Friday, July 29, 2011

Another 12 or 13 Percent To Be Let Go By 2015. . . . R&D Trimmed (Again)

LIVE BLOG | New Merck Q2 2011 Results

▲ Vertex reported very strong Incivek launch numbers last night -- it seems clear that Vertex has north of 80 percent initial share; Merck's boceprevir has less than 20 percent, despite having announced two very high-profile (read: expensive) co-promotion partnerships in Q2 2011. Vertex is clearly going to call the shots in the new Hep C world -- posting north of 80 percent cure rates on prior non-responders. Yes, this is another legacy Schering-Plough product -- thanks, Fred and Carrie.

▲ So (sadly). . . if Merck's 20092010 year-end employee headcount was around 104,00086,000, another 12,00011,000 to 13,00012,000 of Merck's people will be let go by 2015 -- under the accelerated restructuring announced today -- initially costing it around $5 billion to $6 billion. That's staggering, on total 2010 annual revenue of $43 billion.

Does it strike anyone (else) as strange that the world's No. 2 pharma concern would have over 31 percent of its Q2 2011 EPS "meets Street guidance" as NON-GAAP contributors? That sounds more like a development-stage life science company, than the world's second largest (by worldwide revenue). GAAP EPS was only $0.65, but with non-GAAP (i.e., fuzzy) accounting, that line swells to $0.95. 30/95 is about a 32 percent "addition".

▲ Q2 2011 Animal Health sales totaled $802 million -- but excluding currency translation gains (i.e., non-sustainable), that's was only 2 percent organic growth. Pretty anemic, in a segment that is reputed (by New Merck puffery) to be largely "insulated from" recessionary pressures.

▲ Q2 2011 Consumer Care showed no growth over Q2 2001. Not a great signal, given that Frazier has said he might seek a partner for this segment.

Merck is using R&D spending-level adjustments to manage (or exactly match) Wall Street's expected EPS for Q2 of $0.95 -- the R&D spend will, for at least the next few quarters, either expand or contract, to meet Wall Street's EPS expectations, it would seem. Again, this makes Q2 2011 EPS pretty much an artifical (or at least highly "malliable" number) number -- if R&D spend levels are going to be the simple "plug figure" -- to reach the guidance EPS.

▲ Thus, Merck is guiding a full-year 2011 EPS range that is two pennies higher than Street consensus. Pretty much an artifical number -- if R&D spend levels are going to be the simple "plug figure" -- to make the guidance: slow, or reduce R&D a bit, if operating earnings are light. SHeesh, This makes EPS a question of whether the earnings have "quality" -- or are just temporarily juiced by slowing expenses.

First up -- pre call, courtesy of
. . . .Merck said it remains on track to achieve its goal of $3.5B in annual cost synergies by the end of 2012. The company said it will more aggressively reduce its cost structure. As a result, Merck announced the next phase of its Merger Restructuring Program today. As part of this next phase, the company expects to reduce its workforce, as measured at December 31, 2009, by an additional 12%-13% by the end of 2015. At the same time, Merck said it will continue to hire new employees in strategic growth areas of the business such as emerging markets. By the end of 2015, Merck now expects the overall Merger Restructuring Program to yield annual ongoing savings of $4B-$4.6B from the original estimate of $2.7B-$3.1B. . . .


the View said...

Has anyone considered an exploratory peek at what "insiders" are saying about the "New Merck" business practices? You might get quite a different view of "the New Merck" Company image. People seem to be realizing that Fred sold his "most valued employees" out when he said Merck wanted the combined talent of both companies...not so. Wanted the legacy SP blockbuster "stars", NOT THE PEOPLE OR THE BENEFIT OF THE SP CULTURE!

Upon his departure, Fred said he'd be "watching us." What does he have to say?

Anonymous said...

What the View said

Anonymous said...

...and this is only begining..

Anonymous said...

this is going to be 12 or 13% based on the headcount at the end of 2009! (not 2010)

condor said...

Right you are -- revised it!

Thanks so much!


condor said...

I'll be off teh grid until August 11, now -- out of the country.

Be excellent to one another.


Anonymous said...

since it's based on 2009 levels, does that mean legacy SP people are entitled to the "change of control" package still or will they get a standard merck package? big difference there.

Anonymous said...

The legacy Schering severance package details are in effect until 12/31/2011 - this was extended from the initial November date.

1/1/2012 will bring the same package for all layoffs and, in legacy Merck package terms, it eliminates the base weeks awarded by pay grade. Starting in 2013 it will only be the 60 day WARN wages and 2 weeks for each year of service with a strong rumor of a total week cap looming (but not published to date).