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Merck Announces Restructuring Plans

Initial phase of cost-reduction program expected to result in pretax savings of $3.5 billion to $4 billion from 2006 through 2010.
Stephen TaubNovember 28, 2005

Merck & Co. Inc. has announced a sweeping reorganization that will result in the elimination of 7,000 jobs and the closure or sale of five of the company’s 31 manufacturing facilities.

About half of Merck’s job reductions are expected to occur in the United States. The pharmaceutical company added that it plans to close one basic research site and two preclinical development sites by the end of 2008, subject to compliance with legal obligations.

Merck expects that the initial phase of this cost-reduction program will result in pretax savings of $3.5 billion to $4 billion from 2006 through 2010.

In addition, Merck is beginning to implement lean manufacturing principles to reduce the time from customer order to manufacturing, and to streamline the production system to reduce manufacturing costs, inventory, and cycle time. A pilot program is currently under way at its pharmaceutical manufacturing site in Arecibo, Puerto Rico; the company claims it is delivering a 50 percent reduction in on-site cycle time and on-site inventory reduction of greater than 30 percent.

“The actions…are an important first step in positioning Merck to meet the challenges the company faces now and in the future,” said chief executive officer and president Richard T. Clark, in a statement. In May, Clark replaced Raymond Gilmartin, who had served as CEO for more than a decade. Merck’s share price is down 11 percent since the management change.

Merck, whose earnings have fallen for the past three years, is suffering after removing from the market its one-time top-selling painkiller Vioxx, after a study linked the drug to a higher incidence of heart problems. The company currently faces 6,400 Vioxx-related lawsuits, according to Bloomberg. Meanwhile, Merck’s best-selling anti-cholesterol drug Zocor is coming off-patent, and the company is bracing itself for competition from lower-cost generic drugs.

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