Why Merck’s layoff announcement sent the stock down

When Merck announced it was laying off 11% of its workforce, the stock went down. Analysts say it’s because the cost cutting didn’t go far enough and because there weren’t any great new ideas for growth. And they’re right.

The truth is that big pharma companies, and Merck in particular, haven’t done a good job of discovering and developing new drugs. Merck’s headcount reductions –even if not heavily concentrated in R&D in this round– are an indicator that the Emperor is starting to realize he has very few clothes. Merck’s R&D drought has been evident for years, and if anyone needed proof it was revealed when Merck touted the oh-so-innovative addition of vitamin D to Fosamax as a big highlight in its pipeline a year or so ago. Almost everything else in the late-stage pipeline is a vaccine, not traditionally the stuff of blockbusters.

November 29, 2005

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