Merck Shares Soar After Announcing More Job Cuts

Drugmaker Merck & Co. MRK saw shares rise 2.5 percent in afternoon trading as it announced 8,500 job cuts and touted savings of $2.5 billion as part of a global initiative “to sharpen its commercial and research and development focus.”

Merck CEO Kenneth C. Frazier said in a news release Tuesday that the multi-year plan would enable the company to “better target its resources.” Frazier said Merck would bolster its drug pipeline, implement a more agile operating model and reduce costs.

“These actions will make Merck a more competitive company,” Frazier said in the release. “Today’s announcement further underscores that we are committed to improving our performance in the short term while also investing for the long term to create value for patients, customers and shareholders.”

The company said the cuts were in addition to 7,500 previously announced, and it separately announced it would abandon plans to move its headquarters to a new facility in New Jersey and rather consolidate in current operations in Kenilworth, New Jersey.

The moves are expected to save $1 billion by the end of 2014 and $2.5 billion by the end of 2015. The staff cuts will result in a reduction of about 20 percent of Merck’s global workforce by the end of 2015. Merck currently employs about 81,000 workers worldwide.

The news came before the opening of trading and shareholders responded immediately, pushing the stock higher by three percent in early trading before settling at 2.5 percent gains in mid-afternoon trading.

The plan to focus on R&D comes after late-stage clinical setbacks in recent months, The New York Times reported.
It said a week ago that the Food and Drug Administration rejected its application for an anesthesia drug, citing concerns about a hypersensitivity study in patients. The FDA also rejected an application for a new sleep drug, survorexant, indicating it eventually would approve the drug in a different dosage, the Times reported.

Earlier this year Merck announced it would delay its application for an osteoporosis treatment drug, and its profits for the second quarter fell in half mainly because of competition from generic alternatives, the Times said.