ANALYSTS: MERCK RESTRUCTURING MAY NOT BE ENOUGH TO INCREASE PROFITS
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 This effort comes in the face of continuing lawsuits over withdrawn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
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