Schering-Plough plans $1 billion in spending cuts

Schering plans $1B cutback as Vytorin, Zetia fall
10% layoffs, plant closings due

Thursday, April 03, 2008
BY GEORGE E. JORDAN AND SUSAN TODD
Star-Ledger Staff

Faced with a crushing blow to its top-selling medicines, drugmaker Schering-Plough last night announced more than $1 billion in spending cuts, including plans to lay off 10 percent of its work force and shut manufacturing plants over the next two years.

Fred Hassan, chairman and chief executive of the Kenilworth-based company, used tough language to describe the cuts that he said were precipitated by calls at the American College of Cardiology meeting in Chicago to halt the widespread use of the cholesterol tablets Vytorin and Zetia.

"No area will be exempt," Hassan said. "Hard new realities are requiring the hard new actions."

Rosemarie Yancosek, a spokeswoman for Schering-Plough, could not offer a timetable for the approximately 5,500 global layoffs. Neither could she identify which facilities around the globe would be closed or would eliminate jobs.

Schering-Plough has 8,000 employees in New Jersey and another 47,000 workers scattered around the world, she said. It also operates 60 manufacturing plants, including production lines in New Jersey.

"We are going to be taking down the cost basis for the entire company," Hassan said in a teleconference with Wall Street analysts last night.

The company had already been in the throes of making layoffs and $500,000 in cuts since its $14.4 billion acquisition last year of Organon BioSciences, which gave Schering-Plough a stable of potential new drugs.

The lion's share of the layoffs and plant closings announced last night will occur by 2010, while the rest would happen by 2012, Schering-Plough said in a news release.

The moves are another blow to New Jersey's most important industry. Major drugmakers are suffering through their worst drought in years, with many of their biggest sellers coming off patent soon and facing competition from cheaper generics. At the same time, questions are being raised over safety and marketing. Drugmakers large and small have been shedding thousands of jobs to lower their costs, boost profits and assuage investors.

Schering-Plough lost 25 percent of its market value Monday, the first day of trading after an ACC panel's recommendation Sunday. Merck, which co-markets Vytorin, lost 14 percent of its market value.

"They're doing what they think they need to do," said Tony Butler, a pharmaceutical industry analyst with Lehman Bros. "I'm not clear it's totally in response to the stock price. Maybe it's a response to (the impact) they foresee out of ACC. Maybe it's a protective measure.

"Part of it is management trying to illustrate prudence and manage the business properly," Butler said.

Zetia and Vytorin, a combination of Schering-Plough's Zetia and Merck's Zocor, had combined sales of $5.1 billion last year. They are among the top-selling cholesterol medicines in the world, used by 5 million Americans, and figured prominently in Schering-Plough's resurgence in recent years.

The recommendation to curtail use of the drug by an ACC panel, and in an editorial in the New England Journal of Medicine, was prompted by a study released partially in January that found Vytorin worked no better than Zocor -- a generic drug five times less expensive -- at reducing blockages that cause heart attacks. The drugs' safety was not questioned.

The full study results were released Sunday at the ACC meeting.

Hassan last night said there was "overreaction" and "confusion" in the United States to the study, which Schering-Plough and Merck have tried to downplay. Three long-term studies to conclusively measure Vytorin and Zetia's benefits won't be complete until 2012.

This week, some health insurance carriers began recommending other heart pills, such as Pfizer's Lipitor and AstraZeneca's Crestor, instead of Zetia and Vytorin.

Wall Street analysts expect a sharp decline in Schering-Plough's revenue, as prescriptions for Vytorin and Zetia are down 18 percent this year since the unflattering study's release in January.

George E. Jordan may be reached at [email protected] or (973) 392-1801. Susan Todd may be reached at [email protected] or (973) 392-4125.