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More Job Cuts At Merck

Pharmaceuticals: Drugmaker reveals a second round of layoffs despite strong second quarter

by Rick Mullin
August 8, 2011 | A version of this story appeared in Volume 89, Issue 32

Credit: Merck & Co.
Merck & Co. CEO Kenneth Frazier.
Credit: Merck & Co.

Merck & Co. will cut as many as 13,000 jobs worldwide by 2015, in addition to the nearly 17,000 jobs set for elimination after its 2009 merger with Schering-Plough. Merck outlined the cuts in its second-quarter earnings announcement, which reported a 7% increase in sales to $12.2 billion compared with the 2010 quarter. Net income nearly tripled to $2.0 billion.

In a conference call with investors, CEO Kenneth Frazier said revenue increases for the quarter reflect strong sales of its type 2 diabetes treatments Januvia and Janumet, its arthritis drug Remicade, and its HIV drug Isentress. Merck, however, faces loss of patent protection next year for another of its top sellers, the asthma drug Singulair.

Merck says most of the layoffs will involve administrative positions and office consolidation. The company did not specify which locations will be affected or how the cuts will affect research.

The new layoffs, a 12–13% reduction in employment, are expected to save Merck up to $1.5 billion annually, on top of the $3.5 billion in annual savings the company hopes to achieve by the end of 2012 from previously announced cost-cutting measures. “Realities of our environment dictate the need to operate more flexibly and nimbly, from a lower cost base,” Frazier said. The firm is on track to meet the savings goal of the first cost-cutting round, he added.

Richard (Erik) M. Gordon, a pharmaceutical industry analyst at the University of Michigan’s Stephen M. Ross School of Business, says the new cuts will likely include R&D jobs because Merck has already made big cuts in administration.

“I have a sense that Merck is feeling the pressure to announce cuts but hasn’t really thought through where they are coming from,” Gordon says. Analysts say they expect a more detailed update on Merck’s restructuring plan at a meeting scheduled for November.

One R&D cut Merck is disclosing is the shuttering of its RNAi research facility in Palo Alto, Calif., eliminating at least 50 jobs. A spokesman says the move, part of a consolidation in RNAi research tied to the late-2006 acquisition of Sirna Therapeutics, is separate from the major rounds of cuts.



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