Bloomberg News

Merck KGaA to Close Merck Serono Site in Geneva, Cut Jobs

April 24, 2012

Merck KGaA (MRK) plans to close the Geneva headquarters of its Serono unit, five years after buying Europe’s biggest biotechnology company for about $13.3 billion to expand a drug business that has since faced development and regulatory setbacks.

Merck plans to transfer 750 positions to other locations, the Darmstadt, Germany-based company said in a statement today. Merck expects to cut 500 jobs in Geneva as well as 80 positions across three manufacturing sites in Switzerland, according to the statement.

The cuts are part of a restructuring program that Merck announced in February. The drug-development unit Merck Serono has had two headquarters and two centers for research and development since the acquisition, and restructuring was needed to eliminate redundancies, Stefan Oschmann, the head of unit, said in a telephone interview today.

“This decision is intended to give us a footprint that is lean and agile and competitive,” Oschmann said. “We are one of the last of the pharmaceutical companies to restructure.”

The number of jobs that may be eliminated is at the upper end of what was expected, Elmar Kraus, an analyst with DZ Bank AG, said in a note to investors today.

“We expect more announcements on efficiency measures at the capital markets day on May 15 and expect a positive share price reaction,” he said. Kraus recommends buying the shares.

Merck rose 0.3 percent to 82.64 euros at 1:36 p.m. in Frankfurt. The stock has gained 23 percent in the last year.

Relocations

The relocations and reductions will begin in the second half of this year and will be completed in the first half of 2013, pending a consultation process with employees.

Workers have until May 16 to suggest ways to avoid the dismissals or limit their number, a spokeswoman said in an e- mailed statement. The company will review the suggestions and probably reach a final decision in early June, she said.

If carried out fully, the cuts could yield 72.5 million euros ($95.5 million) in savings, assuming an average cost per employee of 125,000 euros, Edward J. Dulac III, an analyst at Barclays Capital, wrote in a note to investors today.

Merck will keep 1,000 employees in Switzerland, mainly in biotech manufacturing, Oschmann said. The company has begun making cancer drug Erbitux at its newer manufacturing plant in Corsier-sur-Vevey where it also makes multiple sclerosis treatment Rebif, which was developed by Serono, he said.

Lake Geneva

Serono completed construction of its 725,000-square-foot Geneva headquarters around the time of the takeover at a cost of $1.25 billion, according to Architectural Record. The building, designed by architect Helmut Jahn, sits on a 6.5-acre site overlooking Lake Geneva, and features an atrium with a 10,800- square-foot glass-and-steel roof that tilts open to cool the space in warm weather, according to the publication. Merck plans to sell the building, Oschmann said today.

Rebif, Merck’s top-selling drug, faces increased competition from newer therapies. In June, the company dropped development of the multiple sclerosis pill cladribine, which had been its most promising experimental medicine. European regulators in 2009 rejected Erbitux for use in lung tumors.

Headquarters jobs will be moved to Darmstadt, while research positions will be transferred to Darmstadt, Boston and Beijing, the company said today. Merck will continue to make biotech drugs at Swiss factories in Aubonne and Corsier-sur- Vevey, in the canton of Vaud, the company said.

Savings Potential

“Although gross savings potential is probably twice the amount of our estimated net savings of 360 million euros, we believe management will look to reinvest behind more stable, predictable businesses which could bolster the presence of the company’s Millipore division,” Dulac wrote.

Merck’s Millipore division makes laboratory equipment and water purification systems used in drug research and development. The company is also the world’s biggest maker of liquid crystals, which are found in flat screen televisions and electronic device displays.

Merck Chief Executive Officer Karl-Ludwig Kley told investors at the company’s annual general meeting that he was focused on restructuring the company over the next two years before making any major acquisitions.

To contact the reporter on this story: Allison Connolly in Frankfurt at aconnolly4@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net


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