>> A WALL STREET JOURNAL ONLINE NEWS ROUNDUP November 28, 2005 7:58 a.m.
Merck & Co unveiled a major restructuring under which it will cut 7,000 jobs, or 11% of its world-wide work force, and will close or sell five of its 31 manufacturing plants – moves designed to save up to $4 billion.
The announcement comes as the company, based in Whitehouse Station, N.J., faces the loss of patent protection for its top-selling cholesterol drug, Zocor, in 2006 and is facing thousands of liability lawsuits from its recalled painkiller Vioxx.
Merck employs just under 63,000 people. Last month, Merck cut 825 jobs world-wide. Merck said the latest job cuts will take place by the end of 2008 and about half of them will be in the U.S.
The company said it hopes the restructuring program will generate pretax savings of $3.5 billion to $4 billion from 2006 through 2010.
Merck also lowered its outlook for 2005 earnings, saying it now expects a profit of $2.04 a share to $2.10 a share, down from its October forecast for $2.18 a share to $2.22 a share. For 2004, Merck earned $2.61 a share. The forecast for earnings excluding items remains unchanged at $2.47 a share to $2.51 a share. Analysts, on average, predict full-year earnings of $2.50 a share, according to Thomson First Call. Mean analysts' estimates typically exclude unusual items.
The restructuring plan is the first major move by Richard Clark, who took over the drug giant as chief executive in May and has suggested recently that the company is due for major changes in order to turn itself around.
Merck said the moves are the first phase of a global restructuring program designed to reduce the company's cost structure and increase efficiency. "We are engaged in an ongoing effort to enhance efficiencies throughout the company and improve the way we discover, develop, manufacture and market our medicines and vaccines," Mr. Clark said in a statement. Mr. Clark said the company also plans "to pursue improved approaches to R&D, and marketing and sales."
Mr. Clark said the company plans to discuss its restructuring efforts at its annual analyst conference at its Whitehouse Station, N.J., headquarters on Dec. 15.
The Wall Street Journal reported Saturday that the restructuring will involve a tighter focus on certain drug-research categories. Next year, Merck's most-important product, cholesterol-lowering drug Zocor, faces losing most of its $5 billion in sales when its patent expires. Fosamax, an osteoporosis treatment and Merck's second-biggest seller, will lose patent protection years earlier than expected, in 2008. But what mostly ails Merck is the dearth of new drugs in its pipeline. The company's stock price is down 70% in the past five years.
To speed up the growth, Mr. Clark has recently told Wall Street analysts in private meetings that Merck might consider buying medical-device makers -- a throwback to the times when drug makers owned nonpharmaceutical assets.
In the private meetings, Mr. Clark, whose experience is mostly in Merck manufacturing, has talked about his admiration for the low-cost manufacturing process at computer maker Dell Inc. That left "a couple of people scratching their heads," said David Risinger, an analyst at Merrill Lynch who attended one of Mr. Clark's sessions. Dell makes a low-margin product with a short life cycle, while Merck makes a high-margin product with a long life cycle, said Mr. Risinger.
At a company where morale has been buffeted by the loss of certain promising drugs, big-name scientists and then the Vioxx debacle, Mr. Clark is trying to make employees happier. Soon after becoming CEO, he made every day's attire business-casual. He tries to be seen in the company cafeteria. And he recently made Martin Luther King Jr.'s birthday a companywide holiday. While Vioxx litigation is in the news nearly every day, Mr. Clark spends only an hour a week on Vioxx, he told investors recently. On Tuesday, the third Vioxx trial is set to begin, this time in federal court in Houston. <<
The stock opened down about 1%, but steadily dropped throughout the day. I think the lack of detail about the projected cost savings may have been more disconcerting than the restructuring news per se. More detail will supposedly be furnished at the webcast on Dec 15.
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