Job Cuts in Pharma Industry Up 150 Percent

Published January 1, 2006

In November, pharmaceutical manufacturer Merck & Co. announced it would cut 7,000 jobs by 2008 and would close or sell five of its 31 manufacturing facilities. The cuts reflect a larger trend of increasing layoffs throughout the industry in the United States.

The Merck move was described in a corporate announcement as a “global restructuring program” potentially yielding pre-tax savings of $3.5 to $4 billion between 2006 and 2010. The announcement made no mention of the ongoing litigation and resulting expenditures the company faces over its drug Vioxx, which Merck voluntarily removed from the market in September.

Industry in Trouble

The announced cuts bring the industry total of job losses in the first 11 months of 2005 to at least 24,396. The figure is 150 percent more than the 9,744 pharmaceutical job cuts announced for the same period in 2004, according to Challenger, Gray & Christmas, a global outplacement firm that tracks industry layoffs.

Job Cuts

“Merck’s troubles go beyond the Vioxx debacle,” said John A. Challenger, chief executive officer of Challenger, Gray & Christmas. Vioxx, a popular anti-inflammatory drug in the Cox-2 class of nonsteroidal, anti-inflammatory drugs (NSAIDS), was pulled when results of a three-year clinical trial indicated the medication, when taken long-term, might contribute to the risk of heart attack.

But Challenger sees the Merck cutbacks as a reflection of the current drug market. “Throughout the industry, we are seeing an all-out search for the next big prescription drug that will become a profit blockbuster,” he said. Several companies are cutting back on sales and marketing staff and focusing their attention on research and development (R&D).

Other industry watchers see the job losses as the result of government interference in the pharmaceutical market. “A number of the drug manufacturers are looking for ways to trim costs and boost their inventory of drugs in the pipeline,” commented Merrill Matthews, director of the Council for Affordable Health Insurance. “Which raises the question: If the drug industry is so profitable, as its critics claim, then why are so many companies ripe for takeover? Politicians who are thinking about imposing price controls on the industry need to look at what is happening in the industry, not what the critics allege.”

More Cases to Come

The first Vioxx case to go to trial, Ernst v. Merck, was heard in Texas state court in August 2005 and ended with a jury awarding approximately a quarter-billion dollars to the widow of a man who died after taking Vioxx for eight months. That award cannot stand, however, and must be reduced to about $26 million because of Texas law capping punitive damages. The next trial, in September in New Jersey state court, was won by Merck.

Annual Job Cuts

The first federal case took Merck back to Texas, where a Houston jury began deliberations on December 9, 2005 over whether the company was responsible for the death of a Florida man who took Vioxx for less than a month in 2001 and then suffered a heart attack. After 18 hours of deliberations, the jury could not reach the unanimous verdict required in federal court, and U.S. District Judge Eldon Fallon declared a mistrial. A new trial is expected to take place early this year.

“The main connection between the layoffs at Merck and the Vioxx litigation is, while the lawsuits continue, it will be more difficult to bring Vioxx back on the market,” said Jack Calfee, senior fellow at the American Enterprise Institute. “The main motivation for [job] cuts is to [invest that savings and] get the R&D going.”

Susan Konig ([email protected]) is managing editor of Health Care News.