Schering-Plough Corporation has announced a major new productivity transformation programme (PTP) to reduce and avoid costs and increase productivity to generate a total of $1.5 billion in targeted annual savings and synergies - approximately 10 per cent of the combined company's full year 2007 estimated cost base, including Organon BioSciences (OBS) and manufacturing. NN
The previously announced integration synergy targets of $500 million from the company's November 2007 acquisition of Organon BioSciences of the Netherlands will be rolled into PTP.
The company says the programme responds to dramatically intensifying pressures on the pharmaceutical industry, especially new pressures in the United States, and also to the confusion in the US market around cholesterol management that impacts the products of the Merck / Schering-Plough joint venture, Zetia and Vytorin.
While the details of the implementation programme are being developed, at least $1.25 billion, or more than 80 per cent of the planned savings are targeted to be accomplished by the end of 2010, with the balance achieved by 2012, reflecting the longer time lines for implementing such actions effectively and prudently in the global supply chain.
"Savings and productivity improvements will be realised across the company and around the world. No area will be exempt," said Fred Hassan, chairman and CEO. "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."
Added Hassan, "We will be executing this cost saving, productivity enhancing program with care and prudence. We will not engage in across-the-board cost cutting. We will avoid unwise short term actions. We will be focused on the same goal that has driven our company over the past nearly five years of my tenure as CEO: driving high performance for the long term."
PTP will include the following:
- 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,
- 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 (TRA) cardiovascular
- Simplification of product lines - especially in the combined Animal
- Reduction of the number of plants globally; creation of more focused
and high-efficiency plants by 2012
- Process improvement in all parts of the company to improve
The PTP will be overseen by a senior management team led by Hassan.
"Through strong management and strong people we have been executing with excellence on our six – eight year Action Agenda which we launched in 2003. We have built depth and strength across our company," said Hassan. "The recent OBS acquisition was a pivotal action in the current Build the Base phase of that agenda. One of our most important achievements is that we now have perhaps the most impressive late-stage pipeline in our peer group -- including cutting edge projects as TRA for deadly blood clots, and sugammadex in anesthesiology."
However, said Hassan, "Hard new realities are requiring the hard new actions" that are being announced today. "The reality is that we face today a new political and overall environment in the U.S. that is increasingly discouraging pharmaceutical innovation."
"An example of these intense overall new pressures," said Hassan, "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."
"We need to improve the environment for pharmaceutical innovation in the US," 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."
Meantime, said Hassan, "We are taking the tough actions that are needed to respond to a tough situation. The challenge we are addressing today is much more manageable than the one that we faced when I took on the leadership of Schering-Plough in 2003. We powered through that challenge. We are determined to power through this one."