Bloomberg News

Merck to Cut as Many as 13,000 Jobs to Save $4.6 Billion

July 29, 2011

(Updates share price in the fifth paragraph.)

July 29 (Bloomberg) -- Merck & Co., the second-largest U.S. drugmaker, plans to eliminate an additional 12,000 to 13,000 jobs by 2015, expanding a restructuring program to save as much as $4.6 billion a year.

As much as 14 percent of the company’s 91,000 employees will lose their jobs, based on the size of the workforce at the end of last month. The Whitehouse Station, New Jersey-based drugmaker also reported today that second-quarter earnings excluding one-time items were 95 cents a share, matching the average estimate of 17 analysts surveyed by Bloomberg.

Merck is cutting costs, expanding in emerging markets and spending on research and development as the company tries to gain momentum before it loses patent exclusivity next year on its Singulair medicine for asthma. The company just introduced a new hepatitis C drug, Victrelis, and is testing an experimental treatment to raise good cholesterol in a 30,000-patient trial.

“They are focusing on costs,” said David Maris, an analyst at CLSA in New York, in a telephone interview. “That is exactly what they need to do under the new environment we operate under.”

Merck fell 80 cents, or 2.3 percent, to $34.13 at 4 p.m. in New York Stock Exchange composite trading. The shares have declined 5.3 percent this year.

The drugmaker will continue to hire in growth areas such as emerging markets, said David Caouette, a Merck spokesman, in a telephone interview.

Non-Revenue Positions

The job cuts will come “disproportionately from the elimination of non-revenue generating positions,” Caouette said. These include administrative and headquarters positions, as well as the consolidation of offices and the closing of animal health manufacturing plants.

Net income almost tripled to $2.02 billion from $752 million the previous year, when earnings were held down by acquisition-related costs, the company said in a statement today. Sales climbed to $12.2 billion, more than the analysts’ estimate of $11.8 billion.

Second-quarter sales of diabetes drug Januvia increased 30 percent to $779 million, while sales of Remicade for arthritis and inflammatory diseases jumped 26 percent to $842 million.

The slide in the dollar’s value against other currencies boosted global sales 4 percent, the company said in the statement.

Raised Forecast

Merck raised the lower end of its full-year forecast, saying earnings excluding certain items will be to $3.68 to $3.76 a share. The company previously said annual profit would be $3.66 to $3.76 a share.

Since Kenneth Frazier started as chief executive on Jan. 1 Merck has had testing setbacks that included a trial of an experimental blood thinner that was halted in January. The drugmaker said today that it plans to spend as much as $8.3 billion on research and development this year, less than its April outlook that it would spend as much as $8.4 billion.

Frazier told investors on a conference call today that he doesn’t intend to reinstate a long-term profit outlook. In February, Merck withdrew its forecast for profit through 2013.

“I intend to make smart investments that will drive our long-term profitability and growth and that continues to be my view of how I should look at this company,” he said on the call.

Merck eliminated about 11,500 jobs last year in a plan to reduce its workforce by 17 percent by 2012. The company had 94,000 employees at the beginning of this year.

--With assistance from Pat Wechsler in New York. Editors: Bruce Rule, Chris Staiti

To contact the reporter responsible for this story: Robert Langreth in New York at rlangreth@bloomberg.net.

To contact the editor responsible for this story: Reg Gale in New York at rgale5@bloomberg.net.


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