Healthy Skepticism Library item: 13428

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Publication type: news

Johnson LA.
Schering-Plough Cutting Staff, Costs
Associated Press 2008 Apr 3
http://biz.yahoo.com/ap/080403/schering_plough_cuts.html?.v=4

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Schering-Plough Targets Up to $1B in Further Cost Cuts After Critical Report on Vytorin

TRENTON, N.J. (AP) — Days after top cardiologists criticized Schering-Plough Corp.‘s crucial cholesterol drugs Vytorin and Zetia, sending its stock price tumbling, the drugmaker has begun a new round of cost-cutting and layoffs.

The new reductions — 10 percent of staff and $1 billion in annualized cost savings — come on top of $500 million in reductions announced after the Kenilworth, N.J.-based company bought biopharmaceutical firm Organon BioSciences NV in November for $14.4 billion.

The cuts will disproportionately hit the United States and will include everything from consolidating its more than 60 manufacturing plants and streamlining management to trimming overhead and spending on research and development, Chief Executive Officer Fred Hassan said in a hastily announced conference call Wednesday evening.

He said the plan calls to reduce headcount by 10 percent worldwide and the goal is to make 80 percent of the $1.5 billion in total cuts by the end of 2010, with the rest by 2012. Schering-Plough has 55,000 employees, including 8,000 in New Jersey.

Headquarters costs, including sales and marketing, will be targeted first and manufacturing changes will come later to prevent disruptions in supplies and products.

“No area will be exempt,” Hassan said.

He did say that the company will prioritize “high-potential” research projects, including its heavily touted experimental drug to prevent deadly blood clots.

“We will not give up our relentless focus on growing the top line,” he said. “We will avoid unwise short-term actions.”

Hassan said the initiatives respond to “dramatically intensifying pressures” in the pharmaceutical industry, what he termed “confusion” in the U.S. cholesterol market and “a new political and overall environment” in the U.S.

Analyst Steve Brozak of WBB Securities Ltd. said that sounded like code for “it’s not our fault.”

“If it’s not management’s fault, then whose is it?” he said.

Brozak said he gives the company credit for facing “the reality that marketing is not the answer to what the pharmaceutical industry has devolved into,” but is disappointed that research spending will be cut, rather than Schering-Plough focusing on partnerships to develop innovative new drugs.

The last-minute announcement of and 5:45 p.m. start to the conference call, he said, showed it was timed to “to be more visible to Wall Street and less visible to Main Street.”

Schering-Plough’s stock plunged 26 percent Monday and then hit a new 52-week low Wednesday before ending regular trading down 89 cents, or 6 percent, to $13.86. The shares regained 24 cents in after-hours trading.

The drops come after a long-awaited presentation Sunday at a major heart specialists’ conference of a study showing Vytorin is no more effective at preventing plaque build up than generic Zocor, which costs about one-third as much. Vytorin combines Schering-Plough’s Zetia and partner Merck & Co.‘s Zocor.

Top cardiologists at that meeting said that based on the findings of the study, which the companies did not release until nearly two years after it ended, doctors should return to older, tried-and-true treatments for high cholesterol. The delay triggered wide-ranging investigations by two congressional committees amid suspicions the data was withheld to protect sales of the two drugs — $5.2 billion last year, which the companies split.

Merck spokeswoman Amy Rose said she didn’t know of any plans for new cuts there but noted Merck started a comprehensive global restructuring program in December 2005. It was designed to bring a total of $4.5 billion to $5 billion in cost savings, including $1.2 billion from supply-chain changes. Merck has since eliminated 7,200 positions and closed five manufacturing plants and will provide a progress update when it gives its quarterly earnings report April 21.

Hassan defended Zetia and Vytorin, saying they do what they were designed to do — lower bad cholesterol — and that there is a huge unmet need in that area because many people either are not being treated for cholesterol problems or have not reached their cholesterol goal.

“We’re doing a good job reaching out to the doctors to remind them of the lower-LDL-is-better message,” Hassan said.

Whitehouse Station, N.J.-based Merck is the world’s No. 8 drug maker and Schering-Plough is No. 16, according to health information company IMS Health.

Schering-Plough Corp.: http://www.sgp.com

Merck & Co.: http://www.merck.com