Merck to cut 1,000 jobs earnings fall

March 24, 1993|By New York Times News Service

Merck & Co., one of the world's largest drug makers announced yesterday that earnings growth would fall below expectations in 1993. It said the slowdown was caused by worldwide pressures on drug prices, growing competition and the strength of the dollar overseas. The company said it would eliminate 1,000 of its 38,400 jobs through dismissals and attrition.

Merck told analysts that it expected 1993 earnings to rise only 11 percent to 12 percent instead of the 14 percent to 16 percent the company had expected.

A year ago, Merck had reported a 17.6 percent profit increase for the first quarter and even that rise was considered disappointing compared with the 19 percent increase in the similar 1991 quarter. Earnings for 1992 fell 6 percent, to almost $2 billion, after a series of accounting charges.

Dr. Roy Vagelos, Merck's chairman, said the cutbacks were "obviously unpleasant but they will strengthen the company." He said they would "supplement what we have been doing for the last couple of years, allowing us to concentrate our efforts on research and development, which is our strength."

But Merck said it still hoped to hit its target of 8 percent to 12 percent sales growth this year.

The announcement was made after the close of trading in Merck stock, which rose $1.25 a share yesterday, closing at $37 on the New York Stock Exchange.

Analysts predicted heavy trading and a sharp fall today for Merck stock, which is one of the 30 companies in the Dow Jones industrial average. Neil B. Sweig, an analyst at Capital Institutional Services, said the Merck announcement "could drag down the drug group."

The sobering announcement from Merck, long a leader in the pharmaceuticals industry, followed similar warnings of disappointing earnings last week by Eli Lilly & Co. and Marion Merrell Dow. The announcements, which preceded formal first-quarter financial reports next month, came after sharp criticism of the industry's high prices by President Clinton and Hillary Rodham Clinton, who is heading a panel on health care.

"It is a turbulent market, which certainly does not need to have price controls at this time," Dr. Vagelos added in a telephone interview. He recalled that ceilings on drug prices imposed by the Nixon administration in the early 1970s "became floors."

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