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Merck details plan to return to profitability

By Wai Lang Chu , 19-Dec-2005

Merck & Co said it would cut an additional $1 billion (€832 million) through 2010 as it struggles to regain R&D momentum after mounting lawsuits, generic competition and falling revenue and profit threaten to engulf the company, shifting the focus away from its research on medicines for cancer and Alzheimer's.

The struggling pharmaceutical giant has made this announcement to allow the company to maintain its dividend at current levels, which currently yields more than 5 per cent, and engage in possible stock repurchases.

The new cost cuts are to be achieved through redesigning business operations and were announced at Merck's annual business briefing with analysts at its Whitehouse Station, N.J., headquarters in the US, saving a revised sum totalling between $4.5 and $5 billion.

"Merck will remain a research-driven pharmaceutical company, but we need to change our approach to virtually every aspect of our business, and we must act with a sense of urgency," said Richard Clark, the company's newly appointed president and chief executive.

The announcement follows on from the announcement on Nov. 28, which revealed the elimination of 7,000 jobs and the closure or selling off of eight factories and research facilities to lower expenses by $3.5 billion to $4 billion through the decade's end.

Merck also provided an update regarding the Vioxx litigation, which revealed that the number of lawsuits filed against the drugmaker had risen to 9,200 as of Nov. 30, including 188 potential class actions.

About half the suits are to be heard in federal court and the other half have been filed in state court in New Jersey.

The company warned that its financial projections for the future don't include any possible reserves that it might have to set aside for settlements of the liability cases it faces over recalled drug Vioxx.

"I am determined not to allow the litigation process to disrupt our business operations," said Clark.

"We have a lot of work to do to make Merck a leader again."

Merck is now No. 5 of worldwide pharmaceutical companies by revenue, having reached a high of number three. Its position is further threatened by sales of its top seller, cholesterol fighter Zocor, which is expected to drop to about $2.45 billion next year from about $4.35 billion this year because of its June patent expiration.

Indeed, some other drugs, including popular osteoporosis pill Fosamax, lose patent protection during the next few years.

Despite growing pricing, regulatory and other pressures, Clark said the company has great opportunities because of a growing number of ill people around the world, inadequate treatments for diseases such as Alzheimer's and cancer, and expanding access to and insurance coverage for medicines in countries such as China and India.

In addition, Merck said it would also focus investments in several other areas such as antibiotics, antifungals, antivirals, asthma, chronic obstructive pulmonary disease, neurodegeneration, ophthalmology, osteoporosis, schizophrenia and stroke.

Merck also planned to continue streamlining its sales operations. The company is looking to lower spending per brand in the US by between 15 per cent and 20 per cent by 2010.

"We are also implementing a new commercial model that will deliver greater value to customers, and will place greater emphasis on technology and on alternate channels to enable Merck to sell products more effectively," Clark said.

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