- The Washington Times - Wednesday, October 22, 2003

WHITEHOUSE STATION, N.J. (AP) — Pharmaceutical giant Merck & Co. Inc. plans to cut roughly 4,400 jobs, or about 7 percent of its work force, after posting a 1 percent drop in third-quarter profits as higher sales were offset by higher costs and research spending.

The Whitehouse Station-based maker of cholesterol-lowering drug Zocor and arthritis drug Vioxx reported net income yesterday of $1.86 billion, or 82 cents per share, for the quarter ended Sept. 30. That was 3 cents short of the consensus forecast of analysts surveyed by Thomson First Call and marked two straight years of flat or declining earnings.

In the year-earlier quarter, net income was $1.88 billion, or 83 cents per share.

Revenue totaled $5.76 billion, up 6 percent from $5.43 billion in 2002’s third quarter.

The year-ago figures exclude revenue and costs from Merck’s huge pharmacy benefit-management subsidiary, Medco Health Solutions of Franklin Lakes, which Merck spun off Aug. 19. Medco had provided about 60 percent of Merck’s revenue.

Merck’s shares fell $3.19, or nearly 7 percent, to close at $45.72 on the New York Stock Exchange.

“What we’re doing is anticipating the environment we see going forward,” as well as responding to increasing competition and pressures to hold down drug prices, Raymond V. Gilmartin, chairman and chief executive officer, told analysts during a conference call.

Mr. Gilmartin said the company had thought it would achieve its target of double-digit profit growth, and so is starting several initiatives to cut costs and address other pressures.

Merck will eliminate about 3,200 permanent jobs and another 1,200 contract or temporary positions to save about $250 million to $300 million a year in payroll and benefit costs. The cuts will be spread across Merck’s global operations, although Mr. Gilmartin told analysts that most researchers and salespeople will be spared.

Merck employs about 63,000 people. The company has added 1,500 new salespeople in the past year, and plans to shift some to promoting drugs with the greatest sales growth.

Merck will take a restructuring charge of about $140 million to $200 million in the fourth quarter, reducing earnings by about 5 cents per share, to cover costs of severance packages for many workers. The company is not providing details on that. Spokesman Tony Plohoros said cuts will begin this quarter and continue into next year.

Mr. Gilmartin informed employees about the job cuts during a midday meeting.

Merck also will implement a new distribution program for U.S. wholesalers, limiting the amount of each drug they can buy per quarter to end wide swings in sales before and after anticipated price increases.

The practice strains manufacturing plants and cuts into company profit — enough that even though the new program isn’t beginning until Dec. 1, Merck anticipates the change will reduce revenue in the fourth quarter by $650 million to $750 million.

Merck remains the No. 3 drug maker worldwide, but has dipped to No. 4 in the United States as Johnson & Johnson’s revenue has surged, boosting J&J;’s U.S. ranking.

For the first nine months of the year, Merck’s profit was $5.44 billion, or $2.41 per share, up 3 percent from $5.26 billion, or $2.31 per share, a year earlier. Revenue totaled $16.86 billion, up nearly 10 percent from $15.39 billion in the first nine months of 2002.


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