Schering-Plough Announces $1.5-Billion Cost-Savings Program

Kenilworth, NJ (Apr. 2)-Schering-Plough announced a major new productivity transformation program (PTP) with a goal of achieving $1.5 billion in annual savings. The announcement follows Schering-Plough’s €11 billion ($17.3 billion) acquisition of Organon BioSciences in 2007 and recent negative clinical results for its cholesterol-lowering drug combination, “Vytorin” (ezetimibe and simvastatin).

The targeted savings represent approximately 10% of the company's full-year 2007 estimated cost base, including Organon BioSciences and manufacturing. The previously announced integration synergy targets of $500 million from the acquisition of Organon BioSciences will be rolled into PTP.

"Savings and productivity improvements will be realized across the company and around the world. No area will be exempt," said Fred Hassan, Schering-Plough’s chairman and CEO, in a company release. "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 US, where the most intense new pressures on our industry and our company are centered."

At least $1.25 billion, or more than 80%, of the planned savings are targeted to be completed by the end of 2010, with the balance achieved by 2012. PTP will include the following actions:

• Reduction of the number of plants globally and the creation of more focused and high-efficiency plants by 2012
• Further elimination and simplification of management layers
• Consolidation of middle-management functions and increased use of shared staff support and shared services
• Further reductions in travel and other costs
• Review and resizing of investments, including sales and marketing and the research and development (R&D) cost bases. Its R&D evaluation include strategic reductions in its project portfolio and prioritizing high-potential projects such as a Phase III thrombin receptor antagonist cardiovascular compound.
• Simplification of product lines, particularly in its animal health business.

In announcing the company’s plan, Hassan pointed out the potential negative impact from a recent clinical study involving Vytorin, a combination drug consisting of ezetimibe, the active ingredient in Schering-Plough’s “Zetia,” and Merck & Co.’s (Whitehouse Station) “Zocor” (simvastatin). "An example of these intense overall new pressures has been the confusion in the cholesterol market largely caused by the overreaction to conflicting results of the relatively small Enhance clinical trial, involving Vytorin. This confusion, in the absence of an open and balanced scientific discussion of this clinical trial, have caused an unwarranted concern among millions of patients who need to get to their cholesterol goals," he said. "This episode has been a case study of the impact of the hard new realities."

A recent article in the New England Journal of Medicine, “Simvastatin With or Without Ezetimibe in Familial Hypercholes,” discussed the findings of the Enhance clinical study that evaluated the effectiveness of ezetimibe and simvastatin, the two active ingredients in Vytorin. The study found that the combined therapy of ezetimibe and simvastatin did not reverse the progression of certain type of heart disease better than simvastatin alone.

Vytorin and Zetia are part of Schering-Plough’s cholesterol joint venture with Merck & Co. Sales from the venture in 2007 were $5.2 billion.