Acquiring Schering Plough for $41bn (€32bn) left Merck with 91 manufacturing facilities. Phasing out of activities at the eight plants, coupled to other actions taken since the merger, will leave Merck with a network of 77 facilities which it will supplement with contract manufacturing deals.
Of the eight sites Merck is cutting four are in Latin America. Merck will end manufacturing at facilities in Azcapotzalco and Coyoacan, Mexico and Santo Amaro, Brazil. It is also looking to sell its facility on Mirador, Argentina.
However, Merck highlighted that it is also investing in Latin America. For instance, it is working to increase capacity at its facilities in Xochimilco, Mexico and Campinas, Brazil. These projects form part of Merck’s plans to continue making strategic investments, particularly in emerging markets.
Other than the cuts in Latin America, Merck’s manufacturing and R&D sites in emerging markets are largely unaffected by the plans. Chemical production is being phased out at one site in Singapore but pharma manufacturing will continue and its other plant there is unaffected.
The remaining manufacturing facilities Merck is stopping production at are in Comazzo, Italy and Cacem, Portugal. Merck is also seeking a buyer for its production plant in Miami Lakes, Florida, US.
Merck is also exiting eight R&D laboratories to trim its global network down to 16 major facilities. Despite the cuts Merck expects to retain clinical and regulatory affairs expertise in all major regions and believes it is equipped to develop biologics, small molecules and vaccines.
Operations at Montreal, Canada; Oss, Schaijk and the Nobilon facility at Boxmeer Netherlands; Odense, Denmark; Waltrop, Germany; Newhouse, Scotland; and Kendall Square, Cambridge, Massachusetts, US will be phased out over the next two years.
The remaining sites include several large multidisciplinary sites that will provide capabilities and resources to number of research franchises and respond quickly to change.
Costs and savings
Merck is making these cuts as part of the initial phases of its merger restructuring programme which is targeting a 15 per cent reduction of its global workforce. In some areas of the business Merck will continue to hire.
Making these cuts is predicted to result in pre-tax costs of $3.5bn to $4.3bn. However, the initial phases of the restructuring programme will lead to savings of $2.7bn to $3.1bn a year by 2012. In total, Merck is targeting savings of $3.5bn a year.