Merck Layoffs: Whose Jobs Are Safe, and Whose Aren't?

Last Updated Jan 8, 2010 12:09 PM EST

As Merck (MRK) begins the first 500 of 16,000 promised layoffs in order to make its merger with Schering-Plough work, the question is: Whose jobs will go?

A look at the statements of Merck CEO Richard Clark and the two companies' SEC filings give some clues as to whose jobs are vulnerable, and who can relax (a little).

We know that Clark wants to eliminate duplication, which probably means functions such as admin and human resources. There's no point in employing two sets of payroll clerks, for instance. Clark also said he may consider outsourcing some sales functions, and will look at research sites (the latter may be moved to China if current trends continue). And we know that Schering's Kenilworth site may remain an important piece of the Merck empire. Clark said:

"There's still a lot of duplication, not only in sales force, but in marketing organizations and corporate organizations, and issues like that," he said. He also mentioned that "the number of research sites you need" is "something that has to be looked at. . . ."
However, some on CafePharma mistakenly believe that Merck employees will be safer than their Schering counterparts, as Merck is the buyer in the merger. This is not necessarily so. A look at both companies' recent product sales numbers shows that Merck has at least as many brands in trouble as Schering has. Mere loyalty to Merck staff won't stop Clark from axing anyone on a franchise in freefall. Here's the list of drugs at Schering that have declining revenues (see page 30):
  • Pegintron
  • Clarinex
  • Follistim
  • Integrilin
  • Caelyx
  • Zemuron
All other brands are going up. Clearly, sales reps and product managers on the above brands have swords dangling over their heads.

Here's the corresponding list for Merck (see page 39):

  • Cozaar
  • Fosamax
  • Zocor
  • Cosopt
  • Arcoxia
  • Vasotec
  • Proscar
  • Gardasil
  • RotaTeq
  • Primaxin
  • Crixivan
Neither list includes staff dedicated to the ongoing Vytorin/Zetia fiasco. That partnership brings in about $1 billion per quarter between both companies, but its days are numbered as cheap generic cholesterol drugs replace it. The only comfort for Merck is that its sales reps generally brought in more revenues per dollar invested that Schering's did.

Bottom line: Even though it may look as if Merck is putting the Schering side to the sword, the acquiring company has just as many problems on its side that will also require layoffs.

Hat tip to Shearlings Got Plowed.