The move will also see a reduction in the product portfolio and ten per cent of the company's 55,000 workforce stand to lose their jobs.
Catalysing the announcement was the damning report by a group of distinguished cardiologists that cast doubts over the effectiveness of the anti-cholesterol drug Vytorin, a combination product based on the firm's already-marketed Zetia (ezetimibe) and Merck & Co's Zocor (simvastatin). Schering-Plough's share price lost 29 per cent in the three days after the news broke.
The conclusion by the cardiologists that Vytorin was no better at fighting atherosclerosis than Zocor on its own was a blow to both Merck and Schering-Plough, which work on Vytorin as a joint venture.
The role this played in the reorganisation is not known but in a press release Fred Hassan, Schering's CEO, complained about, "the absence of an open and balanced scientific discussion'' on the results of the Enhance trial.
Analysts at Dresdner Kleinwort are convinced of the link. In a research note released this morning, they said: "This is in response to the latest negative studies on Vytorin. Our recent note examining employee numbers suggests Schering-Plough could go even further over three years."
"We believe drug companies need to be proactive and cut back now rather than being reactive in the face of a setback," they added.
In a conference call with analysts Hassan said that job losses could extend to high management as the company seeks to eliminate management layers.
He added: "Savings and productivity improvements will be realized across the company and around the world. No area will be exempt."
The extents of the cut-backs in manufacturing, R&D or any other sector are not yet known, with Hassan saying that details of the reorganisation are yet to be finalised.
The reduction in R&D will see resources focused on to fewer, higher potential projects such as the Phase III thrombin receptor antagonist (TRA) cardiovascular compound SCH 530348.
A similar cost-cutting exercise was employed by Schering-Plough in 2003 when an early retirement plan designed to remove more than 1,000 employees from the payroll was initiated in the wake of the patent expiration on former blockbuster antihistamine Claritin (loratadine) and a $500m fine by the US government.
More recently in November 2007 a plan to achieve savings of $500m was launched as Schering acquired Organon BioSciences and in June 2006 1,100 manufacturing jobs were axed.
Regardless of the success of the reorganisation Schering-Plough have more difficulties awaiting them.
The storm over Vytorin looks set to continue with Steven Nissen, head of cardiology at the Cleveland Clinic in Ohio, and other cardiologists criticising Schering-Plough for their failure to commence a definitive study until years after Vytorin was on the market.
Worryingly for Schering-Plough the Enhance study, which they and Merck funded and helped design, has done nothing to improve the reputation of Vytorin and help them gain a greater share of the $35bn worldwide cholesterol market.
Furthermore, the US congress is now investigating whether Merck and Schering-Plough attempted to alter the design of the trial to hide its findings and then intentionally delayed releasing the results.
Vytorin is a flagship product for Schering-Plough and has been heavily marketed with $140m a year spent on one aspect of the campaign alone.
It has experienced impressive growth since launching in 2004 with Schering-Plough's financial report for 2006 stating that equity income from the joint venture was $1.5bn.
Income from Vytorin accounts for around two-thirds of Schering-Plough's profits and as such the fate of this reorganisation and the company as a whole depends largely on its fortunes.
