Schering-Plough is undertaking a new Productivity Transformation Program (PTP) to reduce or avoid costs and increase productivity to generate a total of $1.5 billion by 2012 in targeted annual savings and synergies, which will include a loss of jobs for approximately 5,500 employees, about 10 percent of its workforce.
“The program responds to dramatically intensifying pressures on the pharmaceutical industry, especially new pressures in the U.S., and also to the confusion in the U.S. market around cholesterol management that impacts the products of the Merck/Schering-Plough joint venture, Zetia and Vytorin,” the Kenilworth, N.J.-based company said.
The pharmaceutical company said that the targeted savings represent approximately 10 percent of the combined company's full year 2007 estimated cost base, including Organon BioSciences (OBS) and manufacturing. The company said its previously announced integration synergy targets of $500 million from its November 2007 acquisition of OBS of the Netherlands will be rolled into the PTP.
The company said that while the details of the implementation program are still being developed, at least $1.25 billion—or more than 80 percent—of the planned savings are targeted to be accomplished by the end of 2010, with the balance achieved by 2012, reflecting the longer timelines for implementing such actions in the global supply chain.
“Savings and productivity improvements will be realized across the company and around the world. No area will be exempt,” said Fred Hassan, chairman and CEO of Schering-Plough. “Our first actions will be to execute reductions in high overhead cost areas, beginning with reductions in higher management levels in the company's headquarters and elsewhere. A major focus will be the U.S., where the most intense new pressures on our industry and our company are centered.”
Schering-Plough said that the PTP will include the following actions:
- Further elimination and simplification of management layers;
- Consolidation of middle management functions and increased use of shared staff support and shared services;
- Execution of further reductions in travel and other costs.
- Review and re-sizing of investments, including sales and marketing, and the R &D cost base; including strategic reductions in the project portfolio while prioritizing high-potential projects such as the phase III Thrombin Receptor Antagonist cardiovascular compound.
- Simplification of product lines;
- Reduction of the number of plants globally and the creation of more focused and high-efficiency plants by 2012; and
- Process improvement in all parts of the company to improve efficiencies.
Hassan said that “hard new realities are requiring the hard new actions…The reality is that we face today a new political and overall environment in the U.S. that is increasingly discouraging pharmaceutical innovation.”
“We need to improve the environment for pharmaceutical innovation in the U.S.,” said Hassan, “because patients need new treatments for unmet medical needs such as Alzheimer's disease, heart disease and cancer. And our country needs to foster the innovation-based pharmaceutical industry, because our biomedical research is still pre-eminent compared to other countries.”