Merck: Mergers and Layoffs and Pipelines, Oh My!

Another day, another positive 4Q earnings announcement-and another workforce gutting. This time the company is Merck, which pulled in $10.1 billion in the last quarter of 2009, and $27.4 billion for the year.

Merck CEO and president Richard Clark has expressed satisfaction with the “new Merck.” So far, he has good reason, as earnings were slightly higher than analysts predicted. The strong performance of HIV drug Isentress, which posted a 108 percent increase in 4Q sales (versus) 2008, and increases in sales for Singulair and diabetes drug Januvia (12 percent and 35 percent for 4Q, respectively), among other solid numbers, helped offset a significant decrease in the company’s vaccine revenue. This decrease came despite government stockpiling and a vibrant ad campaign.

Merck’s pipeline also got quite a boost from the big merger with Schering-Plough. Two of five new filings and six out of 15 Phase III trials are for Schering drugs, which Deutsche Bank analyst Barbara Ryan said should cushion the blow from upcoming patent expirations.

However, Merck is still looking to realize annual savings of $3.5 billion by 2012, and much of their operating costs come from sales and R&D. Marketing and administrative expenses sucked $8.5 billion from the budget last year, with R&D costs at $5.8 billion. Following the Schering merger, plans are to cut 15 percent of the workforce (about 15,000 positions) by 2012.

Former Schering-Plough CEO Fred Hassan, who recently handed over the reins to Merck, cautioned against using restructuring as a means of saving money. “It’s relatively easy to get the bottom line to go up by slashing costs,” Hassan said in an interview with MeettheBoss.tv. “It is very difficult to make a good customer experience, so that you can grow the top line.”