lung cancer market in China.

In addition, as many biopharma companies have backed out of the antibiotic arena, Merck instead won two approvals. On the heels of adding hospital-acquired and ventilator-associated pneumonia to the label of Zerbaxa, the company secured an FDA go-ahead for new combo drug Recarbrio to tackle infections caused by specific gram-negative bacteria. Its Ebola vaccine, Ervebo, also crossed the FDA finish line.

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The huge success of Keytruda is also becoming Merck’s biggest challenge. “Everywhere I go, the key question I hear from people is ‘What do you have beyond Keytruda?’” Frazier said at an investors' event in June. Indeed, even as the megablockbuster PD-1 continues to see additional opportunities in other areas such as colorectal cancer, classical Hodgkin lymphoma, breast cancer and non-muscle invasive bladder cancer, finding new hit drugs is still a legitimate question if Frazier wants to de-risk the company’s offerings.

Compared with some of its Big Pharma peers such as Pfizer, AbbVie and Novartis, Merck hasn't been a big M&A spender in recent years. But investor pressure to branch out beyond Keytruda may have helped propel Frazier toward several cancer-focused buyouts. Merck last year shelled out $2.7 billion—a heavy premium—to snatch up ArQule, whose lead drug is a BTK inhibitor. It bought Peloton Therapeutics for $1.1 billion upfront, too, and got its hands on an oral HIF-2α inhibitor that has shown promise in renal cell carcinoma. The drugmaker also snatched up cancer vaccine developer Immune Design and Tilos Therapeutics, which targets TGFβ.

As it doubles down on cancer, Frazier is also aiming to further focus Merck’s businesses. In February, alongside its fourth-quarter earnings report, the company unveiled a planned spinoff of its women’s health and biosimilar franchise, which will bear the name Organon.