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Merck to cut 7,000 jobs, close or sell five plants
11/28/2005, 1:06 p.m. ET
By LINDA A. JOHNSON The Associated Press
TRENTON, N.J. (AP) — Embattled drugmaker Merck & Co. said Monday it will cut 7,000 jobs — 11 percent of its work force — and close or sell five manufacturing plants in the first phase of a reorganization meant to save up to $4 billion by the end of the decade. Its shares dropped more than 4 percent in afternoon trading.
The announcement, anticipated by Wall Street, comes as Merck faces the loss of patent protection in June for its blockbuster cholesterol drug Zocor and thousands of lawsuits and billions of dollars in potential liability from its recalled painkiller Vioxx.
Zocor now generates about 20 percent of Merck revenues and is the world's second-biggest drug. Because of the coming competition from generic drug makers, Merck expects Zocor sales to drop to $2.3 billion to $2.6 billion in 2006 from $4.2 billion to $4.5 billion this year.
Whitehouse Station, N.J.-based Merck also said it will revamp its supply chain and outsource some manufacturing as part of the reorganization, which should bring about half the anticipated savings.
Merck said the cuts, which are expected to be completed by the end of 2008, are intended to reduce the company's cost structure, increase efficiency and enhance competitiveness. Merck has slipped from the world's third biggest pharmaceutical company to No. 5 in recent years.
"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," said Richard T. Clark, Merck's chief executive officer and president, told analysts during a morning conference call. "We believe they will improve our earnings-per-share and ultimately enhance our shareholder value."
The company said half of the planned job cuts — in manufacturing and other divisions — will target its U.S. operations. The company employs just under 63,000 people, half of them in the United States. Last month, Merck cut 825 jobs worldwide.
Merck did not identify where the five manufacturing plants to be closed or sold are located. It has 31 manufacturing plants overall. It also plans to reduce operations at a number of other sites and will close one basic research site and two preclinical development sites. Those sites were also not identified.
"Employees at the sites that are expected to leave our networks are being advised at a series of local meetings over the next two days," and the sites will not be named until after that, said Willie A. Deese, head of Merck manufacturing.
Merck shares fell $1.26 to $29.72 in afternoon trading on the New York Stock Exchange. Its stock price has lost more than two-thirds of its value in five years.
The cuts were "pretty much anticipated," said health care analyst Hemant Shah of HKS & Co. in Warren, N.J. "It appears there's enough savings to offset at least some of the decline in Zocor."
But Shah said it's hard to tell if the reductions are the right size, because Merck still has to market existing drugs and new medications in what he called a "lackluster" pipeline. Medications in their final stages of development include drugs for insomnia, diabetes and nausea caused by chemotherapy, and vaccines for rotavirus, shingles and cervical cancer.
Clark, the former head of Merck manufacturing operations who took over as CEO last spring, said the company is looking for ways to "enhance efficiencies" and "improve the way we discover, develop, manufacture and market our medicines and vaccines and ensure that we get them to patients who need them as quickly, safely and efficiently as possible."
He said Merck also plans to "pursue improved approaches to R&D, and marketing and sales."
Restructuring costs from the moves announced Monday are expected to be from $350 million to $400 million in 2005 and $800 million to $1 billion in 2006. They are expected to result in cumulative pretax savings of $3.5 billion to $4 billion from 2006 through 2010.
The company said it will provide further details on Dec. 15, when it holds its annual business meeting for analysts.
Merck reiterated its 2005 earnings-per-share forecast of $2.47 to $2.51, or $2.04 to $2.10 with one-time charges. For 2006, the company forecast earnings per share of $2.28 to $2.36 excluding restructuring charges, or $1.98 to $2.12 with one-time charges.
Analysts surveyed by Thomson Financial expect earnings per share of $2.50 in 2005 and $2.38 in 2006.
Meanwhile, the first federal Vioxx liability trial is set to start in Houston on Tuesday. Merck has won once and lost once in state trials in New Jersey and Texas, and analysts have pegged its total liability at up to $50 billion.
Merck's forecast does not include any Vioxx-related costs, and Merck said Monday it has not set up a reserve for Vioxx liability — wisely, according to Shah.
"The minute you say that, then you're telling the whole world what you're willing to pay," the analyst said.
