It is a safe conjecture that New Merck didn’t fully understand the mess Fred Hassan had made of the legacy Organon womens’ health supply chain, when he tried to slash it in mid 2008, after buying it in November 2007. He simply tossed bodies and facilities over the transom, with little regard for anything other than the number he needed to reach next quarter for Wall Street. Now, that undiciplined thinking is coming home to roost, at New Merck.
Here is a bit of the Pete Loftus by-lined story on it, from Friday’s Wall Street Journal:
. . . .Merck, Whitehouse Station, N.J., didn’t specify which products have been affected. Its women’s health franchise includes the NuvaRing contraceptive, which had $559 million in 2010 sales, and Follistim AQ infertility treatment, which generated $528 million in sales. Both came with Merck’s $49.6 billion acquisition of Schering in late 2009.
Merck disclosed in its annual report filed with the Securities and Exchange Commission this week it “is currently experiencing difficulty manufacturing certain women’s health products. The company is working to resolve these issues.”
Spokesman Steven Campanini said Friday the issues arose “due to integrating the supply chains of legacy Merck and Schering Plough over the past year as we put in place consistent manufacturing and quality standards at our widely expanded network. We’ve been managing through temporary supply shortages of some of our women’s health products since the end of last year.”
Merck executives said on a conference call last month that supply challenges for women’s health products would hurt first-quarter and 2011 financial results, but didn’t quantify the impact.
The Merck-Schering integration included plans announced last year to close eight research sites and eight manufacturing plants, part of Merck’s efforts to generate cost savings from the Schering deal. . . .
[We’ll never know, because Merck won’t specify which lines are affected, but given an earlier FDA missive, it seems likely that Implanon® and Nexplanon® are effected as well.]
It is significant that (as I will explain in greater detail, in the immediately following post) Mr. Hassan specifically called out material levels of Organon workforce slashing, on the top of page 32 of Schering-Plough’s SEC Form 10-K for the year 2007 (filed in early 2008), thus:
“. . . .Further, with the integration of the [Organon] employees into Schering-Plough much new talent has been added. In addition, as part of the integration of [Organon], Schering-Plough has also announced that there will be some workforce reduction to eliminate redundancies. . . .”
His plan was always to cut heads and facilities, while (hopefully) keeping the sales driver in high-gear. What has in fact happened though, is that Hassan’s recklessness thurned out to damage the supply pipe. A company can only sell what it is able to reliably source from the end of the pipe — and this pipe plainly needs fixing. Thanks again Fred (and team). More in a minute, below.