Merck continues restructuring and cuts 13,000 jobs

US drug giant Merck & Co will lay off as much as 13 per cent of its workforce - up to 13,000 staff - by the end of 2015. The move is part of an aggressive cost cutting drive to streamline the company, which faces the expiry of some of its best selling drugs in the next couple of years. The layoffs come in the wake of 17,000 redundancies, which were the result of the merger with Schering-Plough in 2009. 

The planned redundancies will mostly affect those in administrative positions, although full details are not yet known. Merck has said that it will continue hiring in growth areas, such as emerging markets.

Merck, which had annual sales of $46 billion (?28 billion) in 2010, plans to make cost savings of between $4 billion and $4.6 billion by 2015 with these new cuts. In its second quarter report, the company said that it is already on target to hit its goal of saving $3.5 billion by the end of 2012.  

’Merck is taking these difficult actions so that we can grow profitably and continue to deliver on our mission well into the future,’ said Kenneth Frazier, president and CEO of Merck, in a statement. ’The environment we operate in is changing rapidly and dramatically, and these steps will help us more efficiently serve customers and patients around the world.’ 

The redundancies have been announced as Merck posts good second quarter growth with sales up 7 per cent. Sales of its HIV medication, Isentress (raltegravir) and its second biggest seller autoimmune therapy Remicade (infliximab) both rose 26 per cent on the same time last year. Diabetes drug Janumet (metformin and sitagliptin) posted a huge 47 per cent increase. 

Patent expiries are set to damage the company’s bottom line in the next couple of years with its biggest drug, the asthma and allergy medication Singulair (montelukast), coming off patent in the US next year. Singulair had sales of $5 billion in 2010. Merck is already feeling the effects of the loss of US patent protection for hypertension therapies Hyzaar and Cozaar (preparations of losartan) in April 2010 as generic sales eat into their market share. The two drugs had sales of $3.6 billion in 2009 and by 2010 this had fallen to $2.1 billion.  

Josh Owide, senior PharmaVitae analyst at Datamonitor, says: ’Merck has been carrying out a restructuring program for a number of years now, anticipating lost revenues from key patent expiries, and this latest round of job cuts is slightly different in that it is heavily tied to the integration with Schering-Plough.’ Owide says that while Merck’s merger with Schering-Plough has inflated the company’s sales, a number of important assets haven’t lived up to expectations. ’There was an air of inevitability about these layoffs,’ he adds. ’For Merck to retain one of the highest profit margins in Big Pharma it would have needed to strip out a lot of the added cost burden derived from the Schering-Plough merger regardless of its revenue projections.’ 

Patrick Walter