Merck to slash annual costs by $2.5 billion, cut 8,500 jobs

By Ransdell Pierson

(Reuters) - Merck & Co, taking a cue from rival drugmakers that have slashed research spending to bolster earnings, on Tuesday said it plans to cut annual operating costs by $2.5 billion and eliminate 8,500 jobs.

Merck, whose shares rose 2.2 percent, said it aims to narrow its focus to products with the best chance of winning regulatory approval and achieving substantial sales.

It will jettison research products with less likelihood of success. It plans to pull the plug on some drugs already in late-stage trials, and will license some products to other companies.

The job cuts, representing more than 10 percent of the company's global workforce of 81,000 employees, would be in addition to previously announced cuts of 7,500 positions.

About 40 percent of the cost-cutting, or $1 billion, will be realized by the end of 2014 and will come equally from marketing and administrative areas and from research and development, Merck said. The rest of the cuts will be completed by the end of 2015, it said.

"We're not doing indiscriminate cuts in research and development, we're doing surgery around where we should invest," Merck Chief Executive Kenneth Frazier said in an interview.

Frazier said the company is now evaluating which drugs or disease areas to discard and which to keep, but few decisions have yet been made.

"And by attacking our cost bases, we will free up resources for mergers and acquisitions and business development," Frazier said, noting the company's strong interest in buying new drugs or licensing them from other drugmakers.

The company said it would take restructuring charges of $900 million to $1 billion this year, mostly in the third quarter.

Many Merck products have failed to win regulatory approval in recent years, and the company has suffered delays in getting products to market. Moreover, Wall Street is concerned about sharply slowing sales growth for the diabetes drug Januvia, Merck's biggest growth engine over the past three years. Rival drugs and newer classes of diabetes treatments have hurt Januvia sales.

Alex Arfaei, an analyst with BMO Capital Markets, said the cost-cutting will be helpful in the short term, especially next year, when he expects Merck revenues to be flat due to increased pressure on Januvia.

But he said he was concerned that Merck was putting too much faith in a handful of experimental drugs, including a new type of cancer drug called a PD-1 inhibitor that works by boosting the immune system, a new type of treatment for Alzheimer's disease called a BACE inhibitor, and improved versions of its Gardasil vaccine to prevent cervical cancer and its treatment for hepatitis C.

"Overall, today's announcement makes us more cautious about the potential of Merck's pipeline" of experimental drugs, Arfaei said.

Merck in April replaced its long-time research chief, Peter Kim, with Roger Perlmutter, a former Amgen Inc research head who is expected to better acquaint Merck with biotech drugs - injectable drugs made in living cells that have become standard treatments for a wide array of diseases, including cancer and rheumatoid arthritis.

Merck has focused mainly on development of conventional drugs, or pills, although it is a also leader in vaccines.

The company had several triumphs under Kim, including development of Januvia, its Gardasil vaccine to prevent cervical cancer, its Zostavax shingles vaccine, and its Isentress treatment for HIV.

But more recently, it has been hurt by failed trials of cholesterol treatment Tredaptive and migraine drug telcagepant, and a regulatory delay for a new type of osteoporosis medicine called odanacatib.

Perlmutter's work is cut out for him because new medicines are badly needed at Merck. Sales of the asthma drug Singulair - which reached $6 billion a year at one point - are plunging due to generic competition, and other Merck medicines will also face cheaper generics soon.

Moreover, cost savings from Merck's 2009 purchase of rival Schering Plough have mostly dried up and are no longer able to boost company earnings.

Merck said it still expects full-year 2013 earnings of $3.45 to $3.55 per share, excluding special items. It earned $3.82 per share last year.

Pfizer Inc became an industry trendsetter in aggressive cost-cutting in early 2011 when it announced plans to chop annual research spending by as much as $3 billion. It went on to close numerous research sites and has halted or curtailed spending for research on drugs for allergy, urology, internal medicine and other therapeutic areas requiring large sales forces.

Wall Street has cheered Pfizer's moves, especially since the company has launched many new medicines since the changes, including cancer drugs. Moreover, it has divested its animal health and infant formula businesses, and plans to return much of the proceeds to investors through share buybacks.

Merck dug in its heels after Pfizer's dramatic streamlining, saying it planned to hold steady with its research spending in order to advance its promising medicines through clinical trials.

The company on Tuesday also said it plans by 2015 to move its global headquarters from Whitehouse Station, New Jersey, to existing facilities in Kenilworth, New Jersey. It previously planned to move its headquarters to Summit, New Jersey.

