Merck to Cut 7,000 Jobs, Close Plants

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Merck & Co. Inc. (MRK) Monday said it will cut 7,000 jobs and close five plants in a bid to save up to $4 billion in costs by 2010, marking the first steps by its chief executive to revive the drugmaker's fortunes.

Merck, which has struggled with patent expirations of key drugs and ongoing litigation over the withdrawal of its Vioxx pain medicine, said the job cuts would reduce its work force 11 percent globally by 2008.

The moves are among the first by Richard Clark, who took over as chief executive of the company in May and follow on his pledge this summer to increase cost-cutting efforts at Merck.

The restructuring also takes aim at what Clark knows best as the former president of Merck's manufacturing division before his promotion. Clark added that going forward, Merck will also "pursue improved approaches to research and development, and marketing and sales."

"It certainly looks like Clark is willing to make tough decisions," said Albert Rauch, an analyst at A.G. Edwards & Sons. "I think eliminating 11 percent of the company is a big, major step for them. It will be really hard to maintain the corporate culture with so many positions being eliminated."

The New Jersey-based drugmaker saw $25 billion in market capitalization wiped away last year when it withdrew Vioxx from the market after determining long-term use of the drug increased the risk of heart attack and stroke.

The withdrawal sparked thousands of lawsuits, increasing company costs at a time when Merck was facing stiff competition for its key medicines from cheaper generics.

Merck said it expects the initial phase of the cost-reduction program to yield cumulative pretax savings of $3.5 billion to $4 billion from 2006 through 2010.

Merck sees about half of its planned job cuts in the United States, and said it will also close one basic research site and two preclinical development sites by the end of 2008, subject to compliance with legal obligations.

The pretax costs of the restructuring are expected to be $350 million to $400 million in 2005 and $800 million to $1 billion in 2006.

The company forecast full-year 2005 earnings per share in a range of $2.47 to $2.51 excluding charges, and net earnings of between $2.04 and $2.10 per share.

For 2006, Merck forecast a profit of $2.28 to $2.36 per share, including about a 7 cent-per-share impact from stock option expensing, but excluding restructuring charges. On a net basis, it sees a profit of $1.98 to $2.12 per share.

Before the announcement, analysts, on average, were expecting the company to earn $2.50 per share in 2005 and $2.38 per share in 2006, according to Reuters Estimates.

Merck sees capital expenditures of about $1.4 billion in 2005, a $100 million reduction from the $1.5 billion previously disclosed. Capital expenditures for 2006 are estimated to be $1.3 billion.

It sees the total reduction over the 2005 to 2008 period to be $1.3 billion versus the company's expectations for long-range capital spending at the end of 2004.