Merck to cut 7,000 jobs, close or sell five plants
11/28/2005, 1:06 p.m. ET
By LINDA A. JOHNSON The Associated Press
TRENTON, N.J. (AP) — Embattled drugmaker Merck & Co. said Monday it will cut 7,000 jobs — 11 percent of its work force — and close or sell five manufacturing plants in the first phase of a reorganization meant to save up to $4 billion by the end of the decade. Its shares dropped more than 4 percent in afternoon trading.
The announcement, anticipated by Wall Street, comes as Merck faces the loss of patent protection in June for its blockbuster cholesterol drug Zocor and thousands of lawsuits and billions of dollars in potential liability from its recalled painkiller Vioxx.
Zocor now generates about 20 percent of Merck revenues and is the world's second-biggest drug. Because of the coming competition from generic drug makers, Merck expects Zocor sales to drop to $2.3 billion to $2.6 billion in 2006 from $4.2 billion to $4.5 billion this year.
Whitehouse Station, N.J.-based Merck also said it will revamp its supply chain and outsource some manufacturing as part of the reorganization, which should bring about half the anticipated savings.
Merck said the cuts, which are expected to be completed by the end of 2008, are intended to reduce the company's cost structure, increase efficiency and enhance competitiveness. Merck has slipped from the world's third biggest pharmaceutical company to No. 5 in recent years.
"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," said Richard T. Clark, Merck's chief executive officer and president, told analysts during a morning conference call. "We believe they will improve our earnings-per-share and ultimately enhance our shareholder value."
The company said half of the planned job cuts — in manufacturing and other divisions — will target its U.S. operations. The company employs just under 63,000 people, half of them in the United States. Last month, Merck cut 825 jobs worldwide.
Merck did not identify where the five manufacturing plants to be closed or sold are located. It has 31 manufacturing plants overall. It also plans to reduce operations at a number of other sites and will close one basic research site and two preclinical development sites. Those sites were also not identified.
"Employees at the sites that are expected to leave our networks are being advised at a series of local meetings over the next two days," and the sites will not be named until after that, said Willie A. Deese, head of Merck manufacturing.
Merck shares fell $1.26 to $29.72 in afternoon trading on the New York Stock Exchange. Its stock price has lost more than two-thirds of its value in five years.
The cuts were "pretty much anticipated," said health care analyst Hemant Shah of HKS & Co. in Warren, N.J. "It appears there's enough savings to offset at least some of the decline in Zocor."
But Shah said it's hard to tell if the reductions are the right size, because Merck still has to market existing drugs and new medications in what he called a "lackluster" pipeline. Medications in their final stages of development include drugs for insomnia, diabetes and nausea caused by chemotherapy, and vaccines for rotavirus, shingles and cervical cancer.
Clark, the former head of Merck manufacturing operations who took over as CEO last spring, said the company is looking for ways to "enhance efficiencies" and "improve the way we discover, develop, manufacture and market our medicines and vaccines and ensure that we get them to patients who need them as quickly, safely and efficiently as possible."
He said Merck also plans to "pursue improved approaches to R&D, and marketing and sales."
Restructuring costs from the moves announced Monday are expected to be from $350 million to $400 million in 2005 and $800 million to $1 billion in 2006. They are expected to result in cumulative pretax savings of $3.5 billion to $4 billion from 2006 through 2010.
The company said it will provide further details on Dec. 15, when it holds its annual business meeting for analysts.
Merck reiterated its 2005 earnings-per-share forecast of $2.47 to $2.51, or $2.04 to $2.10 with one-time charges. For 2006, the company forecast earnings per share of $2.28 to $2.36 excluding restructuring charges, or $1.98 to $2.12 with one-time charges.
Analysts surveyed by Thomson Financial expect earnings per share of $2.50 in 2005 and $2.38 in 2006.
Meanwhile, the first federal Vioxx liability trial is set to start in Houston on Tuesday. Merck has won once and lost once in state trials in New Jersey and Texas, and analysts have pegged its total liability at up to $50 billion.
Merck's forecast does not include any Vioxx-related costs, and Merck said Monday it has not set up a reserve for Vioxx liability — wisely, according to Shah.
"The minute you say that, then you're telling the whole world what you're willing to pay," the analyst said.
posted by Jones Lang LaSalle NJ News Blog at 10:05 AM
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