Merck Layoffs: Lower Drug Sales,Too Many Reps

After the closing bell Monday, Merck (MRK) announced that it plans to get rid of 1,200 or around 15 percent of its sales reps.

Like Schering-Plough (SGP), 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 Merck 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 Tuesday 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 (AMGN) recently let go.

Comments

[Senior Guy]

Once again, sales reps must pay for the amazingly poor leadership from the top. Within a few years, as we have seen in the past, Merck's sales force will be close to the size it was before this layoff. Big pharma suffers greatly from a lack of true leadership. Sales reps such as I, told them repeatedly, that we didn't need to fill this vacancy or that vacancy, but the insisted anyway. We begged them not to fill open positions, but they did anyway. They tried this sales model and that sales model and threw in a tablet PC or two and patted themselves on the back and said, "Look at us! This new computer will save the day!" Their arrogance and stupidity knew no bounds. Now it is we, the sales rep that must pay.