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Merck's post-merger profits and job cuts

Merck has announced dramatic increases in its Q4 2009 profits and revenues, reflecting its recent acquisition of Schering-Plough

Merck has announced dramatic increases in its Q4 2009 profits and revenues, reflecting its recent acquisition of Schering-Plough.

Net income for the quarter was $6.49bn, or $2.35 per share, compared with $1.64bn, or 78 cents a share, in the same quarter the previous year. The jump was due largely to merger-related accounting items, as well as billions of dollars in sales of Schering-Plough products.

However, several of Merck's own key products, including the asthma and allergy treatment Singulair (montelukast sodium) and type 2 diabetes medicine Januvia (sitagliptin), also posted increased sales.

In total, the merged company's sales were $10.09bn for the quarter, compared to Merck's sales of $6.03bn in last year's fourth quarter. Earnings per share came in at $2.35; excluding one-time, merger-related items, earnings per share (EPS) was 79 cents.

Merck is not yet providing specific guidance about its full-year financial results. However, in a conference call with financial analysts and the media to discuss the quarterly results, chief financial officer Peter Kellogg appeared to be trying to manage expectations: "Looking ahead over this next four-year period, we do anticipate some years will be stronger than others," he said.

Kellogg continued: "For example, 2010 has several factors that will be challenging," including the loss of patent protection for Cozaar (losartan potassium) /Hyzaar (losartan potassium hydrochlorothiazide) and Temodar (temozolomide), which combined brought in $3.1bn in revenue in the US and Europe in 2009.

Restructuring programme
During the call, Merck executives also announced the first phase of a new global merger restructuring programme. The initial phase, which Merck expects will yield cost-savings of up to $3bn in 2012, will include reducing the combined company's total workforce by approximately 15 per cent across all areas worldwide, with a focus on cutting duplicative positions in sales, administrative and headquarters organisations. In addition, about 2,500 currently vacant positions will be eliminated as part of the first phase.

"Since the merger closed in early November, we have moved quickly around the world to integrate our operations and begin taking advantage of the opportunities that come with the new Merck," CEO Richard Clark told the analysts. He added that integrating the two firms' pipelines has been a major priority.

"I spent a considerable amount of time with Peter Kim (head of Merck's research laboratories) and other senior Merck leaders to conduct a thorough review of the new combined pipeline so we may better prioritise our efforts by franchise, phase, cost and geographic importance," Clark said.

"I'm very enthusiastic about the work we've done on our powerful R&D pipeline with more than 20 late stage programmes," continued Clark. He promised more specific information in the near future.

Clark, who will be forced by company rules to retire in early 2011 due to his age, was asked about efforts to find a successor to lead the company.

"I feel very confident we have an excellent process in place," he said. "From the leadership team I've put together, there are excellent leaders within the company, and obviously the process will evolve throughout the year, but I think we're in pretty good shape as far as the process and our internal candidates go."

17th February 2010

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