Merck to Close Plants, Slash Jobs, Streamline Manufacturing

Merck (Whitehouse Station, NJ, www.merck.com) this week revealed the “first phase” of its global restructuring program set to eliminate 7000 jobs (11% of its global workforce) by the end of 2008, close or sell 5 of its 31 manufacturing facilities, and roll out a manufacturing strategy to “drive significant efficiencies, decrease headcount, and reduce or refocus operations throughout the plant network and the entire manufacturing division.” The company also expects to close one basic research site and two preclinical development sites.

About half of the 7000 position cuts are expected to take place in the United States. Earlier today, reports confirmed that the Flint River plant in Albany, Georgia, would be among the first to close unless a buyer is found by next fall. The company’s Riverside, Pennsylvania, facility and its only Canadian site outside of Montreal also face initial shutdowns. Meanwhile, Merck’s oldest long-term manufacturing plant, in Rahway, New Jersey, will be restructured as a producer of drugs for late-stage product testing.

The manufacturing strategy will include an implementation of manufacturing guidelines designed to reduce production costs, inventory, and cycle time. A pilot program at the company’s Arecibo, Puerto Rico, site is already underway and has reportedly resulted in a 50% reduction in on-site cycle time and a 30% reduction in on-site inventory.

Merck plans to create “a new commercialization organization” as part of the manufacturing division to speed delivery of it pipeline products. It will identify dedicated commercialization facilities to support late-phase clinical trial production needs with the aim of cutting 12–15 months from the time it takes to develop production process and manufacture launch supplies.

The move comes as no surprise to many industry analysts. The restructuring was anticipated as the company trudges through litigation over its “Vioxx” brand and positions itself for next year’s patent expiry of its popular Zocor cholesterol-lowering drug, which accounts for $5 billion in sales, and the expected loss of its patent on “Fosamax” in 2008.

Others say these factors are only catalysts, not causes. As an article in the Nov. 26 issue of The Wall Street Journal points out, “what mostly ails Merck is the dearth of new drugs in its pipeline.” Cheryl Buxton, global managing director of Korn/Ferry International’s Global Healthcare market group (Princeton, NJ), agrees. “This is a reaction to a changing pharmaceutical industry. Pipelines are less prolific with drugs. Patent issues are a constant concern for all Big Pharma companies as well as pricing pressures. All [of the companies] have reacted in different ways, except for Merck. Most of [the Big Pharma companies] have done their downsizings or acquisitions, but Merck hasn’t. Vioxx may be a catalyst, but it is not the cause.”