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Merck eliminates 7,000 jobs

Drugmaker Merck & Co, squeezed by Vioxx lawsuits, tumbling revenues and other troubles, is eliminating 7,000 jobs and five production plants and revamping manufacturing in the first phase of a global reorganization.

The restructuring of manufacturing, supply chain and research operations, meant to lower pretax costs by US$3.5 billion to US$4 billion through 2010, includes imme-diately starting to cut 11 percent of Merck's work force, with 60 percent of the reductions in manufacturing. The rest of the job cuts -- the third round announced since October 2003 -- are to be spread across the company, with about half in the US.

By the end of 2008, Merck said on Monday that it also plans to close one basic research site and two preclinical development sites, close or sell five of its 31 manufacturing plants and reduce operations at some others. It will also streamline manufacturing and outsource more of it, and reduce supply costs, with the latter effort expected to produce about half the savings.

Analysts said the move is part of an emerging trend in an industry that for years never had to worry about cutting costs, given gross profit margins well above 70 percent and limited pressure on prices until recently. Pfizer, Wyeth and a number of smaller companies have announced a restructuring and job cuts in the last year or so.

"This is in response to a very challenging environment," Morgan Stanley managing director Jami Rubin said.

"I would expect broader cuts to be announced within the sales force, marketing, general and [administration] as well as R&D over the longer run," he said.

In December, then-chief executive officer Raymond Gilmartin announced several similar changes aimed at cutting Merck's costs by US$2.4 billion through 2008. Merck also eliminated 5,100 jobs through buyouts and layoffs in 2003 and last year and an additional 825 this year.
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