FDAnews Drug Daily Bulletin

ANALYSTS: MERCK RESTRUCTURING MAY NOT BE ENOUGH TO INCREASE PROFITS

Nov. 30, 2005
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Merck is moving forward with a major restructuring of its manufacturing division in an effort to boost profits, but industry analysts say the move may not be enough to bolster the company, as Merck is as much as 10 years behind the rest of the industry in revamping its operations.

Merck announced during a recent conference call that it is undertaking a program to make the company more efficient in introducing new drugs, cut costs and increase profits. This effort comes in the face of continuing lawsuits over withdrawn painkiller Vioxx (rofecoxib) and the upcoming loss of exclusivity for its biggest moneymaker, the cholesterol-lowering drug Zocor (simvastatin).

The company has been under fire for allegations that Vioxx caused an increased chance of heart attacks. The company is currently facing more than 6,000 lawsuits stemming from Vioxx. Merck will also lose its market exclusivity for Zocor in 2006, potentially cutting an annual $4.5 billion profit in half.

Specifically, Merck's plan includes the creation of "a global facility network that combines the best of Merck manufacturing with the manufacturing capabilities of key external suppliers, introducing a new production system based on lean manufacturing principles, and developing a new approach to product commercialization to enable accelerated delivery of Merck's research pipeline through the launch phase."

As part of the restructuring, Merck is implementing a global rollout of lean manufacturing principles, which are guidelines for reducing the time from customer order to manufacturing. The company has already launched a lean manufacturing pilot program at its Arecibo, Puerto Rico, plant, resulting in a 50 percent reduction in on-site cycle times and a 30 percent reduction in on-site inventory.

Merck's overall goal is to incorporate its own best practices with those of other companies to speed drug development and save money, company spokeswoman Amy Rose said. The company laid out the initial details during yesterday's announcement; more details could be available during Merck's Dec. 15 annual business briefing, Rose added.
However, the restructuring may not be able to offset Merck's failure to keep pace with other large pharmaceutical manufacturers, one industry analyst said. Merck's manufacturing operations are years behind other companies, such as Pfizer, that have long since consolidated their manufacturing and sales efforts, the source said.

Analysts have viewed Merck for years as a "large, ponderous organization" that was slow to react to market changes, the analyst said. Merck has too many sales and administrative staff and an insufficient R&D program, the analyst added. The real question is whether Merck's plan will enable it to regain a better hold on innovation in the drug market, the analyst said