Merck Closing 8 Plants, 8 Research Sites

Logo of pharmaceutical manufacturer Merck & Co. AP

Drugmaker Merck & Co. said Thursday it is shutting down eight manufacturing plants and eight research sites around the world, including two domestic locations, in the latest phase in its strategic pruning of excess capacity.

The moves, which include consolidating some small offices into larger facilities with multiple functions, are part of ongoing restructuring following Merck's acquisition of Schering-Plough Corp. last November.

That $41 billion deal made Merck the world's second-biggest drugmaker by revenue, with roughly $45 billion in annual sales. Still, the company has said it will eliminate about 15 percent of the combined work force, or roughly 16,000 jobs.

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Those cuts are intended to save the Whitehouse Station, N.J., company about $3.5 billion a year starting in 2012. Merck said Thursday the restructuring plans announced so far will bring savings of about $2.7 billion to $3.1 billion in 2012, most of its target.

Merck said its goal is to diversify, focus on patient needs and invest in biologic drugs, emerging markets and other key areas for future growth, as well as reduce manufacturing costs.

"Today's announcement is another important step as we successfully integrate out global operations on schedule and move forward with Merck's strategic priorities," Chief Executive Richard Clark said in a statement.

In morning trading, Merck shares rose 28 cents to $35.71.

Merck said that the cumulative cost for the initial phases of restructuring will range from $3.5 billion to $4.3 billion, before taxes. It expects to take a charge for some of that cost in the second quarter.

Merck is scheduled to report its second-quarter results on July 30.

Merck now has about 95,000 workers, down from the 106,000 the two companies had in early 2009, when their tie-up was announced and Schering-Plough was still trying to integrate Dutch biotech company Organon, which it bought in November 2007.

Thursday's announcement does not include new closures in New Jersey, where Merck and Schering both had huge headquarters and research and manufacturing plants. Merck previously said it will close three small New Jersey sites with offices and other functions, in Roseland, Union and Lafayette.

Beginning in the second half of this year, Merck will start transferring production from eight manufacturing plants to other factories. One is in Miami Lakes, Fla., a plant the company intends to sell. The other factories to be closed or sold include two in Europe, two in Mexico, two in South America and one in Singapore.

Merck said that will leave it with 77 manufacturing plants, down from 91 in November. Of those, 29 plants make animal health products and are part of a pending joint venture with Sanofi-Aventis to create the world's largest maker of medicines for pets and livestock.

Over the next two years, Merck will phase out operations at eight research sites, including one outside Cambridge, Mass. Three others are in the Netherlands, three are elsewhere in Europe and one is in Canada.

That will leave Merck Research Laboratories with 16 major research and development facilities worldwide, including several large ones that will work on multiple lines of research, involve various scientific disciplines and "respond quickly to change," the company said.

Merck is aiming to create a more flexible R&D organization that fosters internal innovation and external research collaborations and efficiently pushes drugs through testing to approval.

Most large pharmaceutical companies have been pouring billions of dollars a year into research, yet producing few innovative products and even seeing promising experimental drugs rejected by government regulators.

Merck had a wave of strong new products approved a few years ago, but like its rivals has seen generic competition cutting into revenue. That led it to buy Schering-Plough, which has one of the industry's best portfolios of experimental drugs and also gave Merck a new consumer health business and expertise in biologic drugs and women's health.

Merck said it will continue to focus on seven key disease areas: cancer, heart disease, diabetes and obesity, infectious diseases, neuroscience and eye diseases, respiratory and immune-related disorders, and women's health and hormonal conditions.

Despite the previously announced closures and the latest restructuring plans, Merck said it continues to hire employees for strategic growth areas and also is expanding capacity at factories in Campinas, Brazil, and Xochimilco, Mexico.
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