The pharmaceutical company Merck announced today that it would lay off 8,500 employees, cut $2.5 billion in costs over the next two years and undertake a restructuring of its troubled research and development unit, which has suffered several major setbacks in recent years.
The company also announced that it was abandoning plans to move from Whitehouse Station, N.J., to a new headquarters and would instead consolidate its operations at an existing facility in Kenilworth.
In a statement, Merck’s chief executive, Kenneth C. Frazier, said the actions were designed to make the company more competitive and “better positioned to drive innovation and to more effectively commercialize medicines and vaccines for the people who need them.”
The actions will significantly reshape one of the world’s largest drug companies: Together with previously announced layoffs of 7,500 employees, today’s announcement will reduce the company’s global workforce of 81,000 employees by about 20 percent, Merck said. The cost cuts are expected to be completed by the end of 2015, with $1 billion in reductions coming by the end of 2014, the company said.
Investors responded positively to the news: Shares of Merck rose 3 percent in the first minutes after the market opened.
“I think this is consistent with what everybody else has done in the industry,” said Les Funtleyder, a strategist at Poliwogg, a New York investment firm. “When you’ve had some clinical trial failures and you’ve had a number of products go generic, you either have to find new revenue through acquisitions or you cut costs through headcount reductions — they’re going the headcount route.”
Merck said today that it would refocus its research and development unit on the most promising treatment areas, like its anti PD-1 immunotherapy program for cancer, a drug designed to disable the molecular shields that protect tumors and unleash the body’s own immune system to fight them. Several other drug makers, including Bristol-Myers Squibb and Roche’s Genentech unit, are developing similar treatments.
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