Merck Restructures, Eliminates 7,200 Jobs

October 29, 2008

Pharmaceutical Executive

Volume 0, Issue 0

Industry is cinching its belt, but news that Merck will shed 12 percent of its workforce - many senior and middle management positions - was a bombshell announcement.

Merck President and CEO Richard Clark announced last week that the company will cut 7,200 jobs-12 percent of its workforce-to compensate for a serious revenue shortfall. Clark laid off the layoffs to a decrease in sales of its blockbuster cholesterol medications, approval delays at FDA, and patent expirations.

Recent downsizing alerts at Novartis, Schering Plough, and GlaxoSmithKline look paltry when compared to Merck’s major “restructuring,” as the preferred euphemism has it.  Approximately 40 percent of the jobs lost will be in the United States, and middle and senior management will constitute about 25 percent of the cuts.

“Streamlining Merck to meet the demands of the ever-changing business environment includes the ever-painful reality of losing employees whose contributions have helped the company accomplish so much throughout the years,” Clark told investors yesterday. “But no matter how difficult the decisions are today, we know our long-term strategy is right.”

That said, Merck’s numbers weren’t all negative. Sales of first-in-class diabetes drug Januvia and novel HPV vaccine Gardasil beat analyst estimates, while asthma and allergy blockbuster Singulair revenue remained flat from the previous year. The biggest hit was to high-cholesterol drugs Vytorin and Zetia, which both saw sales drop 15 percent in light of the long-delayed Enhance data suggesting that Vytorin was no better than generic statins at decreasing arterial plaque, yet works fine for lowering cholesterol.

“The combination of Merck’s base business, new product growth-including Gardasil, Januvia, and [breakthrough HIV drug] Isentress-we believe, will exceed $5 billion in peak sales,” Deutsche Bank analyst Barbara Ryan said in a letter. “An agile, increasingly lean cost structure will support superior growth over the next several years. Further, Merck’s late-stage pipeline has the potential to extend this record into the next decade.”

The Devil in the Details
For the 7,200 employees looking at unemployment, the prospect for new jobs could be bleak.

Julie Kampf, president of JBK Associates, told Pharm Exec that her executive search company has seen a downward trend in senior level hiring recently. “We would all be foolish to put blinders on and not see that the economy has slowed and with that there is restructuring around layoffs,” Kampf said.

She warns that pharma companies must be careful, though, about who they choose to release. “At some point, we do expect the economy will recover, and companies have a history of laying people off and then realizing that they need those people,” she said.

One area that pharma seems not to be knifing is contract labor, said Pete Ferguson, president, health and life sciences at Yoh talent and outsourcing firm. “We haven’t seen much of a slowdown from a contingent labor standpoint,” Ferguson said. “We have a consistent job order flow from the pharma and biotech industries right now.”

This isn’t too surprising. In September, Merck announced that it would be using contracted reps to fill holes in its sales force just months after it eliminated 1,200 sales positions.

“During an economic downturn, pharma engages in buyouts and layoffs of permanent staff, but then tend to backfill those slots with contingent labor,” Ferguson said. “That doesn’t mean we won’t see a slowdown, just that we haven’t seen it yet.”