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Merck To Slash Thousands Of Jobs

Pharmaceuticals: R&D takes new hit, and firm shifts headquarters

by Ann M. Thayer
October 3, 2013 | A version of this story appeared in Volume 91, Issue 40

Credit: Michael McCoy/C&EN
Merck is moving headquarters to this Kenilworth, N.J., site.
This is a photo of the front gate of Merck’s facility in Kenilworth, N.J.
Credit: Michael McCoy/C&EN
Merck is moving headquarters to this Kenilworth, N.J., site.

Continuing to downsize in the face of research setbacks, Merck & Co. intends to eliminate 8,500 jobs by the end of 2015. Combined with 7,500 job cuts announced previously, the new actions will reduce the drugmaker’s overall workforce by nearly 20%.

Also, instead of a planned headquarters move from Whitehouse Station, N.J., to Summit, N.J., the firm will move its headquarters to Kenilworth, N.J., and close the Summit site. Animal health and consumer care divisions in Summit will move to another New Jersey facility, and manufacturing, lab, and other functions will move either within the state or to a Merck location in Pennsylvania.

Merck expects the new actions to yield about $2.5 billion in annual cost savings by the end of 2015. About half of the cuts are to come from R&D and half from marketing and administration. “This is not a change in our strategy. This is all about greater focus and generating greater operational efficiencies,” CEO Kenneth C. Frazier told stock analysts on Oct. 1.

The downsizing is also not driven by any single immediate issue, Frazier said. However, the company recently experienced regulatory setbacks with two experimental compounds, the anesthesia drug sugammadex and the insomnia drug suvorexant, and major products face generic competition. “Slowing growth in key markets, combined with research disappointments and regulatory delays, requires us to change how we are going to move forward,” Frazier said.

Merck held out longer than other big pharma firms in restructuring and cutting jobs, according to Richard M. (Erik) Gordon, a University of Michigan business professor who follows the pharmaceutical industry. But companies that grew huge on the success of one-time blockbuster drugs “have no choice, because they can’t support the old cost structure,” he says.

Merck’s downsizing will be accompanied by a sharper commercial and research focus. R&D will be aimed at diabetes, acute hospital care, vaccines, and oncology. Key programs will include Alzheimer’s disease, hepatitis C, vaccines, and immunotherapy for cancer.

Merck R&D head Roger M. Perlmutter, who joined the company in April and made sweeping changes in R&D management the following month, told analysts that he is “never satisfied” with R&D productivity and the company’s drug development pipeline. Savings will come from pruning the R&D portfolio, discontinuing or out-licensing selected late-stage projects, and increasing the number of externally sourced programs.

“We are focusing our resources on our most important programs, and we’re eschewing distraction,” Perlmutter said. “The reality is we are reducing our budget and doing less work.” His goal is to ensure that “every dollar, every hour spent by each individual is spent on something that really matters in terms of advancing innovative therapies.”

Perlmutter said he can already see a change at Merck. “There is a sense of forward progress and emerging energy that I think you’ll see accelerate over the next few years.”

Although cost cutting may have been needed, science still matters, Gordon cautions. After years of relatively easy successes, the drug industry is left facing the most-difficult-to-treat diseases, such as refractory cancers and Alzheimer’s, he says. “And they’re going to be attacking that task with fewer scientists.” That is “not good news,” Gordon says, for the industry, for employees, or for patients waiting for a cure.


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