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Merck, hurt by declining sales of some of its biggest drugs and vaccines, said on Wednesday that it would cut 7,200 more jobs, or 12 percent of its work force, its second revamping in three years.
While Merck's move is not directly related to the overall financial crisis, the layoffs can only help contribute to what is seen as a coming recession.
Besetting Merck is the same issue that has shaken other big drug companies — the inability to develop new drugs fast enough to maintain rapid growth and to offset the expiring patents that expose big-selling drugs to an onslaught of generic competition.
Merck said on Wednesday that it expected sales to grow only 2 percent to 4 percent a year through 2010, and for earnings to grow only by high single digits. That is lower than previous forecasts and a far cry from the double-digit growth that pharmaceutical companies once took for granted.
Similar troubles have brought cuts at most big pharmaceutical companies. The industry has shed about 100,000 jobs in the last five years, according to Viren Mehta, founder of Mehta Partners, a strategic and investment advisory firm that focuses on the pharmaceutical industry.
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GlaxoSmithKline, Abbott Laboratories and Novartis have recently announced cuts involving hundreds of workers each, and Schering-Plough said in April that it would eliminate 10 percent of its work force, or about 5,500 workers. Pfizer, which has cut 14,000 jobs since early 2007, has hinted at further reductions.
Merck, which now has 56,700 employees, eliminated 10,400 jobs as part of a reorganization announced in 2005, after its Vioxx pain reliever was removed from the market because of safety concerns.
Merck shares were down 6.5 percent, to $28.02, on Wednesday.
The new cuts will take place by the end of 2011 and will involve all areas of the company. About 40 percent of the cuts will come in the United States. The ranks of senior and midlevel executives will be sliced by 25 percent. And three research sites, in Seattle, Japan and Italy, will be closed by the end of 2009.
The moves are meant to save the company $3.8 billion to $4.2 billion in operating costs through 2013. But they will also cost the company $1.6 billion to $2 billion in severance pay and other reorganization charges.
Merck's chief executive, Richard Clark, said on Wednesday that the overhaul was part of an effort to position Merck for the future — not a response to particular problems in 2008.
Merck is trying to reduce its reliance on huge sales forces that bombard physicians. It wants to speed innovation by consolidating research on particular diseases in single locations. And it plans to outsource more manufacturing.
“If you don't change these business models, we're not going to survive as an industry, let alone a company,” Clark told securities analysts on a conference call.
But Merck has plenty of specific problems that hurt its third-quarter financial results, also announced on Wednesday. Sales of Fosamax, its osteoporosis drug, plunged 51 percent in the quarter because it lost patent protection.
Sales of the cholesterol-lowering drugs Vytorin and Zetia, which are marketed by a joint venture with Schering-Plough, dropped 15 percent worldwide in the quarter, to $1.1 billion, compared with the same period a year ago. The decline came after studies showed that Vytorin was no more effective than a generic statin in stopping the buildup of fatty plaques in arteries and might pose a cancer risk.
Sales of the asthma and allergy drug Singulair, the biggest drug Merck sells by itself, increased only 1 percent, to $1 billion, after the Food and Drug Administration said in March that it was looking into whether the drug might increase the risk of suicides.
Merck also had setbacks in its vaccine division, which had been a bright spot for the company.
Sales of Gardasil, the cervical cancer vaccine, were $401 million for the quarter, a decrease of 4 percent, as questions arose over the vaccine's necessity, cost and safety, and Merck's marketing tactics. And manufacturing problems sharply cut sales of Merck's drug for shingles and for some other vaccines.
On the positive side, sales of Januvia, a diabetes drug, and Isentress, a new AIDS drug, did well.
Over all, Merck's earnings per share fell to 51 cents, from 70 cents a year ago, largely because of reorganization charges. Excluding those and other items, the earnings were 80 cents a share, compared with 75 cents a year ago. Merck said its earning for the year would be at the low end of previous guidance.