updated 10/22/2008 9:01:09 AM ET 2008-10-22T13:01:09

Drugmaker Merck & Co. said Wednesday it will slash 7,200 jobs as part of a new restructuring program that comes as its third-quarter profit plunged 28 percent, due to a hefty restructuring charge and flat sales.

The maker of allergy and asthma treatment Singulair and cervical cancer vaccine Gardasil said it will cut nearly 13 percent of its work force, including many executives, to lower overhead and become more competitive, in its second major restructuring in less than three years.

Whitehouse Station, N.J.-based Merck & Co. said that because of a $612 million charge for restructuring, net income for its third quarter amounts to $1.09 billion, or 51 cents per share. That’s down from $1.53 billion, or 70 cents per share, a year earlier.

The $612 million charge, after taxes, includes a $720 million pretax charge for the new restructuring program, plus $127 million in costs related to the prior restructuring program, announced in December 2005.

Excluding the restructuring charge, which amounts to 29 cents per share, Merck would have posted earnings of 80 cents, 1 cent better than Wall Street was expecting.

The company narrowed its 2008 earnings forecast, to $3.28 to $3.32 per share excluding one-time items. The prior forecast, issued in April, was for $3.28 to $3.38 per share.

Third-quarter revenue was down 2 percent at $5.9 billion, from $6.07 billion in 2007. Analysts surveyed by Thomson Reuters were expecting sales of $6.1 billion.

Sales were hurt by a further decline in Merck’s cholesterol franchise, lower sales for nearly all its vaccines and generic competition for former blockbuster osteoporosis drug Fosamax, which lost U.S. patent protection in February and saw sales cut in half this quarter to $354 million.

The cholesterol drugs Vytorin and Zetia, which Merck jointly markets with partner Schering-Plough Corp., saw sales dip about 15 percent to $1.1 billion in the quarter, cutting Merck’s equity income from the joint venture by 17 percent, to $400 million.

Singulair sales edged up 1 percent, to $1.03 billion, and blood pressure drugs Cozaar and Hyzaar rose 9 percent to $888 million. Some new products, including HIV drug Isentress and diabetes drugs Januvia and Janumet, also sold well.

The new restructuring program announced Wednesday aims to eliminate about 7,200 jobs, 400 of them currently vacant, across the company worldwide by the end of 2011. As part of the program, Merck will streamline management layers by eliminating about 25 percent of senior and mid-level executives. The company currently has a total of about 56,700 employees.

The new job cuts come on top of a massive December 2005 restructuring program, just about completed, that eliminated 10,400 jobs.

The company said the new cuts are expected to produce cumulative pretax savings of $3.8 billion to $4.2 billion from 2008 to 2013, but it will cost between $1.6 billion and $2 billion through the end of 2011, when the program is expected to be completed.

For the first nine months, net income jumped nearly 26 percent to $6.16 billion, or $2.86 per share, compared with $4.9 billion, or $2.24 per share, in the January-September period of 2007. Much of that improvement was due to one-time items this year, particularly a $2.2 billion gain related to Merck’s partnership with AstraZeneca LP. Sales for the first nine months were down about 1 percent, to $17.82 billion from $17.94 billion.

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