Merck Announces Second Round of Job Losses

Pharmaceuticals manufacturer Merck has announced a further 8,500 job losses, on top of an earlier cut of 7,500 positions. It will also restructure its research and development (R&D), following delays by US regulators in approving new medicines. The company has now reduced its total workforce by 20%.

The cuts aim to achieve savings of US$1bn for Merck in 2014 and US$2.5bn per year thereafter, the company announced. Half of the savings will be achieved in R&D and the remainder in the company’s commercial division, including sales and marketing.

The moves are part of a strategy instigated by Merck’s chief executive officer (CEO), Ken Frazier and R&D chief Roger Perlmutter. The latter joined the company in April to replace Peter Kim, under whom experimental drugs in cardiovascular, surgery, and osteoporosis suffered setbacks while rival drugmakers were able to get new products to market.

“We will sharpen our focus on core therapeutic areas,” Frazier said on a conference call, indicating more resources for vaccines, cancer, diabetes and hospital care. “In other therapeutic areas, we will significantly reduce our resources.”

Commenting on the announcement, Warwick Business School professor John Lyon said that Merck’s restructure followed its peers, including Pfizer, AstraZeneca and GlaxoSmithKline. “There is a huge transformation going on in the pharmaceutical industry,” he commented

“Pharmaceutical companies can no longer rely on the blockbuster model of developing drugs and searching for revenues in excess of US$1m per year, so they need to look at innovative ways of generating new products.

“Clinical scientists have spent many years, decades, investigating new medicines from existing chemical compounds and proteins, but it is becoming more and more difficult simply because there are less to look at as the years go on. There is only a finite number of compounds, so the industry is having to shift its focus.

“I would suggest large pharmaceutical companies like Merck need more of the entrepreneurial mind-set within the corporation and also mirrored in their processes to feed their earnings per share year on year. Large corporations are very process driven, but they need to be more flexible and find new innovative ways of working in terms not only of their mindset, but also embedding that into new processes that work.

“They need to be more nimble, so that ownership and responsibility has moved down the organisation and they are not as hierarchical. But this takes time, it is an on-going process that will take many years – it is like turning an oil tanker.”

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