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Schering-Plough to cut jobs

Planned cost-cutting measures at Schering-Plough will begin with job losses at senior management level, as the company seeks to generate a total of $1.5bn in annual savings and synergies as part of its productivity transformation program (PTP).

Planned cost-cutting measures at Schering-Plough will begin with job losses at senior management level, as the company seeks to generate a total of $1.5bn in annual savings and synergies as part of its productivity transformation program (PTP).

Schering-Plough, like other companies in the sector, is under intense financial pressure, particularly in the US, not least because of confusion in the marketplace about cholesterol-lowering treatments Zetia and Vytorin ñ products of the company's joint venture with Merck. 

Targeted savings represent approximately 10 per cent of the combined company's full-year 2007 estimated cost base, including Organon BioSciences and manufacturing. Full details of the implementation programme are still being developed, however, at least $1.25bn (more than 80 per cent) of the planned savings will be achieved by the end of 2010. The balance will be attained by 2012 ñ this takes into account longer timelines for implementing the program effectively in the global supply chain. 

Cost-containment measures will affect every part of the business globally and the PTP will include the following:

  • Further elimination and simplification of management layers
  • Consolidation of middle management function and increased use of shared staff and services
  • Further reduction in travel and other costs
  • Review and re-sizing of investments, including sales and marketing and R&D cost base, which comprises strategic reductions in the project portfolio, while prioritising high-potential projects, such as phase III thrombin receptor antagonist cardiovascular compounds
  • Simplification of product lines, in particular the combined animal health business
  • Reduction in the number of global plants and the creation of more focused and high-efficiency plants by 2012
  • Process improvement in all parts of the company to boost efficiencies. 

Fred Hassan, Schering-Plough chairman and CEO will lead the senior management team overseeing the PTP. "We will be executing this cost-saving, productivity enhancing progam with care and prudence," he said. "We will avoid unwise short term actions. We will be focused on the same goal that has driven our company over the past nearly five years of my tenure as CEO: driving high performance for the long term.

Hassan said that hard new realities of the political and business environment in the US, which are damaging innovation, require hard new actions. He made particular reference to the fall out Schering-Plough and partner Merck suffered following a recommendation by leading Yale cardiologist, Harlan Krumholtz, on Zetia and Vytorin. 

At the American College of Cardiology meeting in Chicago, Krumholtz told the delegation that Zetia and Vytorin, which together netted more than $5bn in sales in 2007, should not be used as first- or even second-line treatments.

"The reality is that we face today a new political and overall environment in the US that is increasingly discouraging pharmaceutical innovation," said Hassan. "An example of these intense overall new pressures has been the confusion in the cholesterol market largely caused by the overreaction to conflicting results of the relatively small ENHANCE clinical trial, involving Vytorin.

"This confusion, in the absence of an open and balanced scientific discussion of this clinical trial, has caused unwarranted concern among millions of patients who need to get their cholesterol goals," he added. 

When news of Krumholtz recommendation reached the market, it wiped 26 per cent off Schering-Plough's share price and 14.7 per cent off that of Merck ñ in combination shareholder value dropped $22bn on March 31. 

3rd April 2008

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