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Merck to focus research on common diseases

Merck & Co. announced plans Thursday to cut an additional $1 billion in costs through 2010 and focus its research on medicines for the most common diseases.
/ Source: The Associated Press

Merck & Co. announced plans Thursday to cut an additional $1 billion in costs through 2010 and focus its research on medicines for the most common diseases.

The struggling drugmaker, which has been hammered by mounting lawsuits, falling revenue and profit, and sharply depressed stock as generic competition looms for its top drug, also reaffirmed its earnings forecasts for this year and next.

The new cost cuts, to be achieved through redesigning business operations, were disclosed at Merck’s annual business briefing with analysts at its Whitehouse Station, N.J., headquarters. They follow Merck’s Nov. 28 announcement that it will eliminate 7,000 jobs and close or sell eight factories and research facilities to lower expenses by $3.5 billion to $4 billion through the decade’s end.

Meanwhile, Merck said the number of lawsuits filed over Vioxx, the blockbuster painkiller it withdrew last year because of increased cardiac risks, had risen to 9,200 as of Nov. 30, including 188 potential class action suits. About half the lawsuits are to be heard in federal court, and the other half have been filed in state court in New Jersey.

“I am determined not to allow the litigation process to disrupt our business operations,” Richard T. Clark, chief executive officer, told the analysts. “We have a lot of work to do to make Merck a leader again.”

Merck has slipped from being the world’s third-biggest pharmaceutical company to No. 5, by revenue, in the last few years, and it expects sales of its top seller, cholesterol fighter Zocor, to drop to about $2.45 billion next year from about $4.35 billion this year because of its June patent expiration. Some other drugs, including popular osteoporosis pill Fosamax, lose patent protection over the next few years.

Clark said he expects revenue growth starting in 2007 and sustained revenue and profit growth beyond 2010.

Despite growing pricing, regulatory and other pressures on Merck, Clark said the company has great opportunities because of a growing number of ill people around the world, inadequate treatments for diseases such as Alzheimer’s and cancer, and expanding access to and insurance coverage for medicines in countries such as China and India.

He said Merck will push for market leadership in those emerging markets, trim its cost structure, revamp both marketing and R&D, and focus on nine priority disease areas. Each area has a huge pool of potential patients and most are chronic diseases, where patients would take drugs regularly for years. The nine areas include diabetes, Alzheimer’s disease, hardening of the arteries, other heart disease, novel vaccines, obesity, cancer, pain and sleep disorders.

The company reaffirmed its earnings per share guidance of $2.04 to $2.10 for 2005, or $2.47 to $2.51 excluding one-time charges, and $1.98 to $2.12 for 2006, or $2.28 to $2.36 excluding charges.

Analysts surveyed by Thomson Financial expect earnings per share of $2.51 in 2005 and $2.35 in 2006, excluding charges.

Merck estimated revenue growth of about 5 percent until 2010, while trimming spending on each brand by 15 percent to 20 percent. Merck reported revenue of $22.94 billion in 2004.