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Merck 4Q Earnings Plummet 58 Percent January 30, 2007

Posted by Jordi in accounting, Business-Society Issues, Organizational Environment, pharmaceutical.

Merck 4Q Earnings Plummet 58 Percent – New York Times
Merck & Co. reported Tuesday that fourth-quarter profit plunged 58 percent despite higher revenues as the drugmaker took a slew of charges for restructuring costs, an acquisition and increased legal reserves, mainly for its withdrawn painkiller Vioxx.

I want to make two points about this news.

For a long time Pharmaceutical companies have built up their image as powerhouses of innovation.  And they often are, but there is some mythmkaing in with the reality.  Much of their money goes into direct to consumer advertising.  So, patients ask their doctors for a particular brand name.  Isn’t this an example of changing your environment? Who are the stakeholders  in delivering prescription drugs to patients?  Is society, reflected in ineffective delivery of most needed drugs to sickest patients, a legitimate stakeholder?  Also, much of their “innovation” comes from acquisitions.  That is fine, but it suggests that big pharma is a really a middle man between true innovators and end-users.  Like a bank, regulatory agency manager, and marketing firm rolled into one.  (Brian, you wanna weigh in here?).

Second,  and I am even further out on a limb here.  What is up with the term “restructuring costs”?  It just puzzles me.  I feel like it implies that these are “one-time” costs and nto part of “normal” business.  Financial markets and their  stakeholders (buyers, sellers, analysts, regulatory agencies) all build their tools in a world of projecting normalcy (and it seems stability) into the future to estimate NPV, for example.  But, if you are managing a global economy in a complex environment, aren’t their _always_ restructuring costs.  Is there something to be gained from dropping the linguistic and accounting myth of these costs being extraordinary and to start building accoutning and financial systems that reflect the epxectation of resturturing costs?  Ok, accountants, now you weigh in.



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