Schering-Plough To Cut More Costs

Schering-Plough has launched a new Productivity Transformation Program (PTP) to cut costs and increase productivity in an effort to save $1.5 billion annually. The program is in response to intensifying pressures in the U.S. market, centering on the Merck/Schering-Plough joint venture that markets cholesterol products Zetia and Vytorin. A panel of cardiologists recently called for doctors to limit use of these cholesterol drugs after a recent study showed that the drugs provided no benefit in slowing the progression of heart disease.
   
The targeted savings represent approximately 10% of the company’s FY07 cost base, including Organon BioSciences (OBS) and manufacturing. The $1.5 billion savings target includes $500 million of previously announced integration synergy targets from the November 2007 acquisition of OBS.
   
Approximately $1.25 billion (80%) of the planned savings are expected by the end of 2010, with the balance achieved by 2012.
   
“Savings and productivity improvements will be realized across the company and around the world. No area will be exempt,” said Fred Hassan, SP’s chairman and chief executive officer. “Our first actions will be to execute reductions in high overhead cost areas, beginning with reductions in higher management levels in the company’s headquarters and elsewhere. A major focus will be the U.S., where the most intense new pressures on our industry and our company are centered.” Mr. Hassan added, “We will be executing this cost saving, productivity-enhancing program with care and prudence. We will not engage in across-the-board cost cutting. 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.”
   
The plan will include the elimination of about 5,500 jobs or 10% of the company’s headcount, as well as consolidation of middle management functions and increased use of shared staff support and shared services. The company will review and re-size investments in sales and marketing and R&D, including strategic reductions in its project portfolio and will also reduce the number of plants globally and create more focused and high-efficiency plants by 2012.
   
“Hard new realities are requiring hard new actions. The reality is that we face today a new political and overall environment in the U.S. that is increasingly discouraging pharmaceutical innovation. 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, have caused an unwarranted concern among millions of patients who need to get to their cholesterol goals,” said Mr. Hassan.