Ruling is not what the doctor ordered

Schering-Plough Corp said it will cut 10 percent of its jobs and shut plants to save $1.5 billion annually, two days after a panel of doctors said its cholesterol pill Vytorin shouldn't be used as an initial treatment.

The plan calls for trimming 10 percent of costs based on 2007 spending, the Kenilworth, New Jersey-based company said on Wednesday (local time) in a statement. The panel recommendation may erode sales of Vytorin and Schering's Zetia, which reached a combined $5 billion last year, by 24 percent in 2008, said Jim Kelly, a Goldman, Sachs & Co analyst, on March 31.

Vytorin is a combination pill that includes Zetia and Merck & Co's Zocor. A study released March 30 found Vytorin was no better at reducing plaque in neck arteries than Zocor alone, a medicine available generically at a fifth of the cost. Schering has lost $21 billion in market value since a preliminary report on the study was released in January.

"We are determined to control our own destiny," said Fred Hassan, Schering's Chief Executive Officer, on a conference call with analysts. "We are taking the tough action now."

The cuts will concentrate on general and administrative spending, research and development, and manufacturing, Hassan said. He declined to provide details.

No area untouched

Hassan said no area of the company will be exempt, including high management. About $500 million of the cuts were previously announced in Schering's November 2007 acquisition of Organon BioSciences. The company employs 55,000, according to its website.

Besides cost-cutting, the company also plans to steer resources into higher priority projects, such as an experimental medicine for blood clots called TRA, Hassan said.

The strategy resembles one the company used in 2003, after it lost patent protection for its Claritin allergy medicine, said Michael Krensavage, an analyst with Raymond James in New York, in an e-mail.

"It looks like this is the sequel to Claritin. The company will have to cut costs in response to declining prescriptions for its cholesterol drugs," Krensavage said.

Full results of the study, called Enhance, were reported by the company at the American College of Cardiology meeting in Chicago last weekend. A day later, a panel of four doctors discussed the finding in a panel hearing before a standing-room-only crowd.

Schering rises

Schering rose 1.7 percent to $14.10 at 8 pm New York time on Wednesday in extended trading after the announcement. The stock has lost 29 percent in the three days since cardiologists recommended against using Vytorin as a first alternative for patients.

In the company statement, Hassan said doctors were confused about Vytorin's use because of "the absence of an open and balanced scientific discussion" on the results of the Enhance trial. That caused "unwarranted concern among millions of patients who need to get to their cholesterol goals", he said.

Hassan complained in an interview April 1 that the "scientific process was hijacked" by the panel in Chicago because there were no opposing views, and no questions were taken from the audience. In response, Jack Lewin, chief executive officer of the American College of Cardiology, said Hassan "probably had a legitimate criticism" about the lack of questions because there would have been some dissenting voices.

Overall, Lewin said in a telephone interview, he agreed with the panel's position.

80 percent by 2010

Hassan told analysts during the call yesterday that details of the reorganization plan are still being developed. At least $1.25 billion, or more than 80 percent, of the savings will be realized by the end of 2010, with the rest by the end of 2012, the company said in its statement.

The plan involves "simplifying" product lines including the animal health business, the company said.

The Enhance study was designed to give Schering-Plough and Merck, its marketing partner on Vytorin, a greater share of the $35 billion worldwide cholesterol market. Vytorin prescriptions have fallen 18 percent since the early study results were released on Jan 14.

"The surprising thing about the study's results is despite an LDL cholesterol that was 50 points lower in the Vytorin group, there was no evidence for any reduction in the buildup of plaques in the carotid or femoral arteries," said Steven Nissen, head of cardiology at the Cleveland Clinic in Ohio, in a March 30 interview. "There is no positive news here." LDL is known as "bad cholesterol".

Nissen and other cardiologists criticized Schering-Plough and Merck for not starting definitive studies until years after Zetia and Vytorin were on the market. A newly expanded study, dubbed Improve-It, uses half the dose of Zocor, sold generically as simvastatin, in both groups. Zetia was approved in the US in 2002 and Vytorin was cleared in 2004.

Agencies

(China Daily 04/04/2008 page16)