Merck unveils restructuring campaign

December 16, 2005|By KNIGHT RIDDER/TRIBUNE

WHITEHOUSE STATION, N.J. -- Merck & Co. Inc. unveiled details yesterday of an ambitious restructuring campaign it hopes will restore its once-vaunted position, including narrowing its research priorities and reducing sales calls on physicians.

The company, which has about a fifth of its global workforce of 63,000 in suburban Philadelphia, said total cutbacks over the next five years should be worth between $4.5 billion and $5 billion - $1 billion more than it first announced last month.

Merck also pledged to reverse its slide in earnings starting in 2007 and hit "double-digit" compounded annual growth in earnings in following years.

"While we were once the envy of the industry, that's not the case today," Chief Executive Richard T. Clark told an annual gathering of equity analysts and reporters. "We understand that to regain our leadership position, we have to change. Not change at the margins, but major, far-reaching change."

Merck's statement challenged projections by most Wall Street analysts, who generally anticipate the company to have little or no growth for several years as it grapples with a weak research pipeline and loss of revenue from key products, including its blockbuster cholesterol drug Zocor, which will go off-patent in June and face cheaper generic competition. Merck also is struggling with the costs surrounding its recall of pain-reliever Vioxx, which had 2003 sales of $2.5 billion.

"Expectations are at absolute rock-bottom levels," said Jami Rubin, an industry analyst at Morgan Stanley, which considers Merck undervalued and recommends it as a stock to buy. "So this is huge. If they actually achieve it, it does change things."

The company's message seems to hit a nerve. Shares of Merck, a component of the Dow Jones industrial average, closed at $29.77, up 57 cents. The stock is still trading about 34 percent below its pre-Vioxx recall level.

Clark emphasized that Merck, once known in the industry for eschewing major partnerships or mergers to improve its performance, will now be much more aggressive in licensing others' products or acquiring whole companies.

He said Merck also intends to jump deeper into the generic-drug business by striking deals to share in the proceeds of copycat drugs of its own products that have gone off-patent. Asked specifically about Merck having a role in the marketing of a cheaper version of Zocor next year, Clark said, "It's a priority focus." He declined to elaborate.

Merck is the world's sixth-largest pharmaceutical company in revenues, according to the British monitoring firm Datamonitor. It was No. 1 a decade ago.

"Of course every company wants to be the best," said Clark, who was named CEO six months ago as Merck struggled to recover from its Vioxx troubles. "The big question is not where we want to go, but how we're going to get there."

Merck said it plans to narrow its future research and development to nine disease areas, including Alzheimer's disease, cancer, cardiovascular diseases, and pain and sleep disorders. Vaccines will occupy a larger share of its product line, with four new drugs to be launched in the coming year.

Merck said it is taking steps to speed up development of new products and announced two new compounds, including one to increase "good" cholesterol.

It said it already has cut by 50 percent the number of sales representatives promoting the same product and will shave 1,500 jobs from its total sales force by early next year - part of the elimination of 7,000 jobs, or 11 percent of its total work force, that it announced last month.

"It got to the point where there were so many sales representatives in physicians' offices that they lost effectiveness," Clark said in an interview.

Clark added that Merck incorporated into its five-year cost-cutting plan its anticipation that overall drug prices charged by all companies in the United States will fall, largely due to the new Medicare drug benefit coverage program, called Part D. "But I don't think it will lead to government control of prices."

Clark and other executives declined to give any new clues about the company's plans to deal with possible liability from lawsuits over Vioxx, which was recalled in September 2004 after studies showed it raised the risk of heart attacks and strokes.

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