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Merck to Cut 7,000 Jobs by End of 2008

Posted on: Monday, 28 November 2005, 09:00 CST

NEW YORK - The embattled drugmaker Merck & Co. said Monday that it will cut about 7,000 jobs, or 11 percent of its work force, and will close or sell five of its 31 manufacturing plants by the end of 2008 in moves that it says will save up to $4 billion.

The announcement comes as the company, based in Whitehouse Station, N.J., faces the loss of patent protection for its top-selling cholesterol drug Zocor in 2006 and is facing thousands of liability lawsuits from its recalled painkiller Vioxx.

With expected Zocor sales of $4.2 billion to $4.5 billion in 2005, Merck expects sales to drop to $2.3 billion to $2.6 billion in 2006 because of competition from generic drug makers.

Merck said the cuts are intended to reduce the company's cost structure, increase efficiency, and enhance competitiveness.

The company said half of the planned job cuts will target its U.S. operations. The company employs just under 63,000 people. Last month, Merck cut 825 jobs worldwide.

It did not identify in the news release where the five manufacturing plants to be closed or sold are located. It also plans to reduce operations at a number of other sites and will close one basic research site and two preclinical development sites. Those sites were also not identified.

Merck shares fell 35 cents to $30.63 in early trading on the New York Stock Exchange. Its stock price has lost more than two-thirds of its value in five years.

"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," said Richard T. Clark, Merck's chief executive officer and president.

He said the company is looking for ways to "enhance efficiencies" and "improve the way we discover, develop, manufacture and market our medicines and vaccines and ensure that we get them to patients who need them as quickly, safely and efficiently as possible."

He said Merck also plans to "pursue improved approaches to R&D, and marketing and sales."

Restructuring costs from the moves announced Monday are expected to be from $350 million to $400 million in 2005 and $800 million to $1 billion in 2006. They are expected to result in pretax savings of $3.5 billion to $4 billion from 2006 through 2010.

Merck expects about $2 billion of the savings from its switch to a leaner supply strategy and manufacturing model. The company said it will provide further details on Dec. 15.

Merck reiterated its 2005 earnings-per-share forecast of $2.47 to $2.51, or $2.04 to $2.10 with one-time charges. For 2006, the company forecast earnings per share of $2.28 to $2.36 excluding restructuring charges, or $1.98 to $2.12 with one-time charges.

Analysts surveyed by Thomson Financial expect earnings per share of $2.50 in 2005 and $2.38 in 2006.

Source: Associated Press/AP Online

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