Merck told to make $1 billion in cuts
pharmafile | August 22, 2013 | News story | Sales and Marketing | Leerink Swann, MSD, Merck, Odanacatib, sugammadex
A financial report has recommended that Merck implement ‘major restructuring’ and make cuts of $1 billion if it wants to steady the boat after a difficult 12 months.
The document, published by investment banking firm Leerink Swann, arrives hot on the heels of a 50% drop in Merck’s earnings for the second quarter of the year and a significant reduction in its sales forecast.
Leerink Swann lists the company’s “relatively lackluster [sic] 2013 top-line performance” and ‘disappointing Ph III/registrational pipeline’ among the contributory factors in its recent slide.
2013 is certainly proving to be drab year for Merck’s former top sellers – a state of affairs that can be largely attributed to the expiry of several lucrative patents.
Sales of one-time blockbuster asthma/allergy pill Singulair (montelukast), for instance, fell 80% once generic drug makers moved in last year.
Similarly, allergy pill Clarinex (desloratadine) and high blood pressure drugs Cozaar (losartan) and Hyzaar (losartan/hydrochlorothiazide) have suffered a collective sales drubbing to the tune of nearly $160 million since their patents ran out.
Moving on to Leerink Swann’s second point, Merck’s shaky pipeline has been a major source of concern for investors this year with numerous projects stalling and stumbling.
Odanacatib, a treatment for osteoporosis, has been caught up in delays since promising Phase III results emerged last year. Insomnia drug suvorexant fell at the last hurdle in July when the FDA rejected its application (although, a lower dose version might be considered in future).
And anaesthetic Bridion (sugammadex) has yet to be given the go ahead in the US after regulators requested more time to consider its application.
Undeniably, Merck has been tightening its belt recently – for example, in March it announced the closure of a manufacturing plant in Rathdrum, Ireland, with the loss of 280 jobs.
However, to make the recommended $1 billion in savings, cuts of a more drastic nature are necessary. Leerink Swann suggests a 10 per cent reduction in total operating expenses would guarantee an annual saving in the region of $2 billion.
Where those cuts might take place remains to be seen, although it’s possible the company could slash an $8 billion R&D budget which has largely failed to yield anything approaching a satisfactory return this year.
Hugh McCafferty
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