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Merck Plans to Cut 7,000 Jobs

The drug giant says it intends to shut or sell five plants in overhaul of its manufacturing and research operations.

November 29, 2005|From Times Staff and Wire Reports

Pharmaceutical giant Merck & Co. said Monday that it would cut 7,000 jobs and close or sell five factories as the maker of the once-popular painkiller Vioxx seeks to slash manufacturing costs and reduce the time it takes to introduce products.

The Whitehouse Station, N.J.-based company announced the restructuring plan as it faces thousands of lawsuits over Vioxx and the upcoming expiration of its patent for the cholesterol- reducing drug Zocor, the company's top seller.

The job cuts and factory closures failed to ignite enthusiasm on Wall Street. Merck stock, a component of the Dow Jones industrial average, fell more than 4% to $29.56.

Merck said in a statement that the layoffs, amounting to 11% of its workers worldwide, were part of a plan "to create a leaner, more cost-effective and customer-focused manufacturing model." It said the actions would save as much as $4 billion through 2010.

Richard T. Clark, who took over as chief executive in May, said Merck -- which has slipped in recent years from the world's third-biggest pharmaceutical company by revenue to No. 5 -- must maintain sales of its top drugs, launch new ones and better integrate late-stage research and manufacturing to reduce the time to launch new products.

"We need to execute flawlessly all of those ingredients in order to turn this around," Clark told the Associated Press.

The company said the overhaul of its manufacturing and research operations was designed to cut by as many as 15 months the time it took to prepare for the production of a new drug.

About half of the job cuts will be in the U.S., Merck said. The company said it also intended to close or sell five of its 31 manufacturing plants worldwide and reduce operations "at a number of other sites."

Merck employs just under 63,400 people, including about 31,000 in the U.S. Jobs that are vacant or held by temporary workers will be cut first and full-time workers will get severance packages, but no buyouts are planned, Clark said.

Analysts said the move was part of an emerging trend in an industry that for years never had to worry about cutting costs, given gross profit margins well above 70% and limited pressure on prices until recently. Pfizer Inc., Wyeth and a number of smaller companies have announced a restructuring and job cuts in the last year or so.

"This is in response to a very challenging environment," said Morgan Stanley managing director Jami Rubin. "I would expect broader cuts to be announced within the sales force, marketing, general and [administration] as well as R&D over the longer run."

Merck has been struggling to regain its footing since it pulled Vioxx from store shelves in September 2004, following reports that the drug was responsible for heart problems among some of its users.

The company faces about 6,500 lawsuits over Vioxx. Merck emerged victorious in a New Jersey trial this month after a jury in Texas found it responsible for the death of a man taking Vioxx. The company is appealing the $253-million verdict in the Texas case.

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Associated Press and Bloomberg News were used in compiling this report.

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