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.