Merck said it decided it could achieve more cost savings by closing its Summit site and its main Whitehouse Station facility.

Merck shares have risen 17.3 percent this year, in line with advances seen for the ARCA Pharmaceutical Index of large U.S. and European drugmakers.

(Reporting by Ransdell Pierson; Editing by John Wallace)

View the original article here

Earth expected to be habitable for another 1.75 billion years

Sep. 18, 2013 — Habitable conditions on Earth will be possible for at least another 1.75 billion years - according to astrobiologists at the University of East Anglia.

Findings published today in the journal Astrobiology reveal the habitable lifetime of planet Earth - based on our distance from the sun and temperatures at which it is possible for the planet to have liquid water.

The research team looked to the stars for inspiration. Using recently discovered planets outside our solar system (exoplanets) as examples, they investigated the potential for these planets to host life.

The research was led by Andrew Rushby, from UEA's school of Environmental Sciences. He said: "We used the 'habitable zone' concept to make these estimates - this is the distance from a planet's star at which temperatures are conducive to having liquid water on the surface."

"We used stellar evolution models to estimate the end of a planet's habitable lifetime by determining when it will no longer be in the habitable zone. We estimate that Earth will cease to be habitable somewhere between 1.75 and 3.25 billion years from now. After this point, Earth will be in the 'hot zone' of the sun, with temperatures so high that the seas would evaporate. We would see a catastrophic and terminal extinction event for all life.

"Of course conditions for humans and other complex life will become impossible much sooner - and this is being accelerated by anthropogenic climate change. Humans would be in trouble with even a small increase in temperature, and near the end only microbes in niche environments would be able to endure the heat.

"Looking back a similar amount of time, we know that there was cellular life on earth. We had insects 400 million years ago, dinosaurs 300 million years ago and flowering plants 130 million years ago. Anatomically modern humans have only been around for the last 200,000 years - so you can see it takes a really long time for intelligent life to develop.

"The amount of habitable time on a planet is very important because it tells us about the potential for the evolution of complex life - which is likely to require a longer period of habitable conditions.

"Looking at habitability metrics is useful because it allows us to investigate the potential for other planets to host life, and understand the stage that life may be at elsewhere in the galaxy.

"Of course, much of evolution is down to luck, so this isn't concrete, but we know that complex, intelligent species like humans could not emerge after only a few million years because it took us 75 per cent of the entire habitable lifetime of this planet to evolve. We think it will probably be a similar story elsewhere."

Almost 1,000 planets outside our solar system have been identified by astronomers. The research team looked at some of these as examples, and studied the evolving nature of planetary habitability over astronomical and geological time.

"Interestingly, not many other predictions based on the habitable zone alone were available, which is why we decided to work on a method for this. Other scientists have used complex models to make estimates for the Earth alone, but these are not suitable for applying to other planets.

"We compared Earth to eight planets which are currently in their habitable phase, including Mars. We found that planets orbiting smaller mass stars tend to have longer habitable zone lifetimes.

"One of the planets that we applied our model to is Kepler 22b, which has a habitable lifetime of 4.3 to 6.1 billion years. Even more surprising is Gliese 581d which has a massive habitable lifetime of between 42.4 to 54.7 billion years. This planet may be warm and pleasant for 10 times the entire time that our solar system has existed!

"To date, no true Earth analogue planet has been detected. But it is possible that there will be a habitable, Earth-like planet within 10 light-years, which is very close in astronomical terms. However reaching it would take hundreds of thousands of years with our current technology.

"If we ever needed to move to another planet, Mars is probably our best bet. It's very close and will remain in the habitable zone until the end of the Sun's lifetime -- six billion years from now."

View the original article here

Rhoen-Klinikum to sell hospitals to Fresenius in $4 billion deal

By Jonathan Gould and Ludwig Burger

FRANKFURT (Reuters) - Germany's Rhoen-Klinikum is to sell most of its hospitals to rival Fresenius SE for 3.07 billion euros ($4.1 billion), in an attempt by Rhoen's founder to outflank opponents to an outright sale of the company.

The deal follows a long struggle by Rhoen-Klinikum's founder Eugen Muench to sell the business to Fresenius in the face of opposition from rebel shareholders, an industry rival and a supplier.

The 43 hospitals and 15 outpatient facilities being sold account for about two thirds of Rhoen's revenues, with mainly specialized clinics and university teaching hospitals remaining with Rhoen.

Rhoen and Fresenius have wanted to create a country-wide network of hospitals large enough to provide a form of medical insurance.

