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Merck to slash jobs in cost-savings drive

A view of the Merck & Co. campus in Linden, New Jersey
A view of the Merck & Co. campus in Linden, New Jersey

By Ransdell Pierson

NEW YORK (Reuters) - Merck & Co Inc plans to cut another 12,000 to 13,000 jobs by late 2015 to wring out additional annual cost savings of up to $1.5 billion that can be plowed back into research and deal making.

The No. 2 U.S. drugmaker eliminated 12,465 positions last year, offset by almost 6,500 new hires, reducing its workforce to 91,000 employees as of June 30.

The company, which also reported quarterly earnings in line with forecasts, said on Friday it would cut its workforce by an additional 12 percent to 13 percent from the 100,000 employees it had at the end of 2009 after buying Schering-Plough Corp.

A company spokesman declined to peg the planned size of its workforce, saying the job cuts would be substantially offset by new hires in strategic growth areas, such as emerging markets.

"The new phase of restructuring will create an additional $1.3 billion to $1.5 billion in annual cost savings," company spokesman David Caouette said.

Job cuts will come largely from administrative positions, consolidation of offices and sale or closure of manufacturing sites.

Merck is streamlining operations following its $41 billion purchase of Schering-Plough.

"I think we're going to see other firms continue to expand their cost-reduction programs," Morningstar analyst Damien Conover said, pointing to increasingly difficult reimbursement environments in Europe and the United States.

"We have to remember that 10 years ago these firms were extremely bloated and in an entirely different operating mold and it's really shifted to one where you don't need the gigantic sales forces that you once needed," Conover said.

Many other big drugmakers have slashed their workforces in recent years to ensure profit growth as they face patent expirations that will subject them to generic competition, the costs of healthcare reform and efforts by insurers to keep a lid on drug prices.

Eli Lilly , facing one of the industry's biggest "patent cliffs," said in late 2009 it would cut 5,500 employees, or 13 percent of its workforce, by the end of 2011 to create $1 billion in savings. But like Merck, its cuts have been largely offset by increased hiring in emerging markets.

Before Pfizer bought Wyeth in 2009, the world's largest drugmaker said it would cut 15 percent of the combined workforce, or almost 20,000 jobs. The company, whose Lipitor cholesterol fighter goes generic late this year, swung its ax again in February, saying it would lay off more than 2,000 researchers to deliver on a 2012 profit forecast.

Merck, unlike many of its rivals, has vowed to maintain research and development spending at stable levels, rather than slash research costs to meet earnings targets. But the company on Friday shaved the high end of its 2011 research budget by $100 million, to between $8 billion and $8.3 billion.

The drugmaker said it halted development of a treatment for migraine headaches, called telcagepant, after unfavorable data from a late-stage trial. The medicine had been linked to liver toxicity in earlier studies.

With the new job cuts, Merck's restructuring program will yield annual savings of $4 billion to $4.6 billion by the end of 2015, compared with an earlier estimate of $2.7 billion to $3.1 billion by late 2012, Merck said.

The company reported a second-quarter profit in line with Wall Street expectations, helped by big tax gains. But sales handily outpaced forecasts.

It earned $2.02 billion, or 65 cents per share, compared with $752 million, or 24 cents per share, in the year-earlier second quarter, when it took a big restructuring charge for the Schering Plough acquisition.

Excluding special items, Merck earned 95 cents per share, matching the average forecast among analysts polled by Thomson Reuters I/B/E/S.

Global sales rose 7 percent to $12.15 billion, but would have risen only 3 percent if not for the weaker dollar. Sales exceeded Wall Street's expectations by $370 million, helped by strong sales of newer obesity drugs Januvia and Janumet, arthritis treatment Remicade and vaccines.

The company, which slightly raised the low end of its 2011 profit forecast, now expects earnings of $3.68 billion to $3.76 billion, excluding special items.

Merck shares fell 2.3 percent to $34.13 on the New York Stock Exchange, amid a 0.6 percent decline for the drug sector.

(Additional reporting by Lewis Krauskopf; editing by Derek Caney, Steve Orlofsky and Andre Grenon)