Merck Still Plans Big Cost Savings This Year From Schering-Plough Deal

In his first public appearance since completing the acquisition last November of Schering-Plough, Merck chief executive Richard Clark told an investor conference that roughly half of the projected savings from the merger can be realized this year.

"I think you'll see them right out of the gate," Clark told the Goldman Sachs Unplugged Conference on Jan. 6. "I think it's a very realistic approach."

Toward that end, Clark elaborated that Merck is holding extensive meetings to review and set priorities for the product pipeline, and that manufacturing facilities, research sites and sales teams continue to be examined for savings.

At the time the deal was announced in March 2009, Clark forecast that $3.5 billion in expenses could be wrung out of the combined companies - on top of roughly $3 billion in cost cutting that was already under way at the individual drug makers.

"There's no question in my mind that the cost savings can be achieved," he said. "There's still a lot of dilution [that can take place] not only in the sales force, but also in the marketing organization, the corporate organization, and we're looking at a number of research sites."

Although Clark didn't offer many specifics, he pointed to the 96 plants that Merck now operates and which seem destined to be pared back as his executive team seeks to meet its ambitious cost-cutting goals.

He also noted that, over the past two years, Merck had trimmed its primary sales force by 30 percent to 35 percent and, in response to questions, acknowledged that greater use of contract sales organizations may be considered.

"I think the ability to bring our primary sales forces together on a global basis will be one of the first areas where we look to see how we can eliminate duplication and achieve integration," Clark said. In fact, Merck just shed another 500 sales positions at the beginning of January.

The willingness to outsource some sales functions reflects a belief that a five-year-old effort to remake sales into a so-called new commercial model is having a positive effect. The plan includes creating more ways for doctors and payers to communicate with Merck.

"We're able to get decision-making closer to the customer, more into their territory, having multiple channels and ways of communicating with customers," said Clark. "And having the flexibility that allows a territory and region basis really changed the commercial model for us from a region frequency model to more of an account management - what can we do to service the full account?"

To help with the overall integration process, however, and reset modeling, Clark said Merck brought in people with experience in the oil industry. It "...sounds far-fetched, but their kind of decision-making is not a heck of a lot different than ours - when you drill, when you put out resources."

Toward the end of the presentation, Clark was asked about his outlook for the IMPROVE-IT trial, the large study under way to evaluate the benefit of Vytorin (ezetimibe/simvastatin) compared with just simvastatin in patients with stabilized, high-risk acute coronary syndrome.

The trial, scheduled to conclude in 2012, is important for Merck because of concerns that Vytorin and Zetia (ezetimibe) may have links to cancer, although FDA recently said the cholesterol drugs are unlikely to cause cancer (¹ (Also see "FDA: Vytorin "Unlikely" To Cause Cancer, But More Data Coming" - Pink Sheet, 23 Dec, 2009.)).

In response to a question from Goldman Sachs analyst Jami Rubin, who likened the outcome of the trial to a "coin toss, at best," Clark said the data safety monitoring board met in November and it said "keep moving. So we...generally have confidence in it."

Without offering numbers, Clark also said prescription rates for Vytorin and Zetia have stabilized following the release of a study at the recent American Heart Association meeting. It found that boosting HDL cholesterol with Niaspan (extended-release niacin) is more effective at slowing atherosclerosis in high-risk patients on a long-term statin therapy than seeking to lower LDL by taking Zetia. The study was funded by Abbott Laboratories, which sells Niaspan (² (Also see "Abbott's Niaspan/Zetia Head-To-Head Trial Deemed Too Small And Inconclusive" - Pink Sheet, 16 Nov, 2009.)).

"I think coming out of the AHA, we've been very pleased on the feedback that we are getting from the professional representatives and the information we've been able to give them to answer the questions," said Clark. "I think we've seen, once again, a stabilization of the script data coming out for Vytorin and Zetia."

- Ed Silverman ( ³ [email protected] )