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Schering Plans Cuts of $1.5 Billion by 2012
  Wall St Jnl
April 3, 2008

Schering-Plough Corp. announced a plan to cut costs by $1.5 billion by 2012, after a panel of cardiologists called for doctors to limit use of the company's blockbuster cholesterol drugs and sent its stock down nearly 29%. The Kenilworth, N.J., drug maker is estimated to derive up to 60% of its profit from two cholesterol medicines it markets with Merck & Co., Vytorin and Zetia. But a study presented this past weekend showed that the drugs did no better than a cheaper generic at slowing the progression of heart disease. That finding, which Schering-Plough and Merck had first previewed in January, led cardiologists at a heart meeting in Chicago to urge using the drugs only as a last resort.
The cost-cutting plan that Schering-Plough Chief Executive Fred Hassan unveiled late Wednesday will slash 10% off Schering-Plough's cost base over the next four years. The cuts include $500 million that the company previously announced as part of its integration of Organon BioSciences, which it bought last November for $16 billion. Schering-Plough pledged to make 80%, or $1.25 billion, of the cuts by the end of 2010. About 5,500 employees will lose their jobs, or 10% of Schering-Plough's 55,000 headcount. The company said it will reduce its number of manufacturing plants and layers of middle and senior management. Mr. Hassan also plans to reduce the company's sales and marketing staff and research-and-development organizations, although the company did not outline specifics. In a conference call with investors, Mr. Hassan reiterated his confidence in Vytorin and Zetia, and said the company was "very disappointed" by the way the panel of cardiologists denounced the medicines on Sunday. "We've taken tough actions needed in this tough environment," Mr. Hassan said. "We are taking control of our destiny." Mr. Hassan has led a revival of Schering-Plough since taking its reins in 2003, largely on the success of Vytorin and Zetia. Those drugs are likely now to see their combined $5.2 billion in 2007 sales erode: Credit Suisse reduced its U.S. 2008 revenue forecasts for Vytorin and Zetia by $302 million. The drugs are so important to Schering-Plough, which is considerably smaller than Merck, that the long-term viability of the company is now at stake. With a stock price that has sunk, Schering-Plough is considered in the industry a possible takeover target. Asked whether he should sell the company, Mr. Hassan defended his strong management team and Schering-Plough's pipeline. "We do believe we can power our way out of this difficulty," he said.

Schering-Plough announces major job cuts, post-Vytorin
03 April 2008
The pressures that Schering-Plough has been suffering amid the criticism of its cholesteriol drugs Vytorin and Zetia, sold through a joint venture with Merck & Co, has led the firm to announce major job cuts and plant closures.
S-P has unveiled what it calls a "productivity transformation programme", which targets $1.5 billion in annual savings and includes previously-announced synergy targets of $500 million from the November 2007 acquisition of Organon BioSciences from Akzo Nobel. The company said the move is a response to "dramatically intensifying pressures on the pharmaceutical industry, especially new pressures in the USA, and also to the confusion in the US market around cholesterol management". It is expected that around 10% of its 55,000 workforce will be laid off.
This specifically refers to the results of the controversial ENHANCE study confirmed at the American College of Cardiology meeting in Chicago which demonstrated that Vytorin, a combination of Zetia (ezetimibe) and Zocor (simvastatin), may not be any more effective than cheaper statins, notably generic Zocor, in preventing heart disease. As a result, panellists at the ACC recommended that widespread use of Vytorin and Zetia should be curtailed.
Specific details of the programme have not yet been finalised but S-P said that more than 80%, of the planned savings are targeted to be accomplished by the end of 2010. As well as the reduction of the number of facilities across the world, it will create "more focused and high-efficiency plants by 2012".
No area exempt from cuts
Chief executive Fred Hassan said "savings and productivity improvements will be realised across the company and around the world. No area will be exempt". He added that the first step will be to reduce "higher management levels in the company's headquarters and elsewhere", noting that "a major focus will be the USA, where the most intense new pressures on our industry and our company are centred."
Mr Hassan, claiming that S-P will "not engage in across-the-board cost-cutting" and "will avoid unwise short term actions", said the firm is progressing well, citing the Organon purchase. He insisted that "we now have perhaps the most impressive late-stage pipeline in our peer group -- including cutting edge projects as TRA for deadly blood clots, and sugammadex in anaesthesiology".
However the firm has seen its stock plummet in the past few months and "hard new realities are requiring the hard new actions" he added, claiming that "the reality is that we face today a new political and overall environment in the USA that is increasingly discouraging pharmaceutical innovation." An example of this, Mr Hassan said, "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".
He continued: "This confusion, in the absence of an open and balanced scientific discussion of this clinical trial, have caused an unwarranted concern among millions of patients who need to get to their cholesterol goals". The Vytorin tale "has been a case study of the impact of the hard new realities," he added.
Mr Hassan concluded on a positive note, saying that "we are taking the tough actions that are needed to respond to a tough situation". However, "the challenge we are addressing today is much more manageable than the one that we faced when I took on the leadership of S-P in 2003", he added.
Investors would appear to agree with the CEO as S-P shares climbed in post-trading after the restructuring plan was unveiled.
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