Schering-Plough cuts 10% amidst Vytorin woes
Nobody can call Fred Hassan indecisive.
Days after cardiologists gave his company's key cholesterol products a pounding, the Schering-Plough chief announced a sweeping cost-cutting plan designed to save $1.5 billion by 2012 through a 10% reduction in headcount starting with senior management and sales and marketing.
With 55,000 employed at Schering-Plough worldwide, that adds up to a reduction of around 5,500 jobs. The $1.5 billion savings figure includes $500 million previously promised from the company's 2007 acquisition of Organon.
“We are determined to control our destiny,” Hassan said in a Wednesday afternoon conference call, vowing that the firm will “power our way out” of a tough spot.
As a result of “US-centric pressures,” the ax will fall disproportionately on the company's US operations, but “savings will be realized across the company, around the world. No area will be exempt.”
“Our first action will be to execute reductions in high-overhead cost areas, beginning with reductions in higher management levels at the company's headquarters,” said Hassan. “We will eliminate and simplify management layers, especially above the country level. Finally, we will review and resize our investments in sales and marketing and the R&D cost base.”
Hassan fumed over last weekend's American College of Cardiology convention, where presenters trashed Vytorin and Zetia, saying they should be relegated to third-line therapy status in light of the Enhance trial – the full results of which were presented at the conference. “We were very disappointed by the way it unfolded,” said Hassan. “We had hoped to see an open and balanced scientific discussion. This did not occur.”
Merck and Schering-Plough remain committed to the Vytorin joint venture, Hassan said, adding that “We do believe our messages to cardiologists have been very good. Just because there's been something coming out of this ACC meeting doesn't mean all cardiologists are going to follow whatever might have been said at that meeting.” Around 20% of Vytorin prescriptions are written by cardiologists, with the remainder written by general practitioners. Hassan was sanguine on the drugs' prospects, saying that overseas markets will see little impact and that there is little churn in the market. For December, before the controversy over the study erupted, Hassan said first-line use accounted for about 4% of prescriptions, switches for another 3%.The increasing share of generic Zocor (simvastatin) bodes well for Vytorin's prospects in managed markets, Hassan said, since the Zocor/Zetia combo would be a natural follow-on for patients who needed some extra help getting their cholesterol down. He did not expect changes to the drugs' labels, saying they “do what the label says they do.”
Making his case for the company to the investor community, Hassan cited a strong pipeline, products with more patent life than many peers and a diverse business including animal health and OTC units. “So we do believe that we can power our way out of this difficulty,” said Hassan. “We actually faced a more difficult challenge in '03 and we powered our way out of it.”
Earlier in the week, AstraZeneca announced that it had halted a patient outcomes trial of Vytorin competitor Crestor due to positive results. The trial, dubbed Jupiter, involved 15,000 patients with low or normal cholesterol but elevated levels of CRP, a biomarker associated with heart attack risk.