The transaction, which according to Rhoen does not require a shareholder vote, would make Fresenius unit Helios the largest private hospital operator in Europe, Fresenius said in a statement.

The hospital deal comes a year after Fresenius dropped an initial 3.1 billion euro plan to take over Rhoen.

Shares in Rhoen jumped 9.9 percent at the open, while those of Fresenius were up 5.2 percent.

Rhoen founder and chairman Muench last year initiated the sale of the entire group, in which he and his wife hold 12.5 percent, to diversified healthcare company Fresenius.

But rival hospitals operator Asklepios and a medical supplies maker B. Braun weighed in with the purchase of enough shares to fend off the suitor.

Muench, who has continued to campaign for a sale, and he and his detractors have engaged each other in legal action.

Sources have said B. Braun saw the deal as putting it at risk of losing Rhoen as a client to Fresenius while Asklepios feared that a dominant player would be able trump rivals when public-sector hospitals were put up for auction.

B. Braun and Asklepios declined to comment on Friday.

The acquisition would boost Helios' sales by about 2 billion euros and earnings before interest, tax, depreciation and amortization (EBITDA) by about 250 million, Fresenius said.

Helios would have 117 hospitals across Germany and sales of nearly 5.5 billion euros after integration of the Rhoen facilities.

Fresenius said the purchase price would be entirely debt financed and it would not assume any of Rhoen's debt.

The ratio of the Fresenius group's net debt to core earnings would temporarily rise above 3.0 this year but remain below 3.5 before returning to the 2.5-3.0 target range next year, the company added.

Rhoen said in a separate statement that it planned to pay a special dividend of up to 1.9 billion euros, funded by transaction proceeds and reserves, on top of its regular dividend. It was also mulling buying back its own shares.

Proceeds also would be used to repay debt, with a further 200 million euros slated for investments, it said.

After the sale, Rhoen would still control several hospitals, including university hospitals in the cities of Giessen and Marburg, and have revenue of about 1 billion euros, it said.

The deal requires approval by antitrust authorities as well as minority shareholders in some of the hospitals concerned.

(Editing by Stephen Coates and Jane Merriman)

View the original article here

GSK extends its $2.6 billion offer for Human Genome

AppId is over the quota
AppId is over the quota

LONDON (Reuters) - GlaxoSmithKline has extended its $2.6 billion offer to buy long-time partner Human Genome Sciences until the end of June as it battles the U.S. biotech company's reluctant management.

The price remains unchanged at $13 a share under the longer tender, which will now expire at 5 p.m. EDT (2100 GMT) New York time on June 29, Britain's biggest drugmaker said on Friday.

The initial tender period ran out at midnight on June 7, by when GSK had secured less than 1 percent of Human Genome shares, which are trading at a premium to its offer.

People familiar with the situation had previously told Reuters that GSK was set to extend its tender offer - a direct appeal to Human Genome shareholders over the heads of management - as it begins a process to replace the entire Human Genome board with its own nominees.

The British company has already started reaching out to executives in the drug industry as well as finance and governance experts who could be nominated as independent directors of the 12-member board.

Sources said on May 30 that GSK intended to seek approval from Human Genome shareholders to replace the board under a "consent solicitation" process, which could come in the next few weeks. No details on the process were given on Friday.

Human Genome once again rejected GSK's bid as inadequate. It has launched an auction process, inviting GSK to participate, while at the same time adopting a "poison pill" shareholder rights plan in a bid to thwart the hostile takeover attempt.

The U.S. firm has had contacts with other companies and said on Friday that the process "continues to be active and fully underway". But no counterbidder to GSK has emerged and bankers say GSK has an advantage over rivals because of its partnerships around key drugs.

The two companies together sell Benlysta, a new drug for the autoimmune condition lupus, and they also collaborate on two other experimental drugs for diabetes and heart disease that could become significant sellers. GSK and Human Genome share rights to Benlysta, while GSK owns the majority of the commercial upside to the other products.

Buying Human Genome would give GSK full rights to these partnered drugs, underscoring the appetite among big drugmakers for biotech products to refill their medicine chests.

But GSK may have more work to do in persuading investors that its $13-per-share bid is good enough and shares in Human Genome traded 2 percent higher at $13.50 by 1430 GMT.

That indicates investors still expect a higher price, although the stock has fallen back from a high of more than $15 hit in April, soon after the unsolicited offer was made public.

(Editing by Kate Kelland and Hans-Juergen Peters)