(Updates with comments from Clark beginning in 2nd paragraph; recent stock price)
By Peter Loftus and Tess Stynes
Of DOW JONES NEWSWIRES
Merck & Co. (MRK) reiterated its financial targets following the completion of its acquisition of Schering-Plough Corp. on Tuesday, including compound annual earnings growth in the high-single digits on a percentage basis from this year until 2013 and substantial cost savings.
The drug maker plans to reduce its now 106,000-person work force by about 15%, or nearly 16,000 positions, in a cost-cutting program designed to save $3.5 billion annually beyond 2011. But Chief Executive Richard Clark said the plans haven't yet been finalized, and Merck would communicate them to employees at the appropriate time.
Merck shares jumped $1.48, or 4.8%, to $32.15, as shares of acquirers often rise after a deal closes due to unwinding of arbitrage trading bets.
Also, J.P. Morgan resumed coverage of the shares with an overweight rating and December 2010 price target of $40, saying the company has addressed its biggest challenges--upcoming drug patent expirations and thin research assets.
The deal's closure follows rival Pfizer Inc.'s (PFE) recent purchase of Wyeth. Both deals, announced early this year, came as the world's biggest pharmaceutical companies face a litany of pressures--from research pipelines that likely won't be able to offset the companies' blockbusters that will lose patent protection in the coming years, to the potential of increased government pressure to lower prices.
Layoffs have socked pharmaceutical-industry workers this year, with Johnson & Johnson (JNJ) announcing Tuesday it would cut up to 8,200 workers. Also, Pfizer's purchase of Wyeth last month is expected to result in the loss of nearly 20,000 jobs, with some layoff notifications occurring within days of the closing.
Clark signaled Wednesday that the weak economy wasn't hurting Merck as much as before.
"I do see demand for our products, now that we're at the beginning of the end of the recession, not only stabilizing but increasing as well," he said in an interview.
Merck on Wednesday said the projected earnings growth rate was based on its prior 2009 earnings guidance of $3.20 to $3.30 a share. Merck also is targeting free cash flow of about $15 billion for 2013. The company expects to generate more than half its revenue outside the U.S. The company reiterated that it expects the Schering merger to add modestly to earnings next year.
Merck will continue to be headquartered in Whitehouse Station, N.J. The company said Schering's former headquarters in Kenilworth, N.J., will remain an "important" site, as will Merck's Rahway, N.J., site. All other sites will continue to operate at this time.
Merck previously announced its new leadership team, which includes some Schering executives.
Merck also said it would simplify its trade-name branding, calling itself "Merck" in the U.S. and Canada and "MSD" everywhere else. Merck previously used different variations in some countries, such as Merck Sharp & Dohme.
Merck makes the blockbuster allergy and asthma drug Singulair, and expects the Schering deal to improve its late-stage pipeline of experimental drugs. Schering has an experimental anticlotting drug that analysts think could become a blockbuster. Clark said he also likes the prospects for Saphris, a Schering antipsychotic that was approved by the U.S. Food and Drug Administration in August.
Some analysts, however, remain cautious about Merck's outlook. Leerink Swann has a "market perform" rating, citing near-term uncertainties such as an upcoming clinical study that's expected to have a negative result for Merck's cholesterol drugs, and an ongoing dispute with Johnson & Johnson (JNJ) over the rights to arthritis drugs.
Clark said he couldn't comment on the dispute with J&J, whose CEO, William Weldon, also declined discuss the dispute in a separate interview Tuesday.
-By Peter Loftus and Tess Stynes, Dow Jones Newswires; 215-656-8289; peter.loftus@dowjones.com