Merck Announces Major Restructuring Plan

Merck & Co. (Whitehouse Station, NJ) released details of a restructuring plan last week, which calls for phasing out operations at eight research sites and eight manufacturing sites, resulting in a 15% reduction of its global workforce. The measures are part of an overall integration plan that Merck is implementing following the acquisition of Schering-Plough (Kenilworth, NJ) in 2009.

Merck plans to reduce its manufacturing network from 91 facilities at the close of the Schering-Plough merger to 77 facilities. This further involves 29 animal-health facilities that are the subject of the planned joint venture of Intervet Schering-Plough with sanofi-aventis's (Paris) Merial, which are not included in the restructuring program. Merck says it will continue to pursue productivity efficiencies and evaluate its manufacturing supply-chain capabilities on an ongoing basis.

Beginning in the second half of 2010, Merck will phase out operations at eight manufacturing facilities, and these sites will exit its global network as activities are transferred to other locations. The company intends to cease manufacturing activities at the following facilities: Comazzo, Italy; Cacem, Portugal; Azcapotzalco and Coyoacan, Mexico, and Santo Amaro, Brazil. The company intends to sell the Mirador, Argentina, and Miami Lakes, Florida, facilities. In Singapore, chemical manufacturing will be phased out at the legacy Merck site, but it will continue at the legacy Schering-Plough site. The company's pharmaceutical manufacturing operations will continue at these two Singapore facilities. Merck says it will continue to make new strategic investments, particularly in emerging markets such as in Latin America, where the company is investing in facilities in Xochimilco, Mexico, and Campinas, Brazil.

Merck plans to phase out operations at eight research sites during the next two years. These sites include: Montreal, Canada; Boxmeer (Nobilon facility only), Oss, and Schaijk, The Netherlands; Odense, Denmark; Waltrop, Germany; Newhouse, Scotland; and Cambridge (Kendall Square), Massachusetts. The resulting new research network will include 16 major research and development facilities worldwide.

The company's research division will retain its focus on the seven key therapeutic franchise areas of cardiovascular disease, diabetes and obesity, infectious disease, oncology, neuroscience and ophthalmology, respiratory and immunology, and women's health and endocrine. Merck's women's-health research, currently centered in Oss, The Netherlands, will be relocated primarily to the United States.

Merck said it is on track to achieve its previously announced synergy target of $3.5 billion in ongoing annual savings in 2012. Merck expects the initial phases of the merger-restructuring program to result in savings of approximately $2.7–3.1 billion in 2012 toward the $3.5-billion target. Synergy target savings will also come from nonrestructuring-related activities such as the Merck's ongoing procurement-savings initiative. The company estimates that cumulative pretax costs for the initial phases of the merger-restructuring program will range from $3.5 billion to $4.3 billion. Merck expects that a charge for certain portions of these costs will be recorded in the second quarter of 2010. Approximately two-thirds of the cumulative pretax costs will relate to cash outlays, primarily due to employee separation expenses. About one-third of the cumulative pretax costs are expected to be noncash, relating primarily to the accelerated depreciation of facilities to be closed or divested.