By Michael Erman and Manas Mishra

(Reuters) - Merck & Co Inc said on Thursday Ken Frazier, one of only a handful of Black executives leading major U.S. companies, will step down as chief executive officer at the end of June and be replaced by Chief Financial Officer Robert Davis.

Frazier, 66, will remain with the drugmaker as executive chairman for a transition period. He had been due to retire in 2019, but the company scrapped a policy requiring its CEO to retire at age 65.

Frazier was one of only five Black CEOs on last year's Fortune 500 list of America's largest companies, released in June 2020.

His departure would drop the number to three as TIAA CEO Roger Ferguson, Jr. will also retire in March. But with Rosalind Brewer, Starbucks' Chief Operating Officer, joining the ranks as CEO of Walgreens Boots Alliance Inc in March, the number will go to four.

Corporate boards are coming under pressure to address the dearth of Black leadership at top American companies with diversity increasingly recognized as a worthy corporate value.

Davis will inherit a company with one of the world's best selling drugs in its cancer immunotherapy Keytruda and a tightened focus after it completes the spinoff of its slower growing women's health, biosimilar drugs and older products later this year.

Frazier joined Merck nearly 30 years ago and climbed the ranks, becoming the first Black CEO of a major drug company in 2011. He made his name at Merck as general counsel by steering the company safely through daunting litigation over Vioxx. He also played a significant role in Merck’s 2009 acquisition of U.S. drugmaker Schering-Plough, which then held Keytruda, or pembrolizumab, as a pipeline asset.

"That deal was done at a time where, frankly, we saw an opportunity in the market based on where the valuations of companies were," he said. "None of us were really smart enough to know that among the assets we were acquiring was pembrolizumab."

Under Frazier's leadership, Keytruda has eclipsed Bristol Myers Squibb’s cancer immunotherapies, which hit the market first. Keytruda's sales topped $14 billion last year.

Shares of the company more than doubled over his tenure.

Frazier, the grandson of a sharecropper, made headlines in 2017 when he became the first business leader to leave former U.S. President Donald Trump's manufacturing council following Trump's comments on a white nationalist rally held in Charlottesville, Virginia.

"His shoes won't be easy to fill in so many ways, both within Merck but also including his many principled and valuable contributions to important issues facing society today," Davis said on a post-earnings conference call.

Frazier's success at Merck shows that the lack of top Black executives is not reflective of performance but rather of comfort, said Monica Hawkins, a Washington, D.C.-based management consultant.

Because many executives' "social circles don't give them the social capital to know more than five Ken Fraziers - if they know any - that excellence becomes a question in their mind, because they've never seen it before," Hawkins said.

Although Black directors held 8% of board seats in the S&P 500 as of August, just five of those companies, or 1%, had Black CEOs, according to researcher Equilar. They included Frazier.

Barry Lawson Williams, a retired corporate director involved in efforts to recruit and place Black business leaders, said the paucity of Black CEOs at top U.S. companies partly reflected competition for that talent from private equity and financial services companies who can pay more.

He expects the number of Black CEOs will rise in coming years, adding: "I’m optimistic that there are a lot of good candidates."

Frazier's transition follows the recent retirement of Roger Perlmutter, who ran the company's research and development division for much of Frazier's tenure and was also considered a major force behind the success of Keytruda. Dean Li took over for Perlmutter on Jan. 1.

Davis has been CFO since 2014 and in charge of the company's business development, real estate and other corporate strategic functions since 2016.

A career healthcare executive, he was president of Baxter International Inc's medical products business before joining Merck, and also spent 14 years at Eli Lilly and Co.

(Reporting by Manas Mishra in Bengaluru and Michael Erman in Maplewood, N.J.; Additional reporting by Ross Kerber in Boston; Editing by Nick Zieminski and Howard Goller)