Merck to Slash an Additional $1 Billion in Costs Through 2010
Merck & Co. plans to cut an additional $1 billion in costs through 2010, focus its research on medicines for the most common diseases and speed up development time for new drugs, company executives said Thursday.
The struggling drug maker, which has been hammered by mounting lawsuits, falling revenue and profit, and sharply depressed stock as generic competition looms for its top drug, also reaffirmed its earnings forecasts for this year and next.
Merck shares rose 57 cents, or 2%, to $29.77.
The new cost cuts, to be achieved through redesigning business operations, were disclosed at Merck’s annual business briefing with analysts at its Whitehouse Station, N.J., headquarters.
The latest phase of Merck’s sweeping reorganization follows its Nov. 28 announcement that it will eliminate 7,000 jobs and close or sell eight factories and research facilities to lower expenses by $3.5 billion to $4 billion through the decade’s end.
Meanwhile, Merck said the number of lawsuits filed over Vioxx, the blockbuster painkiller it withdrew last year because of increased cardiac risks, had risen to 9,200 as of Nov. 30, including 188 potential class-action suits. About half of the lawsuits are to be heard in federal court, and the other half have been filed in state court in New Jersey.
“I am determined not to allow the litigation process to disrupt our business operations,” Chief Executive Richard T. Clark told the analysts. “We have a lot of work to do to make Merck a leader again.”
Merck has slipped from being the world’s third-biggest pharmaceutical company to No. 5, by revenue, in the last few years, and it expects sales of its top seller, cholesterol fighter Zocor, to drop to about $2.45 billion next year from about $4.35 billion this year because of its June patent expiration. Some other drugs, including popular osteoporosis pill Fosamax, lose patent protection over the next few years.
“The impressive part was that there was a clear message of urgency, a clear admission that they’ve lost their leadership status,” independent pharmaceuticals analyst Hemant Shah of HKS & Co. said. “It was good to hear that they recognize that they have a problem.”
Clark said that excluding one-time charges for restructuring, possible reserves for Vioxx litigation and other items, Merck should produce double-digit earnings growth over the next three to five years, followed by sustained revenue and profit growth beyond 2010.
Despite growing pricing, regulatory and other pressures on Merck, Clark said the company had great opportunities because of the growing number of ill people around the world, inadequate treatments for diseases such as Alzheimer’s and cancer, and expanding access to and insurance coverage for medicines in countries such as China and India.
The company reaffirmed its earnings per share guidance of $2.04 to $2.10 for 2005, or $2.47 to $2.51 excluding one-time charges, and $1.98 to $2.12 for 2006, or $2.28 to $2.36 excluding charges.
Analysts surveyed by Thomson Financial expected earnings per share of $2.51 in 2005 and $2.35 in 2006, excluding charges.
