SmithKline up 18% in quarter: Drug firms show mixed fortunes as hard-hit Merck cuts 2,100 jobs

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The Independent Online
THE TURMOIL in the drug sector was underlined yesterday as Merck, the world's biggest drug company, disclosed plans to cut 2,100 jobs at a cost of dollars 450m. The total restructuring charge, dollars 775m, hammered second-quarter earnings, which fell to dollars 223m, compared with dollars 933m a year before.

Its fortunes were in stark contrast with those of SmithKline Beecham, the Anglo-American drug company whose shares rose 3p to close at 419p after it announced second-quarter pre-tax profits up 18 per cent at pounds 294m and a dividend of 2.533p per 'A' share, and 4.756p per equity unit.

In the second half its pre-tax profits rose 15 per cent to pounds 601m. Particularly encouraging were sales of new products, with sales of Paxil/Seroxat, an antidepressant, Relafen, an arthritis drug, Kytril, a cancer therapy aid, and Havrix, a hepatitis 'A' vaccine contributing pounds 203m in the first half, compared with pounds 212m in 1992. Total first-half sales were pounds 2.9bn with pharmaceuticals contributing pounds 1.7bn and consumer brands (over-the-counter drugs and health drinks) pounds 622m.

SmithKline stressed the importance it attaches to strategic alliances, pointing out that so far this year it had entered into nine link-ups. Of these, it said the most significant was its agreement with Human Genome Sciences, which aims to convert genomic data into medicines and diagnostic products.

It also said a desire to concentrate on healthcare products, especially in the OTC market, led it earlier this year to dispose of the bulk of its consumer personal care brands such as Wella, a move that means the first- half figures have been restated.

Despite the company's performance, Bob Bauman, SmithKline's chief executive, stressed that the structural and political changes that were affecting the healthcare market made it increasingly difficult to forecast the future.

He said the company felt good about its results, but the environment in which it was operating was changing fast. It was not primarily the healthcare changes threatened by President Clinton in the US that made the difference, he added, but the development of 'bulk purchasing' managed healthcare.

These changes are leading many of the big drug companies, like Merck, to slim their sales staff, as bulk purchasers mean fewer customers who need fewer marketing personnel.

The American giant had originally announced a voluntary redundancy programme involving about 1,000 jobs. However, yesterday it said the figure would be 2,100. It did not specify how many of those additional employees opting to leave would be replaced, but it admitted there would be some.

It said the restructuring should 'ultimately' save it about dollars 140m in staff costs, and that it hoped to achieve earnings growth of 13 per cent this year.