Merck's supply restructuring program, which includes facility closings, headcount reductions and a reconfiguration of its manufacturing operations, is the first phase in a global restructuring initiative, the company announced Nov. 28.

"This plan represents an important first step in positioning Merck to meet the challenges the company faces now and in the future," CEO Richard Clark stated during a conference call unveiling the plan.

Going forward, Merck said it would also pursue improved approaches to R&D, marketing and sales. However, the drug maker declined to comment on future programs, saying additional plans would be addressed during the company's annual business briefing on Dec. 15.

"Certainly this is phase one, and obviously this started as I was the president of manufacturing, so this is the first phase that we're able to announce," Clark said. Clark headed Merck's manufacturing operations prior to taking over the helm in May; at that time, he announced that he would undertake a complete business review (¹ Also see "Merck CEO Clark Brings Managed Care Expertise To Post; Gilmartin Retires" - Pink Sheet, 5 May, 2005.).

"In additional phases, we'll be discussing our strategic plan and what we're going to do moving forward from Dec. 15, and so we'll save our additional strategies and initiatives for that time," Clark stated.

The exec said Merck is engaged in an ongoing effort to enhance efficiencies throughout the company, including a review of everything from discovery and development to manufacturing and marketing of medicines and vaccines.

The initial phase of the cost reduction program is expected to yield cumulative pretax savings of $3.5 bil. to $ 4bil. between 2006 and 2010. The cumulative pretax cost of the program is estimated to range from $1.8 bil. to $2.2 bil. through the end of 2008, when the initial phase of the restructuring program is expected to be substantially complete, the company added.

As part of the effort, Merck plans to eliminate approximately 7,000 positions - or 11% of the company's workforce - both in manufacturing and in other divisions worldwide, by the end of 2008. About half of the reductions will occur in the U.S., Merck said.

In addition, the company plans to divest or close five of its 31 worldwide manufacturing facilities and reduce operations at a number of other sites. The company also plans to close one basic research site and two preclinical development sites. Merck, however, declined to provide details on which facilities would be impacted.

The implementation of lean manufacturing principles also will reduce cycle time, inventory and manufacturing costs, Manufacturing Division President Willie Deese said (see ² Also see "Commercialization Group Intended To Speed Time To Market, Merck Says" - Pink Sheet, 28 November, 2005.).

The announcement comes as Merck's sales have struggled and the company faces thousands of Vioxx liability lawsuits, as well as upcoming patent exclusivity losses, including patent expiry for Zocor (simvastatin) in June 2006.

The 7,000 job cuts come on top of a headcount reduction program announced in October 2003 that resulted in the elimination of 5,100 positions and, in the third quarter, the elimination of approximately 825 positions related specifically to Vioxx, which was withdrawn from the market in 2004 (³ Also see "Merck Completes Vioxx-Related Cost Reduction Program" - Pink Sheet, 24 October, 2005.).

-Jessica Merrill

Merck Begins Cuts With Manufacturing, More Cost Reductions To Follow

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