In a move to create greater efficiencies, Merck announced the elimination of another 8,500 positions, in addition to previously reported reductions of 7,500 jobs, with a goal of paring annual operating expenses by approximately $2.5 billion by the end of 2015.
Merck said the multi-year initiative will enable Merck to better target its resources behind those opportunities that have the potential to deliver the greatest return on investment, including bolstering its pipeline and implementing a more agile operating model, with a significantly reduced, more flexible cost structure.
By the end of 2015, the workforce reductions will result in a decrease of about 20% in Merck’s total global workforce of 81,000 employees. Total pre-tax costs for the new restructuring program are estimated to range between $2.5 billion and $3 billion. The company estimates that approximately two-thirds of these costs will result in cash outlays, primarily related to separation expense, and approximately one-third are non-cash, primarily related to accelerated depreciation of facilities to be closed or divested.
The company said half the cuts will come from marketing and administrative expense and the rest from R&D, with Merck expecting to realize $1 billion in annual savings by the end of next year.
CEO Kenneth C. Frazier said the cuts are designed to strengthen Merck “by sharpening our commercial and R&D focus on our best growth opportunities.” The global initiative will focus on three key areas: the redesigned operating model and reduced cost base, sharpened commercial focus and refocused and prioritized R&D.
Frazier said the downsizing does not represent a change in strategy, but allows Merck to exploit its soundest opportunities, which he defined as vaccines, oncology, diabetes and acute care. Within oncology, the company plans to form an integrated unit to align development and commercial efforts to quickly advance lambrolizumab, its anti-PD-1 immunotherapy. Although the pharma giant will reduce its efforts in other areas, “Merck remains firmly committed to innovation,” Frazier said.
Merck will continue to support its in-line portfolio and prepare for launches in the pipeline. The company will increase its focus in 10 prioritized markets, which account for the majority of revenue in its pharmaceutical and vaccine business: the U.S., Japan, France, Germany, Canada, the U.K., China, Brazil, Russia and Korea.
Merck has prioritized its R&D efforts to focus on candidates capable of providing unambiguous, promotable advantages to patients and payers. Merck will pursue emerging product opportunities independent of therapeutic area or modality and build its biologics capabilities. The company will out-license or discontinue selected late-stage clinical development assets and reduce its focus on platform technologies. The company will make externally sourced programs a greater component of its pipeline strategy
The shuffling of Merck’s assets could offer some upside for biotechs. Merck will accelerate investment in licensing and business development activities to acquire external innovation and commercial opportunities to strengthen its pipeline. It also is focusing on its next-generation hepatitis C virus (HCV) program.
Global headquarters will be moved from Whitehouse Station, N.J., to existing facilities in Kenilworth, N.J. Previously, Merck had planned to relocate its headquarters to Summit, N.J. The new plan is to shutter both the Summit campus and the Whitehouse Station facility, dramatically reducing Merck’s footprint in New Jersey.
Merck’s Animal Health and Consumer Care divisions currently located in Summit will be relocated to another facility in New Jersey. In addition, certain manufacturing, laboratory and other functions currently located in Summit will be relocated to other facilities in New Jersey or Pennsylvania.