Sunday, January 31, 2016

Merck Likely Got A Tangible Benefit -- In July 2015 -- From Enhancing Mr. Kuhlik's Retirement Package (Gracious Concessions Department)

Back in late-July of 2015, I mentioned that it was curious that Merck's board was enhancing the retirement benefits to its GC, Bruce Kuhlik.

As I wrote then, in general, I'm of the opinion that Merck has greatly reformed the company's executive perks and pay practices -- especially compared to those that used to prevail at legacy Schering-Plough. [Afterall, this Merck IS the Schering-Plough legacy Delaware holding company, just renamed -- with Merck's legacy assets folded in. In fact, Merck long ago installed double triggers, for all its executive payouts, back when legacy S-P barely had a meaningful "single trigger". Remember, by 2006, Merck was pulling EARNINGS that regularly TRIPLED S-P's, despite dragging behind it, a much bigger base. For all of this, then CEO Clark earned less than a third (per year) of what that shine-ola salesman Hassan took from legacy Schering-Plough. But I digress.]

Having said all of that, the acceleration of Mr. Kuhlik's departing equity awards -- and that was what it was -- an acceleration, and fixing in cash, of the certainty of those awards. . . struck me then, as over the top. He was retiring in a well-planned, thoughtful succession, having prepared Michael Holston (for nearly two years, for his seat), and had already back-filled Holston's role, as Holston ascended -- with Ashley Watson, from HP, over six months prior to Kuhlik's own departure.

The board's proffered reasoning, in enhancing Mr. Kuhlik's normal retirement payouts, was that he would have to forefeit several large chunks of his equity compensation, post-retirement, if he took a certain class of federal public sector role, shortly after July 2015. The amount looked to me to be about $1.2 million, in benefits, at the time. I closed that July 2015 post, by saying I would hope Kenilworth might see some tangible benefits, from Mr. Kuhlik's payout. I guessed it might be some trade ambassador's role. In fact, the role is much closer to home.

Mr. Kuhlik is now (since at least mid-September 2015) the Senior Advisor to the Commissioner of the US FDA. Obviously, in that role, he helps the Commission decide on a whole host of compliance and approval process issues -- on all the drugs and devices and biologics over which it holds sway. Yes, I expect that Merck is garnering a tangible benefit from having his perspective represented -- front and center -- especially in cases where the full Commission decides NOT to follow an Advisory Committee recommendation.

So I will watch closely what happens with the question of a proposed label expansion for Merck's ezetimibe. You will recall that the Advisory Committee voted resoundingly against recommending that label expansion for Merck/legacy Schering-Plough. So. . . what might we (regular citizens) make of any subsequent full Commission approval of the new indication, since ignoring the Committee's suggestions is a very rare occurence. Rarer than hens' teeth, in fact. Should it happen, then Merck's enhanced payout would be quite a home run, in my estimation. Some $1.8 million in added money, to get perhaps an incremental $50 million a year, in revenue. Not too shabby -- so we are watching closely. Daily. Trust that, my friends.

I'll close out my slow Sunday evening post here, with one of my favorite blog quotes of all time. It involves Mr. Kuhlik (and Mr. Sabatino), while the Schering-Plough reverse merger was being negotiated -- in 2009. Hilarious -- flawless satire, penned by the clever folks at InVivo, back then. Do go read it, but "I'd like to have my lunch. . . buy me. . . ." Heh. Onward, into the first Monday in February, then. . . Merck earnings due mid week. Now, off to catch a live version of "Grease" on TV!

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