Merck & Co. announced plans yesterday to slash 7,000 jobs and close five plants to save $3.5 billion to $4 billion over five years.
The company characterized the actions as the first phase of a worldwide restructuring aimed at lowering costs, improving efficiency and boosting competitiveness. Merck and its rivals have been struggling with slower sales, looming drug-patent expirations and falling stock prices. Their public image also has taken a beating because of rising prices and high-profile product lawsuits.
Merck in particular faces a major blow to sales when its big-selling cholesterol drug Zocor loses patent protection next year. Its troubles are complicated by a slew of lawsuits related to its withdrawn painkiller Vioxx.
"The actions we are announcing today are an important first step in positioning Merck to meet the challenges the company faces now and in the future," chief executive Richard T. Clark said yesterday in a statement. Clark moved into the top job in May with a promise to turn around the flagging drugmaker.
The company announced its cost-saving moves on the eve of the third legal battle over Vioxx, which the company pulled from the market after its own study found that long-term use could increase the risk of heart attack or stroke. Merck won one case in New Jersey and lost one in Texas, where a jury ordered the company to pay $253 million to the family of a man who died after using the painkiller. That judgment could be reduced. As of Sept. 30, 6,500 Vioxx-related liability lawsuits had been filed, according to Merck.
Pharmaceutical companies have struggled to bring new medications to market faster to replace old standbys. "It's costing more to develop new drugs, and it's taking longer. And the late-stage pipeline is not as full as it once was to replace those drugs that are coming off patent," said Tom D'Amore, pharmaceutical industry analyst at independent research firm Morningstar Inc.
Merck's restructuring envisions a swifter flight of products to consumers. In his statement, Clark said the company sought to get medicines and vaccines "to patients who need them as quickly, safely and efficiently as possible."
But critics took issue with the company's urge to drive new drugs onto the market at an accelerated rate. Sidney Wolfe of Public Citizen, a nonprofit public-interest organization, said most new drugs advertised to consumers are not breakthrough products. Rather, he said, these medicines have been created for competitive reasons to grab a piece of an existing market -- and the rush to market without sufficient testing is sometimes behind eventual problems with safety.
"It's not that they have an argument from a public health viewpoint to speed up bringing drugs to market," Wolfe said.
The backlash among consumers upset about problematic drugs such as Vioxx was evident in a recent Harris poll measuring public attitudes toward industries. The October survey found that just 9 percent of Americans believed the pharmaceutical industry to be honest and trustworthy. Some 51 percent of the 1,833 adults polled said drugmakers should be subject to more government regulation, second to only the oil industry, which was at 55 percent.
Yesterday's Merck announcement is just a small piece of what is likely to be a much larger industry realignment over the next several years. Pfizer Inc., AstraZeneca PLC and Bristol-Myers Squibb Co. all have recently undertaken cost-cutting initiatives.
The big drug companies are likely to focus more on developing vaccines and treatments for cancer, AIDS and other life-threatening illnesses, said analyst David Moskowitz of Arlington investment bank Friedman, Billings, Ramsey Group Inc.
"These products have smaller markets than for other major drugs like those for cardiovascular disease," Moskowitz said. "But we are finding out that these products carry significant pricing power, and that is piquing the interest of the major pharmaceutical companies."
Industry analysts said they expect further job cuts at Merck and across the industry. About half of the 7,000 Merck jobs slated to be cut worldwide will disappear from the United States. The total job cuts amount to 11 percent of Merck's global workforce.
The company declined to say which plants will be closed until it notifies employees. Merck has a facility in Elkton, Va., with more than 800 employees that produces drugs such as Mectizan, a river-blindness treatment donated to the developing world and the asthma medicine Singulair.
Shares in Merck, which had been rising in anticipation of the job cuts, dropped $1.42 yesterday, or 4.6 percent, to close at $29.56, as investors signaled that they do not think the reductions will offset expected losses when the Zocor patent expires next year. Merck shares are down 8 percent this year and 66 percent over the past five years.
Shares in other big drugmakers have also suffered. Pfizer, for example, is down nearly 20 percent this year. The patent on Pfizer's best-selling cholesterol drug, Lipitor, runs until 2011. But Indian generic drug maker Ranbaxy Laboratories Ltd. has filed suit against Pfizer in the United States seeking to rescind the Lipitor patent sooner. Pfizer is widely expected to prevail in the lawsuit, but uncertainty over the patent has weighed on the company's shares.
"Relative to where they've been historically, the outlook for drug companies is nowhere near as good," said D'Amore of Morningstar. "Also, new companies have emerged that have better outlooks, specifically some of the new biotechnology companies."
White reported from New York.
CEO Richard T. Clark came to Merck in May.