To restore its luster in the drug industry, Merck plans to shave an additional $1 billion from expenses through 2010 (on top of $4 billion announced last month); focus its research-and-development efforts in nine priority areas; achieve double-digit earnings growth in the next three to five years; pursue growth in global markets, particularly in vaccines; and redesign its marketing and sales operations to improve efficiency.

President and CEO Richard T. Clark, speaking to analysts at the company's sprawling rural headquarters, said Merck expects to shave an additional $1 billion in expenses through 2010 on top of the $4 billion in savings announced last month through 7,000 layoffs and five plant closings.

Clark minced no words in addressing recent setbacks to the company, including the 2004 withdrawal of the popular painkiller Vioxx and the thousands of subsequent lawsuits filed by Vioxx users, which officials said have swelled to 9,200.

Allegations of deception by Merck scientists made last week by a prestigious scientific journal have added to the company's woes.

Once "the envy of the industry," Merck's reputation has slid along with its stock price in the 15 months since Vioxx was pulled, Clark acknowledged.

"We understand that to regain our leadership position, we have to change. Not change at the margins, but major, far-reaching change," he said.

Nine Areas of Focus

To that end, Merck said it will prioritize its research-and-development operations, focusing on nine specific areas: Alzheimer's disease, atherosclerosis, cardiovascular disease, diabetes, novel vaccines, obesity, targeted cancer therapies, pain and sleep disorders.

"In each of these areas, our goal is to make Merck the acknowledged leader in treating that disease," Clark said.

By focusing its resources on targeted areas and by implementing a dramatically streamlined manufacturing process to speed up product development, Clark said Merck expects to achieve "double-digit earnings growth" in the next three to five years.

Investors and analysts were impressed. Merck's shares rose 57 cents, or 2 percent, to $29.77.

"I see this as a watershed day for the company," said John P. Wilkins, president of Wilkins Investment Counsel Inc., a Boston- based advisory firm.

Clark, according to Wilkins, "is a proven leader, a nuts and bolts executive who came up through manufacturing. He's the right man for the job."

Leadership aside, Wilkins said Merck's new products would be the key to the company's long-term success.

Merck Will Need New Products

Sales of its best-selling drug, cholesterol fighter Zocor, are expected to fall from about $4.35 billion this year to about $2.45 billion next year because of its June 2006 patent expiration. Several other drugs, including the popular osteoporosis pill Fosamax, lose patent protection over the next few years.

Four new vaccines were highlighted on Thursday: Gardasil, a cervical cancer vaccine -- the first of its kind -- which was submitted earlier this month to the US Food and Drug Administration for fast-track approval; Zostavax, an anti-shingles vaccine, which an FDA panel said on Thursday works on users 60 and over; ProQuad, a multi-use vaccine for children, which Merck expects to market in Europe; and RotaTeq, a children's vaccine that targets serious gastrointestinal ailments.

Margaret McGlynn, president of Merck's vaccines operations, said worldwide sales of vaccines are expected to grow from $8 billion in 2004 to $18 billion in 2008, a market Merck plans to tap into.

"They're trying to illustrate that they are not a company that's sitting on their thumbs," said Lehmann Brothers analyst Tony Butler.

Conventional wisdom holds that most drug companies are struggling to come up with new products, Butler explained.

Merck on Thursday took pains -- and was to some degree successful, according to Butler -- in recasting that perception.

Clark said the company will also seek growth by aggressively pursuing acquisitions and licensing partnerships.

Vioxx Battles Ahead

Regarding the Vioxx litigation, Merck general counsel Kenneth Frazier reiterated the company's intention to fight each case individually. Moreover, he said Merck attorneys have sought a hearing to oppose a New Jersey judge's plan to merge several cases into one trial.

In an interview, Frazier said each case needs to be heard on its own merits, and that the cases are too complicated to be lumped together, a move he feels could leave juries confused.

The next federal and state trials are scheduled to begin in February.

Merck lost the first Vioxx trial but won the second. A third ended in a mistrial last week.

Finally, the company reaffirmed its earnings per share guidance of $2.04 to $2.10 for 2005, or $2.47 to $2.51 excluding one-time charges, and $1.98 to $2.12 for 2006, or $2.28 to $2.36 excluding charges.

Analysts surveyed by Thomson Financial expect earnings per share of $2.51 in 2005 and $2.35 in 2006, excluding charges.