Merck will slash 7,000 jobs

Merck and Co. Inc., the world's third-largest drug maker, said yesterday it would lay off 7,000 employees and close manufacturing plants and research facilities to reduce costs as it faces plunging revenues.

The company would not say which facilities will be shut and warned that further cuts are likely. But an industry analyst said Merck's research center in the Longwood Medical Area probably would not be affected. It does not operate any manufacturing plants in New England.

''I'm confident this first phase of the restructuring plan sets the course for us," said Richard Clark, Merck's chief executive.

Investors battered the company's stock, which fell $1.42, or nearly 4.6 percent, to close at $29.56. Shares have dropped about 15 percent since Clark became chief executive in May.

Merck faces 6,400 lawsuits filed on behalf of patients who took Vioxx, a popular painkiller that was found last year to increase the risk of heart attacks and strokes. But the suits are only the most visible of the Whitehouse Station, N.J., company's problems.

Patent protections for many of Merck's blockbuster drugs are scheduled to expire in the coming years, and there are few obvious replacement drugs in the company's pipeline.

Zocor, a cholesterol treatment that generates the second-highest revenues of any current medication on the market, will go ''off patent" next June, allowing other companies to produce generic versions. Merck predicts it will sell up to $4.5 billion worth of Zocor this year, but expects that to drop to as low as $2.3 billion in 2006 because of new competition. The drug generates about 20 percent of Merck's annual revenues.

''There's one big patent expiration every two years for the next six to eight years," said Stephen Scala, an analyst with S.G. Cowen in Boston. ''They can't get out from these very big patent expirations, so it's hard to see where any growth is going to come from."

Scala does not have a formal rating or price target for Merck's shares, but he said, ''We believe this is a stock that investors do not need to own."

The layoff of about 7,000 workers accounts for 11 percent of Merck's 63,000 employees. About half the jobs lost will be in the United States. The company also said it would close or sell five of 31 manufacturing plants by the end of 2008.

It will also close one of its 11 basic research facilities and two sites that develop drugs before they enter clinical trials.

Last year, Merck opened the Edward M. Scolnick Research Center in the Longwood Medical Area with great fanfare. The research high-rise, built on land leased from Emmanuel College, employs 210. Scala said the facility isn't likely to be threatened by the cutbacks because it is new and has advanced equipment.

Janet Skidmore, a Merck spokeswoman, said the company will not publicly disclose which facilities will be affected by the cutbacks until employees are notified.

Manufacturing employees affected by the cuts will be informed today and tomorrow, Skidmore said. Others who face layoffs by the end of the year will be told by Dec. 16.

Clark said the steps outlined yesterday would ''improve the way we discover, develop, manufacture, and market our medicines and vaccines and ensure that we get them to patients who need them as quickly, safely and efficiently as possible."

The cutbacks are expected to save Merck $3.5 billion to $4 billion in the five years ending 2010. About half of the savings will come from changes to the firm's supply and manufacturing operations. Details will be disclosed Dec. 15, the company said.

In 2004, Merck earned $5.8 billion on sales of $22.9 billion and generated earnings per share of $2.61. For 2005, the company is predicting earnings of $2.47 to $2.51 a share, but they will be reduced by about 40 cents per share to account for special charges associated with the restructuring.

Analysts surveyed by Thomson Financial expect earnings per share to decrease to $2.38 in 2006 before extraordinary charges.

Merck's predicament isn't unique among big pharmaceutical firms. Pfizer Inc. of New York, the world's largest pharmaceutical company, said in April it will reduce costs by $4 billion by 2008. Other drug companies, including GlaxoSmithKline of London and Wyeth Ltd. of Madison, N.J., also have disclosed plans to trim costs.

Material from Globe wire services was used in this report. Jeffrey Krasner can be reached at krasner@globe.com.