Merck

(MRK) - Get Report

on Tuesday said it will eliminate more jobs and continue "aggressive licensing" next year to grow its business, as it tries to cope with the costly recall of Vioxx.

Leading off a daylong company presentation to analysts, Raymond V. Gilmartin, the company's chief executive, added that Merck is "well-positioned" to achieve the long-term growth to which the company is committed despite withdrawing the arthritis drug from the market on Sept. 30.

Gilmartin said the company expects to cut the payroll by 5,100 people by year-end, or 700 more than the company previously outlined in October 2003. The job cuts will save $300 million in 2005, he said. Reductions in inventory could produce $300 million in savings by 2006.

Gilmartin noted that Merck closed 10 licensing deals in 1999. This year, the company expects to close 50 deals. Merck, which over the years as been criticized for resisting alliances with other drug developers, is counting on a number of licensed products for near-term and long-term revenue growth.

Two of the most promising drugs in the Merck pipeline are muraglitazar for diabetes and gaboxadol for insomnia. Earlier this year, Merck signed marketing and development deals with

Bristol-Myers Squibb

(BMY) - Get Report

for the diabetes drug and with the Danish company H. Lundbeck for the insomnia drug.

Merck and Bristol-Myers Squibb will seek approval for the diabetes drug by year-end from the Food and Drug Administration. The drug could reach the market by late 2005 if all goes well. The insomnia drug is in phase III clinical testing, the final stage of human trials before a drug application is submitted to the FDA. Merck expects to seek FDA approval in late 2006 or early 2007.

Gilmartin also said that all new product candidates -- except the arthritis drug Arcoxia -- are "on track or ahead of schedule" for U.S. regulatory review.

Arcoxia, which has been approved in 48 countries, is a chemical cousin of Vioxx. Merck withdrew Vioxx after studies showed that people who took the drug for more than 18 months have an unacceptable risk for heart attacks and strokes.

Merck, which continues to pursue Arcoxia's approval, told analysts that the company is in the midst of three long-term safety studies involving the drug. Peter S. Kim, president of Merck Research Laboratories, said the company anticipates that a "large number" of patients in these studies will have taken the drug for two years or more.

The studies are monitored by an independent safety committee, just like the independent group that monitored the test that led to Merck's decision to pull Vioxx from the market.

Results of the three Arcoxia studies, covering some 34,600 patients with osteoarthritis or rheumatoid arthritis, should be available in 2006. These tests are comparing Arcoxia users with people taking an older arthritis treatment and pain reliever called diclofenac.

On Oct. 26, Merck received conditional approval on for Arcoxia from the Food and Drug Administration, but the agency's conditions included more tests of long-term safety and efficacy.

The FDA is scheduled to convene an advisory committee during the first quarter of 2005 on Arcoxia and other members of the COX-2 inhibitor drug class. Vioxx was a COX-2 drug; so are

Pfizer's

(PFE) - Get Report

Celebrex and Bextra.

Kim said Merck plans to discuss Arcoxia with regulators at the advisory panel, and he added that the company plans to discuss Arcoxia with European regulators who recently announced they are conducting a safety review of all COX-2 drugs.

Kim said Merck is on schedule to seek FDA approval in 2006 of a home-grown diabetes drug called MK-431. The company also expects to seek FDA approval in 2006 for Saha, a compound now in phase II testing, for treating a type of lymphoma. The drug, acquired when Merck bought the private biotech company Aton Pharma earlier this year, is being tested in a host of other cancers -- lung, breast, colon, blood -- as a single therapy and as a part of a combination therapy.

Kim also outlined several other licensed products that show promise, including an acute stroke drug developed by Japan's Ono Pharmaceutical, which is in phase II testing.

Other promising compounds include a depression drug licensed from

Dov Pharmaceutical

(DOVP)

; an obesity treatment from

Nastech Phamaceutical

(NSTK)

; and a cancer drug from

Vertex Pharmaceuticals

(VRTX) - Get Report

. These products are in phase I testing.

Another bright spot in the company's research pipeline is the vaccine business. Merck recently sought FDA approval for Proquad, a four-disease product that incorporates chicken pox into an existing vaccine for measles, mumps and rubella (German measles). During 2005, Merck expects to seek FDA approval for three other vaccines protecting against rotavirus, a contagious virus that causes gastroenteritis; reducing the risk of human papillomavirus, or HPV, which is linked to cervical cancer and genital warts; and reducing the pain associated with shingles.

"The situation we face is not business as usual," said Gilmartin. After briefly reprising Merck's actions leading up to the Vioxx withdrawal on Sept. 30, Gilmartin said "our focus is now on the future."

As Merck executives said last week and Gilmartin stressed Tuesday, Merck is committed to maintaining its dividend.

Last week the

company made financial predictions for the rest of 2004: earnings per share in the range of $2.59 to $2.64, and for 2005, EPS in the range of $2.42 to $2.52.

Merck's stock was up 27 cents, or 0.9%, to $29.32.