Merck's Layoffs Show Pain Of Lower Drug Sales,Too Many Reps


After the closing bell yesterday, Merck announced that it plans to get rid of 12-hundred or around 15 percent of its sales reps.

Like Schering-Plough ,the company is having to adjust to lower sales of its Vytorin and Zetia cholesterol drugs and on top of that the Food and Drug Administration’s surprising refusal last week to approve a different type of cholesterol fighter.

This is also just the latest sales army reduction in what analysts say is a necessary trend in the pharmaceutical industry. There are too many reps who in many instances are trying to sell the same drug to the same doctor.

Miller-Tabak healthcare analyst Les Funtleyder suspects the move will result in MRK possibly raising its 2008 earnings guidance and lowering its revenue forecast. But he still doesn’t think that’s a reason to buy the beaten down stock.

In a research note to clients this morning he writes: “Given the lack of visibility and the political headwinds, we remain on the sidelines for now in this name preferring to wait until later in the year when the new normal script trends on Gardasil and Vytorin emerge as well as some clarity on the rate of healthcare reform is evident.”

He’s referring to recent fluctuations in sales of the cervical cancer vaccine Gardasil and to the dust needing to settle on the Vytorin-Zetia brouhaha.

But Deutsche Bank’s Barbara Ryan is already putting a higher number on it. She estimates the layoffs could add three cents to earnings per share this year and seven cents next year. Ryan says: “We continue to believe that the combination of MRK’s strong base business, new product growth and agile, increasingly lean cost structure will support superior EPS growth over the next several years, while its growing late stage pipeline have the potential to extend this record into the next decade.” If you couldn’t tell by those comments, Ryan has a “Buy” rating on MRK. DB makes a market in Merck and owns at least one percent of the shares.

Merck is calling the restructuring its “Plan to Win.” I don’t think that’s what the reps who will be getting their pink slips by the end of this month would call it. And the downsizing is not limited to big pharma. Coincidentally, 1,200 is the approximate number of people the biotech giant Amgen recently let go.

I will be live tomorrow morning on “Squawk on the Street” around 10 am ET from outside the site where AMGN will be holding its annual shareholder meeting with a report on the company’s troubles and a longtime individual investor who is calling for the CEO’s ouster.

Questions? Comments?