- The Washington Times - Monday, November 28, 2005

Drug giant Merck & Co Inc. said yesterday it will fire 7,000 employees and close or sell five of its 31 manufacturing plants as part of a restructuring plan.

The Whitehouse Station, N.J., pharmaceutical company, which is facing about 6,500 lawsuits over its Vioxx painkiller, plans to cut 11 percent of its global work force, with half of those jobs in the United States, by 2008.

The company also plans to close one research site and two preclinical-development sites by the end of 2008.

The cuts and closures are expected to save the company $3.5 billion to $4 billion by 2010, said Merck President and Chief Executive Officer Richard T. Clark.

“The actions we are announcing today are an important first step in positioning Merck to meet the challenges the company faces now and in the future,” he said.

The job cuts and closures are part of Merck’s first phase to restructure operations to make up for lagging drug sales.

Merck’s announcement comes as the company today faces its first federal court case over Vioxx, the popular arthritis drug that was pulled from the market in September 2004.

The Houston case, from a Florida woman whose husband died of a heart attack, is the third of an estimated 6,500 suits.

The company stopped marketing Vioxx after an internal report found the drug increased the risk of heart attacks and strokes in patients who took it for 18 months or longer. It lost one case in Texas and won one in New Jersey.

Merck, which analysts say has a relatively weak drug pipeline, will lose patent protection on its cholesterol-lowering medication Zocor next year and on its osteoporosis treatment Fosamax in 2008.

The company would not say which of Merck’s six U.S. plants would be shut, adding that more information will be given at Merck’s annual business meeting Dec. 15.

The company’s closest facility to the Washington area is in Elkton, Va., and employs more than 800 people.

Merck’s stock on the New York Stock Exchange fell $1.42 yesterday to $29.56 from Friday’s price of $30.98.

Barbara Ryan, a managing director with New York investment bank Deutsche Bank, said she was “somewhat disappointed” with the first phase because Merck had “no ambitious sales goals.”

“Typically, when a restructuring plan is announced you are hoping to raise earnings estimates. And here, [Merck] is not doing that,” said Ms. Ryan, who advised investors to hold their stock.

Ms. Ryan does not own any Merck stock, but Deutsche Bank owns an undisclosed amount and is seeking business with the company.

Le Anne Zhao, a pharmaceutical analyst with Caris & Co. Inc., said she was concerned about the reduction of sales representatives in the company’s work force.

“Another issue is they give the numbers but there are no details attached to it. It’s too much guessing for the analysts,” said Miss Zhao, with the San Diego investment bank. Miss Zhao, who rated the stock as “average,” does not own any Merck stock and Caris has no banking relationship with the company.

A Merck representative did not have exact numbers on how many sales positions would be eliminated.

Merck’s job cuts highlight a problem the entire pharmaceutical industry faces as drugs become costlier to develop and market, said Walter Birch, director for Michael Kelly Associates, a New York managerial consulting firm for the health care industry.

“It’s more difficult and expensive to get drugs to the market. It takes a longer time, which leaves less patent protection. And now you have pressure for drug price controls and heightened [Food and Drug Administration] sensitivity,” he said.

Drug companies, in an industry not known for quick turnaround, are expected to continue cutting jobs and other costs as they wage a public relations campaign to win back a skeptical public, Mr. Birch said.

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