updated 11/28/2005 12:08:20 PM ET 2005-11-28T17:08:20

Embattled drugmaker Merck & Co. said Monday that it will cut about 7,000 jobs, or 11 percent of its work force, and will close or sell five of its 31 manufacturing plants by the end of 2008 in the first phase of a reorganization strategy meant save up to $4 billion by the end of the decade.

The restructuring announcement, anticipated by Wall Street, comes as Merck faces the loss of patent protection for its blockbuster cholesterol drug Zocor — the world’s No. 2 drug by revenues — next June, plus thousands of lawsuits and billions in potential liability from its recalled painkiller Vioxx. With expected Zocor sales of $4.2 billion to $4.5 billion in 2005, Merck expects sales to drop to $2.3 billion to $2.6 billion in 2006 because of competition from generic drug makers.

Whitehouse Station, N.J.-based Merck also said it will revamp its supply chain and outsource some manufacturing as part of the reorganization, which should bring about half the anticipated savings.

Merck said the cuts are intended to reduce the company’s cost structure, increase efficiency and enhance competitiveness.

“The actions we are announcing today are an important first step in positioning Merck to meet the challenges the company faces now and in the future,” said Richard T. Clark, Merck’s chief executive officer and president, told analysts during a morning conference call. “We believe they will improve our earnings-per-share and ultimately enhance our shareholder value.”

The company said half of the planned job cuts — in manufacturing and other divisions — will target its U.S. operations. The company employs just under 63,000 people, half of them in the United States. Last month, Merck cut 825 jobs worldwide.

Merck did not identify where the five manufacturing plants to be closed or sold are located. It also plans to reduce operations at a number of other sites and will close one basic research site and two preclinical development sites. Those sites were also not identified.

“Employees at the sites that are expected to leave our networks are being advised at a series of local meetings over the next two days,” and the sites will not be named until after that, said Willie A. Deese, head of Merck manufacturing.

Clark, the former head of Merck manufacturing operations who took over as CEO last spring, said the company is looking for ways to “enhance efficiencies” and “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.”

He said Merck also plans to “pursue improved approaches to R&D, and marketing and sales.”

Restructuring costs from the moves announced Monday are expected to be from $350 million to $400 million in 2005 and $800 million to $1 billion in 2006. They are expected to result in cumulative pretax savings of $3.5 billion to $4 billion from 2006 through 2010.

Merck expects about $2 billion of the savings from its switch to a leaner supply strategy and manufacturing model. The company said it will provide further details on Dec. 15.

Merck reiterated its 2005 earnings-per-share forecast of $2.47 to $2.51, or $2.04 to $2.10 with one-time charges. For 2006, the company forecast earnings per share of $2.28 to $2.36 excluding restructuring charges, or $1.98 to $2.12 with one-time charges.

Analysts surveyed by Thomson Financial expect earnings per share of $2.50 in 2005 and $2.38 in 2006.

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