For the past three years, the world’s third largest drug manufacturing company, Merck, has been facing a loss in earnings. In an effort to combat this, it is cutting costs by upwards of $4 billion in the next five years. Part of this will include closing five plants and laying off 7,000 of their 62,000 employees.
The company has been plagued with problems ever since it was forced to pull its controversial painkiller off the shelves last year. It is now battling 6,400 lawsuits, and is facing further problems. While Merck currently has a patent on a cholesterol treatment, the patent is set to run out next year, which could lead to further decline in revenue.
“[Investors look] at this as a short-term solution but would really like to see a long-term solution of sustainable drug franchises,” Scott Henry, analyst for Oppenheimer & Co., said. “There will have to be additional steps.”
Pfizer Inc., which is the largest drug manufacturer, is also looking to cut costs over the next three years by $4 billion. GlaxoSmithKline, Plc and Wyeth are also discussing cost-cutting measures due to an increase in generic products.
“When you start seeing these big, big products coming off patent, there’s plenty for most of them to cut,” Les Funtleyder, health care strategist for Miller Tabak & Co., said. “It is quite possible that all of them have plenty more to cut if they want to.”
Merck Shares fell over three percent in just one day last week, and shares have declined 14% overall since Richard Clark took over for Raymond Gilmartin as CEO.
“I’m confident this first phase of the restructuring plan sets the course for us,” Clark said regarding the plant closures and employee layoffs.
There are expected to be about 3,500 cuts in the U.S., with the rest internationally, while there is no mention of where the plant closures will be.
It’s been a rough year for Merck, and I doubt the worst is over yet — especially with over 6,000 lawsuits pending.