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Home > Archive > Hepatitis disease > November 2005 > Drug giant Merck & Co. to cut 7,000 jobs, including 235 in Canada
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Drug giant Merck & Co. to cut 7,000 jobs, including 235 in Canada
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| http://www.cbc.ca/cp/business/051128/b112868.html
TRENTON, N.J. (CP) - Embattled drugmaker Merck & Co. said Monday it will cut
7,000 jobs - including 235 in Canada - and close or sell five plants in the
first phase of a reorganization meant to save up to $4 billion US by the end of
the decade.
Subsidiary Merck Frosst Canada Ltd. will close its factory in Kirkland, Que., in
early 2006 but will maintain research and development in Canada.
Merck shares dropped more than four per cent in afternoon trading.
The announcement, anticipated by Wall Street, comes as Merck faces the loss of
patent protection in June for its blockbuster cholesterol drug Zocor and
thousands of lawsuits and billions of dollars in potential liability from its
recalled painkiller Vioxx.
Zocor now generates about 20 per cent of Merck revenues and is the world's
second-biggest drug.
Because of the coming competition from generic drug makers, Merck expects Zocor
sales to drop to $2.3 billion to $2.6 billion in 2006 from $4.2 billion to $4.5
billion this year.
Whitehouse Station, N.J.-based Merck also said it will revamp its supply chain
and outsource some manufacturing as part of the reorganization, which should
bring about half the anticipated savings.
Merck Frosst cited the loss of patent protection in Canada in 2003 for Zocor, in
2005 for Fosamax, an osteoporosis treatment, and the voluntary withdrawal in
2004 of Vioxx.
"We are a financially sound company, but we must take actions today to meet the
challenges the company faces now and in the future," said Andre Marcheterre,
president of Merck Frosst Canada.
He said the company intends to remain a major driver of R&D in Canada with the
Merck Frosst Centre for Therapeutic Research, one of the largest biomedical
research facilities in Canada, with 300 world-class scientists.
In the U.S., Merck said the cuts, which are expected to be completed by the end
of 2008, are intended to reduce the company's cost structure, increase
efficiency and enhance competitiveness.
Merck has slipped from the world's third-biggest pharmaceutical company to No. 5
in recent 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 Clark, Merck's chief executive officer and president, told analysts
during a conference call.
"We believe they will improve our earnings-per-share and ultimately enhance our
shareholder value."
The company said half of the planned job cuts - in manufacturing and other
divisions - will target its U.S. operations. The company employs just under
63,000 people, half of them in the United States. Last month, Merck cut 825 jobs
worldwide.
In Canada, subsidiary Merck Frosst Co. has its main plant at Kirkland, Que.,
along with offices in Vancouver, Edmonton, Toronto and Ottawa.
Merck has 31 plants around the world. It also plans to reduce operations at
several sites and will close one basic research site and two preclinical
development sites. Those sites are to be identified after local meetings with
staff.
Merck shares fell $1.26 to $29.72 in afternoon trading on the New York Stock
Exchange. Its stock price has lost more than two-thirds of its value in five
years.
The cuts were "pretty much anticipated," said health care analyst Hemant Shah of
HKS & Co. in Warren, N.J. "It appears there's enough savings to offset at least
some of the decline in Zocor."
But Shah said it's hard to tell if the reductions are the right size because
Merck still has to market existing drugs and new medications in what he called a
"lacklustre" pipeline.
Clark, the former head of Merck manufacturing operations who took over as CEO
last spring, 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 cumulative pretax savings of $3.5 billion to $4 billion
from 2006 through 2010.
The company said it will provide more details Dec. 15, when it holds its annual
business meeting for analysts.
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.
Meanwhile, the first federal Vioxx liability trial is set to start in Houston on
Tuesday. Merck has won once and lost once in state trials in New Jersey and
Texas, and analysts have pegged its total liability at up to $50 billion.
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