Roy Vagelos wasn't kidding. Last fall, the Merck CEO warned of a "highly pressurized" decade for drug companies. Investor worries have shaved more than a third off Merck's stock market value since early last year, and company earnings are being squeezed by slack sales of such key drugs as its new prostate-disease-fighter Proscar and anticholesterol medicine Mevacor. Now, Vagelos is moving to stem the damage by cutting 1,000 jobs, or 2.6% of Merck's work force, this year. Top execs will take pay cuts of up to 10%. The irony: Merck's gleaming new $228 million headquarters complex.

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