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Tuesday, October 1, 2013

Merck Plans More Layoffs

Merck Research Laboratories in Boston. (Kate Hannon/Flickr)

Merck Research Laboratories in Boston. (Kate Hannon/Flickr)

The pharmaceutical giant Merck says it will cut 8,500 jobs in its global workforce. This comes after an earlier layoff of 7,500 employees.

The move is part of a major restructuring plan: the company has been losing money as other drug companies have become strong competitors.




From NPR and WBUR Boston, I'm Meghna Chakrabarti, in for Jeremy Hobson. It's HERE AND NOW.

Pharmaceutical giant Merck, maker of drugs such as Claritin, Singulair and Fosamax, announced today that it's laying off 8,500 employees. This comes after an earlier announcement that 7,500 workers would lose their jobs. This 20 percent reduction of Merck's global workforce is part of a cost-cutting and restructuring plan. All this for a company that posted $47.3 billion in worldwide sales last year.

Jason Bellini is a reporter with The Wall Street Journal, and he joins us today to talk about the pharma biz. And, Jason, first of all, 8,500 jobs cut on top of another 7,500, that's a lot for Merck. Why all the cuts?

JASON BELLINI: Why all the cuts? Well, Meghna, thanks for having me. They're really following many of their global rivals in cutting jobs. All of big pharma's been coming into pressure as sales take a hit from lost of exclusivity on their blockbuster drugs.

At Merck, they've been seeing a slowdown in growth for the diabetes drug Januvia. Rival drugs and newer classes have been hurting their sales. Also the asthma drug Singulair that reached $6 billion a year at one point; that's plunging to generic competition. So Merck's plan is to trim down its pipeline of new drugs and focus only on those with the greatest chance of success.

CHAKRABARTI: Success, meaning chance of, you know, like actually, effective drugs are growth potential in terms of the market for them.

BELLINI: Well, growth potential and also - and this is really significant - success with the FDA. They've had several recent high-profile failures where they had what sounded to Wall Street like really promising drugs that just didn't go through.

CHAKRABARTI: Now, earlier, I said that 2012 sales worldwide for Merck were $47.3 billion, a large number. But as you know, that's a decrease. That's about 2 percent over the previous year. Now this restructuring isn't entirely unexpected. I mean, in 2011, Merck announced that it was going to reduce its workforce by, what, 13,000 employees by 2015. Now, overall, are these cuts going to achieve the goals in terms of cost savings that Merck wants?

BELLINI: Well, what we have are their projections. So, you know, as you said, it's 20 percent cut of its 81,000 workers by the end of 2015. And these cuts are supposed to save the company $1 billion next year, and the company is expected to save about $2.5 billion in annual net cost by the end of 2015. Now, to put that in context, the company had net income last year of $6.3 billion, which sounds great. But in 2009, the company netted $13 billion. So, significant drop there. Merck also announced today that it plans to move its global headquarters from Whitehouse Station, New Jersey, to existing facilities in Kenilworth, New Jersey. That's another cost-saving move.

CHAKRABARTI: OK. So I understand, though, that this signals something of a setback for Merck's CEO Kenneth Frazier because he had put a bet on putting a lot more investment into new R and D, didn't he?

BELLINI: Well, that's right. And he has long said that he wants to support his scientists, that he's dazzled by scientists. You know, he rose through the ranks as the company's chief counsel. He's credited with the defense of the company against lawsuits related to the pain pill Vioxx. His plan now is just to put more resources into really specific areas - vaccines, cancer, diabetes and hospital care. And cancer is an interesting one because he's planning to create a new unit to sell oncology drugs that the body's own immune system uses to kill cancer cells. And this isn't surprising because oncology drugs are the leading class of sales worldwide. They account for nearly $62 billion in worldwide sales.

CHAKRABARTI: So, Jason, the last couple of seconds, literally, that we have, does Merck's restructuring tells us anything about the health of the pharma business overall?

BELLINI: Well, overall, I mean, the - it's still bringing in massive, massive amounts of profit for the leading companies, but they've all been spinning off smaller units and are focusing on their core drugs and looking for the next blockbusters. In the case of Merck, you know, they're still selling $20 billion in drugs last year.

CHAKRABARTI: Lots of sales. Jason Bellini is with The Wall Street Journal. Jason, thanks. You're listening to HERE AND NOW. Transcript provided by NPR, Copyright NPR.

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  • Paul Daniels

    Rather than eliminating a key resource (people), perhaps an across-the-board payroll reduction ought to be considered. Although payroll is not the only cost of retaining employees, it is a primary expense. After all, a company’s principle reason for being in business ought to be satisfying customers’ needs (and that usually occurs by applying resources). In round numbers, and to focus more on the principle than the details (the offsetting effect of severance packages, etc.), the (two extreme) options are, approximately:
    A. Require a 100% sacrifice of 20% of the workforce
    B. Require a 20% sacrifice of 100% of the workforce

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