The Marketplace Report: Merck to Cut 7,000 Jobs

Officials for pharmaceutical giant Merck announced plans to cut 7,000 jobs in coming years. Alex Chadwick speaks with John Dimsdale of Marketplace about the job cuts and Merck's fiscal health.

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ALEX CHADWICK, host:

Back now with DAY TO DAY. I'm Alex Chadwick.

Last week, it was GM. Today, it is the pharmaceutical company Merck planning to shrink. Joining us is John Dimsdale from "Marketplace" in Washington.

John, what is the announcement, the numbers from Merck today?

JOHN DIMSDALE reporting:

Seven thousand jobs they're cutting back. This is a pretty big downsizing; 11 percent of their worldwide work force. Half of the cuts will be in the United States. The company will be closing five of its 31 factories, although the location of those shutdowns has yet to be announced. But you know, all this cutting back, Alex, is designed to save the company $4 billion over the next four years.

CHADWICK: Well, that's a lot of money, but why this great need now to save that kind of money? What is happening with them?

DIMSDALE: Well, Merck is facing two big problems. One has been in the headlines; that's the loss of its Vioxx painkiller. Merck poured a lot of money into researching and marketing Vioxx, but it was found to be unsafe and had to be pulled from the market last year. So now instead of being an income-producer, Merck is facing billions of dollars in potential liability from Vioxx from more than 6,000 lawsuits. The third Vioxx trial against Merck begins tomorrow. So far, the company has won one of those and lost one.

The other problem is patents are expiring at several of Merck's big-sellers, like the cholesterol-fighting drug Zocor; also for medicines to fight osteoporosis and another one for hair loss, all next year. But losing patents on big-selling drugs isn't unique to Merck, according to Gustav Ando, a pharmaceutical industry analyst with Global Insight.

Mr. GUSTAV ANDO (Global Insight): This is something that the whole industry faces in terms of patent expiration. It's a big problem for the industry, and you have HMOs everywhere trying to cut costs in whatever way they can. So as soon as a generic is available on the market, they'll jump at the chance for that.

CHADWICK: Well, John, what is the outlook for Merck now? Does it have any big, new drugs coming and that we're about to find out about?

DIMSDALE: Apparently so. One example is a cervical cancer vaccine that could be on the market next year, and it shows a lot of potential. But you know, Merck's stock price has been dropping for a while now, and that continued today, so the markets are clearly underwhelmed by Merck's prospects. Analysts say that, you know, the big pharmaceutical companies may have become too big. A and with all these expiring patents, companies like Merck and Pfizer have too much factory capacity; they're losing business to leaner, smaller competitors. So that's why Merck is looking now to streamline its manufacturing process. Of course, that causes many in the West to fear that that's going to mean outsourcing factory jobs to China and Asia.

Coming up later today on "Marketplace," state and local governments in this country are crunching new numbers on public employee health-care obligations, and the taxpayers aren't going to be happy with the results.

CHADWICK: We'll listen for that. Thank you, John.

John Dimsdale of public radio's daily business show, "Marketplace," produced by American Public Media.

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