Merck to Cut 7,000 Jobs, Close Plants

Drugmaker Merck announces plans to slash 7,000 jobs — 11 percent of its workforce — and close five plants by the end of 2008. Merck's troubles include thousands of lawsuits related to its painkiller Vioxx and the impending loss of patent protection of one of its most profitable drugs, Zocor.

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The drugmaker Merck is cutting 11 percent of its work force both here and abroad. Merck is the company that made the controversial painkiller Vioxx, and it's facing a double-barreled assault on its bottom line right now. There are thousands of lawsuits from former Vioxx users, and Merck is about to lose patent protection on one of its most profitable drugs. NPR's Jim Zarroli has the story.

JIM ZARROLI reporting:

Merck called today's announcement the first step in a planned restructuring, and this time around it will mainly affect the company's manufacturing side. Five plants will be closed or sold off, although the company didn't say which ones. Some 7,000 jobs will be eliminated, about half of them in the United States. The company said the cuts will save it 3 1/2 to $4 billion between next year and the end of the decade. In a conference call with analysts, Merck's CEO Richard Clark said the reductions are part of an overall effort to make the company leaner and more efficient.

(Soundbite of conference call)

Mr. RICHARD CLARK (CEO, Merck): I believe the plans we are announcing today will help us effectively address these challenges and will enable us to deliver the next generation of Merck medicines and vaccines faster and more effectively.

ZARROLI: For Merck the cutbacks follow a long and painful period in which its share price has fallen by about 70 percent. The company was forced to pull its highly promoted painkiller Vioxx off the market last year after acknowledging that it increased the risk of heart problems and strokes. In August a Texas jury ruled that Merck was liable for the death of a 59-year-old man who had a heart attack while taking the drug. Another recent verdict went in the company's favor. Pharmaceutical analyst Hemant Shah says Merck faces another problem. He says it is about to lose patent protection on its cholesterol drug Zocor, which means it will face new competition from generics.

Mr. HEMANT SHAH (Pharmaceutical Analyst): Merck, along with almost all major drug companies, have failed to come up with enough innovative new drugs to offset sales of these aging products.

ZARROLI: Shah says other big drug companies have the same problem. After years of bigger and bigger profits, he says, they're losing momentum.

Mr. SHAH: Many of them have just gone through patent expiration problems like Bristol-Myers Squibb, Schering-Plough. These companies have gone through some very difficult times. In fact, if you look at the average pharmaceutical stock, it's down over 50 percent from their peak.

ZARROLI: Perhaps because the problems are so daunting right now, many Wall Street analysts responded cautiously to Merck's reductions. Scott Henry of Oppenheimer & Company says cutting manufacturing is a necessary step for Merck.

Mr. SCOTT HENRY (Oppenheimer & Company): You have to create a more flexible manufacturing environment so that you don't get overweighed by the fixed costs now that you'll have less revenues coming in.

ZARROLI: But Henry also noted that Vioxx and Zocor, together with another drug with an expiring patent, Fosamax, brought in about 40 percent of Merck's revenue. If the company can't come up with new drugs to replace the revenue it's lost, he says, job cuts alone won't be enough to reverse its fortunes.

Mr. HENRY: Merck is in the business of drug discovery, not cost cutting. So, you know, cost cutting in itself may be a positive direction, but it wouldn't really be a reason to run out and buy the stock, in my opinion.

ZARROLI: That sentiment seemed to be shared by others on Wall Street. Merck's stock price, which has been rising lately in anticipation of today's announcement, was down about 4 1/2 percent at the end of the day. Jim Zarroli, NPR News, New York.

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