Cheryl Buxton, managing director for the executive search firm Korn/Ferry, which identifies top talent for pharmaceutical companies, contends this situation is just part of a changing industry. Buxton spoke with Pharm Exec about what impact Merck's decision to cut nearly 11 percent of its work force (in hopes of saving $4 billion dollars by 2010) will have on the company's future.
Pharm Exec: On November 28, Merck announced it would close five manufacturing plants and lay off 7,000 employees by 2008. Was the news surprising?
What about for Merck employees?
It hits Merck hard since the company has always been considered a bastion of stability. You went to Merck, you stayed there 23 years, and then you eventually took a retirement package. This is sweeping change.
How much did Vioxx have to do with the decision to cut jobs?
Vioxx is the catalyst, but not the cause. The cutbacks were inevitable because of a combination of a worryingly thin R&D pipeline and a case of impending legal problems related to Vioxx. The other factor is that the company knows it can't sustain the current profit level, with blockbuster drugs like Zocor (simvastatin) coming off patent. Merck knew it was going to have to do something.
From where you sit, do you think employees anticipated this?
People predicted it to some extent. When there is a change of leadership at the top—Richard T. Clark stepping in as CEO in May—and with someone on board like Larry Bossidy, who's been known to do a fair amount of downsizing and cost cutting, layoffs are bound to happen. But Merck has always been pretty fat in terms of number of executives, and it's always been pretty cash rich. It's still going to be cash rich.
What are some of the internal changes that can be anticipated as a result of the job cuts?
There will be a high level of anxiety within the organization. There will be a few management shuffles in management and sales, and morale will hit an all-time low. There will be a fair amount of natural attrition, and longtime employees will have to wait to see what kind of packages they'll get. But morale had been quickly declining since the withdrawal of Vioxx, so it's surprising Merck has been slow to react. Most of the other major pharmaceutical companies have consolidated most of their manufacturing divisions over the last seven years, so the question that remains is why it took Merck so long to follow its peers.