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MARION MERRELL DOW WILL CUT 275 FULL-TIME SALES REPS AND MANAGERS

Executive Summary

MARION MERRELL DOW WILL CUT 275 FULL-TIME SALES REPS AND MANAGERS from its current level of "about 1,500" -- an 18% reduction -- as part of a company-wide work force reduction and company realignment. Marion Merrell Dow said July 14 that, as part of its downsizing and corporate costs-management efforts announced May 4 ("The Pink Sheet" May 10, T&G-7), the company will reduce the full-time U.S. sales force by 275 sales representatives and managers, "while also aligning the sales force more closely with customers' needs." In addition to those cuts, the company plans to halve its part-time sales force from "about 400 to 200," MMD said. MMD is one of the first pharmaceutical majors to disclose that it is taking the scissors to its sales force as part of moves to adapt to the changing health care environment. In contrast, for example, Syntex, which recently announced a further restructuring that includes a work force reduction of 1,400 positions, said only that it was considering cutting some of its sales force. Other companies that have announced restructuring/downsizing programs, generally have opted to maintain their sales forces. Overall, Marion Merrell Dow will reduce its full-time work force by "approximately 1,000 to 1,300 associates from the current level of about 9,800." Most of the reductions will take place in the U.S. The impact on staffing levels by department will vary, MMD said. Of the company's 9,800 employees, approximately 5,300 work in the U.S. Commenting on the staff cutbacks, MMD President and CEO Fred Lyons said: "The reduction in employment is painful from a personal standpoint, but essential in light of the challenges we are facing and the fundamental shifts taking place in health care. We want Marion Merrell Dow to be the very best pharmaceutical company at serving customers in an increasingly cost-conscious environment. Unfortunately," he commented, "that means bringing our work force in line with current business realities. In doing this process, it goes without saying that we are committed to doing what is right for our people to ease the transition of those who are affected." As a result of the May-announced realignment, Marion Merrell Dow said July 14 that it will take a special pretax charge of approximately $180 mil. in the second quarter, results of which are to be reported later in July. The one-time charge to pretax earnings is expected to reduce second quarter earnings by 46 cents a share, the company said. The implementation of the restructuring and other cost-cutting measures are expected to reduce annual operating costs before the special charge by approximately $250 mil. compared to 1992 levels, MMD noted. Other aspects of the reengineering as outlined in May include a "redesign" of the U.S. business organization "following a year- long study to better meet customer needs, especially in the growing managed care segment of health care"; focusing R&D on the "highest priority" projects in the pipeline; and the implementation of unspecified "other steps to position the company for the future." MMD is "moving aggressively to realign our business," Lyons said, "both to improve current results in the face of rapidly changing conditions and to prepare for the longer- term opportunities that we envision in the second half of the decade." In the second half of the 1990s, Lyons has predicted that pharmaceutical industry profits will be cut in half to 10% after- tax margins, that R&D budgets will continue to rise and that marketing expenditures by the end of the decade will be down to 15%-20% compared to the current 25%-30% of sales they account for now. The reengineering project at MMD has encompassed the purchase of the generic drug company Rugby-Darby. Additionally, the company is taking a preliminary look at how it distributes its products.
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