Merck & Co’s third-quarter earnings decline has been overshadowed by the news that the New Jersey-based drugs giant is to cut an extra 12%of its workforce, or 7,200 jobs by the end of 2011.

Noting that around 40% of the reductions will take place in the USA, the firm said that the number of senior and mid-level executives will be reduced by 25%. 6,800 ‘active’ employees will be released, while 400 current vacancies will not be filled. Merck added that the latest round of cuts are in addition to the 10,400 positions eliminated as part of a 2005 restructuring plan, which Merck says was substantially completed in September 2008.

Merck says the measures are necessary to “reduce its cost structure, increase efficiency and enhance competitiveness”. It is also accelerating the rollout of “a new, more customer-centric selling model”, outsource non-core manufacturing and “ensure a more sustainable pipeline by translating basic research productivity into late-stage clinical success”.

As a result, basic research operations will be organised to consolidate work “in support of a given therapeutic area into one of four locations”. This will include the closure of three sites – in Tsukuba, Japan, Pomezia, Italy and Seattle – by the end of 2009.

Merck expects this latest restructuring programme to yield savings of $3.8-$4.2 billion to 2013. These are in addition to the savings of $4.5-$5.0 billion which the company remains on track to achieve at the end of the 2005–2010 period.

As for the financials, net income fell 28.8% to $1.09 billion, due principally to a $612 million restructuring charge and declining revenues from the cholesterol drugs Vytorin (ezetimibe plus simvastatin) and Zetia (ezetimibe), sold through a joint venture with Schering-Plough. They fell 15% to $1.1 billion and this cut Merck's income from the JV by 17% to $400 million.

Total revenues fell 2% to $5.9 billion, led by sales of the asthma drug Singulair (montelukast) which inched up 1% to $1 billion. Revenues from the anti-hypertensives, Cozaar (losartan) and Hyzaar (losartan plus hydrochlorothiazide), were up 9% at $888 million, while sales of the osteoporosis drug Fosamax (alendronate) slumped 51% to $354 million, following the loss of patent protection in the USA in February.

As for Merck’s new drugs, the diabetes drug Januvia (sitagliptin) generating $379 million for the quarter, compared with $185 million in the same quarter in 2007, while Janumet (sitagliptin plus metformin) brought in $101 million, up from $19 million last year. However, sales of the cervical cancer vaccine Gardasil were down 4% to $401 million, while the rotavirus jab RotaTeq fell 21% to $134 million. On the bright side, turnover from the recently-launched HIV drug Isentress (raltegravir) reached $107 million.

Chief executive Richard Clark added that “our current sales trends for key products, compounded by known industry and emerging economic factors, have led us to reassess the environment in which we expect to be operating between now and 2010". In light of these considerations, Merck narrowed its guidance for the year to $3.28-$3.32 per share from an earlier forecast of $3.28-$3.38 a share. It also lowered its earnings forecast through 2010 to a "mid-to-high single-digit" range, down from planned double-digit growth.