Merck Restructures

Merck plans to restructure through a global initiative aimed enhancing its commercial and R&D focus. The multi-year initiative includes eliminating 20% of its workforce (7,500) by 2015. The company expects to realize approximately $2.5 billion in annual cost savings by the end of 2015 and estimates that $1.0 billion, or 40%, of the savings will be realized by the end of 2014. The company anticipates that the majority of savings will come from marketing and administrative expenses and R&D. Total pre-tax costs for the new restructuring program are estimated to range between $2.5 billion and $3.0 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.

“These actions will make Merck a more competitive company, better positioned to drive innovation and to more effectively commercialize medicines and vaccines for the people who need them,” said Kenneth C. Frazier, chairman and chief executive officer, Merck. “Today’s announcement further underscores that we are committed to improving our performance in the short term while also investing for the long term to create value for patients, customers and shareholders. While these actions are essential to ensure that Merck can continue to fulfill its mission into the future, they are nevertheless difficult decisions because they affect our dedicated and talented colleagues. We appreciate the contributions of all our employees, and we will support them during this time of transformation.”

Commercial efforts within the core human pharmaceutical and vaccine business will include an increased focus on diabetes, acute hospital care, vaccines and oncology in prioritized markets including the U.S., Japan, France, Germany, Canada, UK, China, Brazil, Russia and Korea, which account for the majority of revenue in its pharmaceutical and vaccine business. R&D efforts will focus on programs such as the company’s anti-PD-1 immunotherapy program in oncology, BACE for Alzheimer’s disease (MK-8931), its next generation HCV program and V503, and the company’s 9-valent HPV vaccine. Other initiatives include building its biologics capabilities and out-licensing or discontinuing selected late-stage clinical development assets and reduce its focus on platform technologies.

In addition, Merck plans to move its global headquarters from Whitehouse Station, NJ, to its existing facilities in Kenilworth, NJ. As previously announced, its Whitehouse Station building will be closed, along with the global headquarters in Summit, NJ, after a re-evaluation of real estate needs in the state. The transition is expected to begin next year and be completed by 2015. Merck’s Animal Health and Consumer Care divisions currently located in Summit will be relocated to another facility in NJ. Also, certain manufacturing, laboratory and other functions currently located in Summit will be relocated to other facilities in NJ or PA. Merck has been headquartered in Whitehouse Station since 1992, and prior to that was headquartered in Rahway, NJ.