The move is in addition to Merck’s recently completed restructuring programme, under which it has eliminated approximately 10,400 positions since 2005. Merck anticipates that the new cuts will save it between $3.8bn and $4.2bn over the 2008 to 2013 period.
Speaking to analysts Merck CEO Richard Clark denied that the move was in response to any particular problems facing the firm, commenting that it is designed to keep pace change within the drug sector as a whole. He argued that: “If you don’t change these business models, we’re not going to survive as an industry, let alone a company.”
Clark’s position is in keeping with the general industry trend that has seen drug majors including Pfizer, GSK, Eli Lilly, Novartis and AstraZeneca cut jobs and capacity in the last few years in favour of an increased reliance on the booming outsourcing sector.
Generics loom on Merck’s horizon
News of the cuts broke at Merck’s third quarter presentation deepening the gloom created by its earlier announcement of a 28 per cent drop in earnings. The firm attributed this to a decline in sales of Zetia (ezetimibe) and Vytorin (ezetimibe and simvastatin) and a $612m (€476m) restructuring charge.
The company said that around 40 per cent of the job cuts would be made at its US operations, adding that the move would include senior and mid-level executives as well as manufacturing and sales staff. In total, 6,800 employees will be let go, while around 400 of the firm’s current vacancies will be left unfilled.
Generic competition is likely to be one factor to impact heavily on Merck’s business in the next few years. Evidence for this is provided by the 51 per cent drop in sales suffered by the osteoporosis drug Fosamax (alendronate sodium), which was exposed to generic competition earlier this year.
Impending patent expiry for key products like Cozaar/Hyzaar (losartan) and Singulair (montelukast), coupled with a relatively weak development pipeline, suggest that Merck’s competition woes will continue for the medium term at least.
In addition, Merck’s recent announcement of delays to the European launch of its cholesterol drug Tredaptive (nicotinic acid/laropiprant) due to what it described as “manufacturing-related issues,” represents another considerable problem.
Morningstar analyst Damien Conover commented that: “Merck appears to be hitting a lot of setbacks and therefore causing its long-term growth to slow slightly.”
On a more positive note for the company, Conover said he believes that: “Merck's aggressive cuts to its cost structure will provide the flexibility the firm needs to deal with the future loss of exclusivity on major drugs.”