Merck is pointing to its deferred capital expenditures as a silver lining in its decision to withdraw Vioxx .

"We'll be able to allocate" Vioxx "capacity to other products," Merck CEO Ray Gilmartin said Sept. 30 in announcing the decision to withdraw Vioxx.

"It will allow us to defer some capital spending that we had anticipated doing because we need new capacity for drugs that are coming along," he said.

While the company did not state how many jobs would be lost due to the withdrawal, Merck said that many sales reps and scientists would be deployed to work on other company projects, reducing the need to hire additional employees.

"We had anticipated expanding our sales forces to prepare for the new vaccines and medicines that will be introduced as we go forward. This will allow us to re-deploy the sales force instead of hiring new people as well as putting more sales representatives behind our existing product line," Gilmartin said.

"We have expanded need for new scientists and additional capacity because of the growing size and strength of our pipeline. The scientists associated with Vioxx will be deployed" to other products, he said.

Gilmartin said that the Vioxx withdrawal will not change the company's plan to avoid a mega-merger.

"We see that this event does not lead us to reconsider or make any change in our fundamental strategy," Gilmartin said.

"We continue to have the belief that a large-scale merger does not meet our definition of creating shareholder value, which would mean contributing to our pipeline or to our long-term growth," the exec said.

Overall, the withdrawal will have a sizeable impact on the performance of the company, particularly when it loses an entire year's worth of sales in 2005.

Merck said that it expects that the loss of Vioxx will negatively impact 2004 earnings per share by 50¢ to 60¢, 15% to 20% of the company's 2004 guidance of $3.11 to $3.17 per share.

Merck does not know whether costs associated with the withdrawal will be incurred during the third quarter (ending Sept. 30) or during the fourth quarter.

Merck says that despite the earnings shortfall the company will increase its payout ratio to maintain the current dividend.

In July, the company set fourth quarter dividends at 38¢ per share, bringing the yearly total to $1.49 per share.

With the loss of Vioxx (which generated about $650 mil. in sales during the most recent quarter) and patent expiration for the company's top selling Zocor in 2006, the successful launch of Vytorin will become even more important for the company.

Merck expects to lose $700 mil. to $750 mil. in Vioxx revenue during the fourth quarter. Merck also expects wholesalers will return the one-month inventory on hand worldwide.

One lingering issue for the company is the succession plan for Gilmartin, who has stated his plans to retire in 2006.

During the announcement of the withdrawal Gilmartin was asked when he would step down in light of the events. "I don't intend to resign," he said.

-Lee Kalowski

Merck Sees No Need To Change Strategy On Mergers

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