Merck, a developer, manufacturer and distributor of pharmaceuticals has announced the first phase of a global restructuring program designed to reduce the Company’s cost structure, increase efficiency, and improve competitiveness.
The initial steps will include the implementation of a new supply strategy by the Merck Manufacturing Division (MMD), which is intended to create a leaner, more cost-effective and customer-focused manufacturing model over the next three years.
“We are engaged in an ongoing effort to enhance efficiencies throughout the Company and improve the way we discover, develop, manufacture and market our medicines and vaccines,” said Richard T. Clark, chief executive officer and president of Merck.
Merck expects the initial phase of the cost reduction program to yield cumulative pretax savings of $3.5 billion to $4.0 billion from 2006 through to 2010. A significant portion of the total restructuring savings through 2010, or approximately $2 billion, will result from the implementation of the new MMD supply strategy.
As part of the global restructuring program, the Company expects to eliminate approximately 7,000 positions in manufacturing and other divisions worldwide, representing about 11% of its global work force, by the end of 2008. About half of the position reductions are expected to occur in the
Merck intends to sell or close five of its 31 manufacturing facilities worldwide and to reduce operations at a number of other sites. The Company also expects to close one basic research site and two preclinical development sites. The sites identified for closure are expected to be closed by the end of 2008.
The pretax costs of the restructuring are expected to be $350 million to $400 million in 2005 and $800 million to $1 billion in 2006. Through the end of 2008, when the initial phase of the restructuring program is substantially complete, the cumulative pretax costs of the restructuring activities announced today are expected to range from $1.8 billion to $2.2 billion. Approximately 70% of the cumulative pretax costs are non-cash, relating primarily to accelerated depreciation for those facilities scheduled for closure.
Merck will implement its new supply strategy by creating a global facility network that combines the best of Merck manufacturing with the manufacturing capabilities of key external suppliers, introducing a new production system based on lean manufacturing principles, and developing a new approach to product commercialisation to enable accelerated delivery of Merck’s research pipeline through the launch phase.