Surviving Adverse Events (of the Corporate Kind)

The waning of the Blockbuster Era has brought massive restructuring, challenging drug makers to foster innovation, teamwork and morale. Merck serves as an example of what can be done.

By Angelo De Palma, Ph.D., Contributing Editor

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Adverse events are becoming as common in the pharmaceutical business as they are during clinical trials. Recently, companies large and small have been reorganizing, due to patent expirations, late-stage product failures and competition from generic drugs. These massive changes can spell trouble or opportunity.

In January, Pfizer’s announcement of 10% job cuts and plant closings may not have been unexpected, but the ongoing consolidation will force the company to face problems it has not experienced in the past — at least not to this degree.

“Now that the giant has blinked, others will follow suit,” predicts Steve Wunker, a partner at management consulting firm Innosight (Watertown, Mass.), who calls Pfizer’s move “long overdue.”

Sales positions were the hardest hit at Pfizer, an outward sign that the old blockbuster model is waning. Consider statins. Formularies are beginning to eliminate high-cost branded cholesterol-busting medicines in favor of generic simvastatin (Zocor). “And they probably would not carry the next blockbuster statin either. Generics are good enough,” Wunker says. Similarly, the days of “me-too” drugs may be ending, in a trend that resembles what’s happening in the computer industry where users aren’t willing to pay a premium for the latest microprocessors or chips, Wunker says.

Hard times make it challenging to innovate, and severely test any organization’s creativity and collaborative capabilities. Fostering an innovative culture requires supporting process, training and organization. “Companies will need to start doing unfamiliar things in unfamiliar ways,” Wunker says, if they are to retain their innovative edge and prevent cynicism from taking root within their workforces.

Merck (Whitehouse Station, N.J.) had been the first to announce a major restructuring (at the end of 2005), disclosing plans to eliminate 10% of its workforce and close five of its 31 manufacturing plants. Immediately, pundits and analysts predicted doom and gloom for the company, including further layoffs, flat increases in R&D spending and decreased morale. Merck had already been out of favor with Wall Street before the problems with Vioxx. Its share prices tumbled from $63 in mid-2003 to a low of about $26 in early November 2005. However, by late 2005, the stock price rebounded and Merck appeared to be turning things around.

Even though the patent for Merck’s blockbuster cholesterol drug Zocor has expired, the company’s share prices have risen to about $45, reflecting optimism about five significant product launches:

  • Gardasil, a vaccine against human papillomavirus believed to cause cervical cancer;

  • Januvia, a Type 2 diabetes drug with a novel mechanism of action;

  • Zostovax, the first vaccine to prevent shingles;

  • Rotateq, a vaccine against rotavirus, which kills 600,000 children and infants per year (mostly in the developing world);

  • Zolinza, for treating the disfiguring disease, cutaneous T-cell lymphoma.

True, these medicines entered Merck’s development pipeline long before the company’s self-described “Plan to Win” initiative from late 2005. Nevertheless, launching so many first-in-class products in one year is no easy feat under any circumstances.

“It really speaks to the morale and dedication of our employees that despite the turmoil, and in the midst of it, we launched five new medicines in 2006,” says company spokesman Pat Witmer. None of the dire predictions of 2005 came true. Now, 16 months into “Plan to Win,” an effort that included the piloting of a new Operational Excellence Program, the Merck Production System (MPS), at the company’s Arecibo, Puerto Rico drug manufacturing facility (Pharmaceutical Manufacturing, April 2006, p. 19), Merck’s pipeline is stronger than ever and the company continues to invest in new technologies, companies and people.

As part of MPS, Merck created a series of six high-quality videos, distributed globally, that informed and educated employees on the company’s new supply strategy — a multi-faceted plan ranging from the implementation of Lean manufacturing to the company’s new network (site) strategy. Employees were encouraged to provide feedback after viewing the videos on the corporate computer network.

“The videos have been getting a huge amount of attention,” says spokesman Witmer. “Management, especially in our manufacturing division, took a very aggressive, head-on approach to addressing our deficiencies… to maintain morale while educating workers on the finer points of re-making one of the most successful enterprises on earth.”

Despite closing five plants, Merck continued to invest in its remaining facilities, and purchased new companies and expanded or upgraded facilities in Durham, N.C., Elkton, Va. and Ballydine, Ireland. “Our employees get it,” Witmer states. “They understand our new supply strategy, and they know we’re moving in the right direction. They can see it working.”

Manufacturing initiatives

Merck’s Program Realization Office leader Randy Hall used to manage Merck’s Flint River (Albany, Ga.) manufacturing facility, which will close this quarter. After the company announced its re-organization in November 2005, Hall undertook phase-out operations for the Albany plant as well as the Danville, Pa. “Cherokee” site. Hall, now working at Merck’s headquarters, quickly saw his responsibilities change from running production facilities to implementing Merck’s new manufacturing supply strategy, which included plant closings and “the more forward-looking initiatives.”

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