Re: JIG, Merck

November 28, 2005 Merck, Under Pressure, Will Cut Jobs and Close Plants By ALEX BERENSON and VIKAS BAJAJ Merck, under pressure from investors and analysts to reduce costs, said today it would cut 7,000 jobs in the next three years and close five manufacturing plants. The company also told analysts to expect further restructuring. In a much anticipated announcement, Richard T. Clark, who became Merck's chief executive in May and promised investors big changes, said the company would streamline its operations, particularly how it makes and distributes drugs and vaccines. Mr. Clark also said the company was looking at changes to its research and development and marketing and sales activities and would provide more details at Merck's annual meeting with analysts on Dec. 15. The company says the actions it announced today, which include an 11 percent reduction in its global staff of 62,000 by the end of 2008, would save it $3.5 billion to $4 billion before taxes in the next five years. In addition to closing 5 of its 31 drug-making plants, Merck, which is based in Whitehouse, N.J., will also shut down a basic research site and two pre-clinical development sites. All told, the restructuring itself will cost the company $1.8 billion to $2.2 billion by the end of 2008. Merck projected that its earnings would range between $1.98 a share and $2.12 a share in 2006, compared to $2.04 a share to $2.10 a share this year. Shares of Merck opened down 17 cents, to $30.80, this morning on the New York Stock Exchange. The company is reducing costs enough to match its falling sales, which are under pressure because of competition with generic pharmaceuticals and the withdrawal of the best-selling painkiller Vioxx, said Richard Evans, an analyst at Sanford Bernstein. But he added that the company has, so far, not said what it was doing to increase drug sales and rein in rising expenses for marketing and sales. "This is not an alternative business model, this is not a brave new day," Mr. Evans said. "This is good old-fashioned defense. This is a defensive management of a business in decline." Mr. Clark, who has spent his career at Merck and is known as a cost cutter, had already been quietly trimming the company's work force. In the third quarter, the company said it spent $80 million on "ongoing global position eliminations." "The plans we are announcing today will help us effectively address the challenges that Merck faces today and in the future," Mr. Clark said in a conference call with financial analysts. The changes announced today are aimed at improving how the company manufactures drugs and vaccines. The company said it wanted to reduce the amount of time it takes to make the initial supplies of new drugs and develop the techniques needed to manufacture them by 12 to 15 months. The company said it had streamlined manufacturing at some plants, reducing inventory, producing drugs faster and lowering costs. For nearly a month, message boards used by drug industry sales representatives have been rife with rumors that Merck, the third-largest drug maker, was on the verge of announcing cuts of as much as 20 percent of its sales force. On Saturday, The Wall Street Journal reported that Merck had briefed its board on the final details of its planned cuts, including several plant closings. Merck has been battered by falling sales and profits and thousands of lawsuits over Vioxx, a painkiller that the company stopped selling in 2004 after a clinical trial linked it to heart attacks and strokes. The company will face more problems in 2006, when Zocor, a cholesterol drug that is its biggest-selling and most profitable medicine, loses its patent protection and will be open to competition from much cheaper generic copies. Shares of Merck have fallen more than 30 percent since the company withdrew Vioxx, although they have risen slightly since early November, when the company won the second personal-injury lawsuit over the drug to reach trial. On Friday, Merck closed at $30.98, up 17 cents. In the first nine months of this year, Merck's sales fell about 5.5 percent, compared with its 2004 sales figures. Its profits declined 12 percent, excluding a one-time charge. On Mon, Nov 28, 2005 at 08:34:42AM -0600, Betsy Kremser wrote: -- ------------------------------ * * Dr. James Lee Ellingson, Adjunct Professor jellings(a)me.umn.edu * * University of Minnesota, tel: 651/645-0753 fax 651 XXX XXXX * * Great Lakes Brewing News, 1569 Laurel Ave., St. Paul, MN 55104 *