Merck - known as MSD outside North America - announced yesterday it will slash its yearly costs compared to its 2012 operation expense level, and decrease its global workforce by 20% with 8,500 jobs to go.
Merck’s Executive VP and CFO Peter Kellogg told stakeholders $1bn of savings would be made in 2014, and the full $2.5bn would be achieved by 2015, with the “substantial majority of savings coming from SG&A, and R&D.”
However, though these segments of Merck’s business would feel the brunt of the cuts, the firm is “planning certain actions that will reduce manufacturing costs,” he added, though these are not expected until after 2015.
So far this year, Merck has already put up for sale an active pharmaceutical ingredient (API) facility in County Wicklow, Ireland (with 280 jobs lost), and sold a plant in Oss, The Netherlands to South African drugmaker Aspen in a deal that was completed yesterday.
At the time, both divestitures were described by the company as being part of a global “ongoing review of its worldwide manufacturing capabilities.”
Sharpening R&D Focus
Merck’s revenue was hit last year by the patent expiry in August of asthma-and-allergy treatment Singulair - sales fell by almost $1.6bn in 2012, year-on-year according to Merck’s annual report - and is set to fall further with an expected end of a joint venture with AstraZeneca that had seen steady revenue from product sales under the KBI name since 1998.
Yesterday’s announcement was the result of a full internal assessment that began earlier this year to evaluate efficiency across the whole of Merck’s business units, with “no area exempt” according to CEO Kenneth Frazier.
He explained the announcement was not a change of strategy but rather a rethink to increase operational efficiency and sharpen its commercial and R&D focus.
“[The decision was] not driven by any single immediate issue but rather proactive response to the challenges we’ve seen both externally and what we expect to face in the coming years,” he said on the call.
“The combination of both slowing growth and key markets combined with research disappointments and regulatory delays requires us to change how we are going to move forward with the right plan.”
Oncology & MK-3475
Though cuts will be relentless, the Frazier told investors Merck was “firmly committed to innovation” and “innovative R&D is at the core of Merck.”
As part of the re-focus, the company is looking to form a single integrated unit for oncology, aligning development and commercial leaders.
Specifically, Frazier spoke of bringing the company’s anti-PD 1 lung cancer treatment, MK-3475, to market as quickly as possible, with Kellogg adding the cashflow would be altered, with money reallocated specifically for the programme.
The drug is designed to restore the immune system and target cancer cells by selectively achieving dual ligand blockade of the PD-1 protein, enabling activation of T-cells. Merck will present Phase IB expansion study results later this month at the 15th World Conference on Lung Cancer in Australia.