Thought Leader: Q&A with Cheryl Buxton
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.
Merck anticipates saving a total of almost $4 billion by 2010. What areas should the company invest in?
There has been talk about pharmaceutical companies concentrating more on personalized medicine. For Merck, there's been noise it'll be focusing on developing devices and diagnostics, which is a smart move. It's still one of the richest companies in the world, so it will look at new technologies and better business-development deals. It is looking at moving into new therapeutic areas, for example, like building a new oncology group. That's not one of the company's core competencies, which shows recognition of the need to diversify. Merck will plow money into it.
What will this do for Merck's reputation? Do you think it'll need to revamp its image to build up investor and consumer confidence?
Merck and every other company. Big Pharma has lost patient confidence, and the public perception of the industry is pretty negative. Merck is just one firm that needs to work on its image. It's formed a self-governing group on ethical marketing of drugs, and there's been a call for putting a stop to DTC ads. It's trying to concentrate more on educational programs, but Merck has abused [the DTC medium] in the past, so the public is a bit skeptical. But at the end of the day, it's very hard to get away from the fact that Merck has been a great science-driven company.
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