Merck Restructures Manufacturing, R&D

Merck has released details of its post-Schering-Plough integration plans, announcing closures of eight manufacturing and eight R&D sites around the world, along with consolidation of office facilities. Overall, the company expects to reduce its workforce by 15% during the initial phase of the restructuring.

Merck’s target for post-merger annual savings is $3.5 billion by 2012. This round of the program will account for $2.7 to $3.1 billion of that goal, while non-restructuring-related activities, including Merck’s ongoing procurement savings initiative, will contribute to the target. Merck will take a pretax charge of $3.5 billion to $4.3 billion for this phase of the restructuring program, with some of the charges coming in 2Q10. Two-thirds of the charges will relate to cash outlays like employee termination costs, while the remainder will be non-cash accelerated depreciation charges.

Merck plans to phase out R&D operations at eight research sites during the next two years. These sites include: Montreal (Canada), Boxmeer (Nobilon facility only), Oss, and Schaijk (all Netherlands), Odense (Denmark), Waltrop (Germany), Newhouse, (Scotland); and Cambridge (Kendall Square), MA. The reduction will leave 16 major facilities in Merck’s R&D network.

The company’s research division will retain its focus on seven key therapeutic franchise areas: Cardiovascular Disease, Diabetes and Obesity, Infectious Disease, Oncology, Neuroscience and Ophthalmology, Respiratory and Immunology, and Women’s Health and Endocrine. Women’s health research will relocate to the U.S. from Oss.

Merck plans to phase out operations at eight manufacturing facilities beginning in the 2H10. The company will shut down sites in Comazzo (Italy), Cacem (Portugal), Azcapotzalco and Coyoacan (Mexico), and Santo Amaro (Brazil), plans to sell the Mirador (Argentina) and Miami Lakes, FL facilities, and will phase out legacy Merck chemical manufacturing operations in Singapore. Operations will continue at the legacy Schering-Plough site in Singapore, and pharmaceutical manufacturing operations will continue at these both Singapore facilities.

Between this move and previously announced ones, Merck will reduce its manufacturing network from 91 facilities to 77. A Merck press statement read, “The company’s core manufacturing activity will be focused on areas where it has unique expertise and capabilities, while leveraging a virtual global network of suppliers.”