Merck & Co. to cut 8500 jobs under plan to 'sharpen' commercial, R&D focus

Merck & Co. announced Tuesday plans to reduce its global workforce by around 8500 positions as it looks to make annual cost savings of approximately $2.5 billion by the end of 2015. The company indicated that the initiative is designed to "sharpen" its commercial and R&D focus, particularly in the key areas of diabetes, acute hospital care, vaccines and oncology. "These actions will make Merck a more competitive company, better positioned to drive innovation and to more effectively commercialise medicines and vaccines," remarked CEO Kenneth C. Frazier.

Merck noted that of the projected annual cost savings, $1 billion are expected to be realised by the end of 2014. The company added that the majority of savings will come from marketing and administrative expenses and R&D. Earlier this year, Roger M. Perlmutter, who was named president of Merck Research Laboratories in March, revealed plans to cut jobs in the company's R&D operations as part of a restructuring effort (for related analysis, see ViewPoints: Sugammadex setback blunts the new R&D narrative at Merck & Co.).

According to Merck, the new workforce reductions, combined with previously announced cuts of approximately 7500, will result in a decrease of about 20 percent of the drugmaker's global workforce of 81 000 employees by the end of 2015. "While these actions are essential to ensure that Merck can continue to fulfill its mission into the future, they are nevertheless difficult decisions because they affect our dedicated and talented colleagues," Frazier commented. Merck spokeswoman Kelley Dougherty noted that none of the job cuts have yet happened.

Specifically, Merck indicated that under the plan it will "better allocate resources" to areas of highest-potential growth, such as its anti-PD-1 immunotherapy programme MK-3475 for oncology. The company noted that it will create a new, integrated unit to prepare for the launch of MK-3475. According to the drugmaker, its refocused pipeline will also prioritise the BACE inhibitor MK-8931 for Alzheimer’s disease, its next-generation hepatitis C programme and the nine-valent human papillomavirus vaccine V503.

In addition, Merck said it will "pursue emerging product opportunities" and build its biologics capabilities, while out-licensing or discontinuing selected late-stage assets. The drugmaker noted that it will also invest in new licensing and business development activities to strengthen its pipeline. The company added that it will also increase its focus in 10 prioritised markets, which account for the majority of revenue in its pharmaceutical and vaccine business, consisting of the US, Japan, France, Germany, Canada, the UK, China, Brazil, Russia and Korea.

Commenting on the initiative, BMO Capital Markets analyst Alex Arfaei noted that "clearly a more efficient operating structure will help Merck, particularly in 2014, when we expect revenues to remain essentially flat" due increased pressure on Januvia (sitagliptin). However, Arfaei cautioned that the company was placing too much focus on a handful of experimental drugs. "Overall, today's announcement makes us more cautious about the potential of Merck's pipeline," Arfaei said.

Merck said that it expects to record charges relating to the new restructuring programme of approximately $900 million to $1.1 billion in 2013, with the majority being recorded in the third quarter. However, the drugmaker reaffirmed its 2013 earnings guidance.

The company said it will also reduce its real estate footprint, and plans to move its global headquarters from Whitehouse Station, New Jersey to existing facilities in Kenilworth, New Jersey. Merck had previously announced the relocation of its headquarters to Summit, New Jersey, but noted Tuesday that it could achieve greater cost savings and operational synergies by closing both the Summit and Whitehouse Station facilities. The move is expected to begin next year and be completed by 2015. Meanwhile, Merck’s animal health and consumer care divisions will be relocated from Summit to another facility in New Jersey.

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