FDAnews Drug Daily Bulletin

MERCK STRENGTHENS R&D FOCUS TO INCREASE PROFITABILITY

Dec. 19, 2005
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Building on its restructuring plan announced late last month, Merck said yesterday it is refocusing its R&D operations in an effort to increase profitability and become more competitive in the marketplace.

Merck has been under fire recently, facing 9,200 lawsuits over its withdrawn painkiller Vioxx (rofecoxib), and will be hurt by the upcoming loss of exclusivity for its biggest moneymaker, the cholesterol-lowering drug Zocor (simvastatin). To combat these losses, Merck will make numerous changes to its research and sales operations, the firm said recently.

As the centerpiece of this plan, the company will refocus its R&D efforts on nine disease areas: Alzheimer's disease, atherosclerosis, cardiovascular disease, diabetes, novel vaccines, obesity, oncology, pain and sleep disorders. These areas were chosen not only based on the medical needs they represent, but also the economic opportunity for the company, Merck said.

The plan is "part of an ongoing effort to continually improve our execution and deliver sustained revenue and earnings growth over the longer-term," Merck CEO Richard Clark said. Specifically, the company believes it can start increasing earnings in 2007, with double-digit earnings growth over the next three to five years, Clark added.

However, these changes will not affect the company's immediate growth, with Merck continuing to predict a drop in earnings per share from between $2.47 and $2.51 in 2005 down to between $2.28 and $2.36 in 2006.

Some analysts have criticized Merck for failing to focus enough resources on drug development in recent years — a fault that has left the New Jersey-based drugmaker vulnerable to competitors. Analysts have viewed Merck for years as a "large, ponderous organization" that was slow to react to market changes, one analyst said. Merck has too many sales and administrative employees and an insufficient R&D program, the analyst added.

But the company dismissed the view that Merck was behind the competition in R&D. "Productivity is an industry-wide issue, not just an issue for Merck," Merck spokeswoman Janet Skidmore said. Instead, the move will only improve the company's already extensive R&D effort, Skidmore told FDAnews. Merck is "very clearly and very strongly on the right track."

In addition to focusing on specific therapeutic areas, Merck intends to revamp its clinical trial policies to make clinical development "more efficient, global [and] consistent" in order to reduce product development time. Merck expects a cut in the development process of as much as nine months by 2007.

Merck's announcement comes roughly two weeks after the company said it was moving forward with a major restructuring of its manufacturing division. The manufacturing overhaul will include a global rollout of lean manufacturing principles and a major consolidation of its manufacturing operations, including closing five of its 31 drug plants.