Merck MRK, known as MSD outside the United States and Canada, today
announced a global initiative to sharpen its commercial and research and
development (R&D) focus. The multi-year initiative will enable Merck to
better target its resources behind those opportunities that have the
potential to deliver the greatest return on investment, including bolstering
its pipeline and implementing a more agile operating model, with a
significantly reduced, more flexible cost structure.
"These actions will make Merck a more competitive company, better positioned
to drive innovation and to more effectively commercialize medicines and
vaccines for the people who need them," said Kenneth C. Frazier, chairman
and chief executive officer, Merck. "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 expects to realize approximately $2.5 billion in annual net cost
savings by the end of 2015 and estimates that $1.0 billion, or 40 percent,
of the savings will be realized by the end of 2014. The company anticipates
that the substantial majority of savings will come from marketing and
administrative expenses and R&D. These savings are off of the company's
full-year 2012 expense levels. By the end of 2015, the workforce reductions
announced today, combined with pending, previously announced reductions of
approximately 7,500, will result in a decrease of about 20 percent in
Merck's total global workforce of 81,000 employees. Total pre-tax costs for
the new restructuring program are estimated to range between $2.5 billion
and $3.0 billion. The company estimates that approximately two-thirds of
these costs will result in cash outlays, primarily related to separation
expense, and approximately one-third are non-cash, primarily related to
accelerated depreciation of facilities to be closed or divested.
"While these actions are essential to ensure that Merck can continue to
fulfill its mission into the future, they are nevertheless difficult
decisions because they affect our dedicated and talented colleagues. We
appreciate the contributions of all our employees, and we will support them
during this time of transformation," said Frazier.
Overall, this global initiative will focus on three key areas:
Redesigned Operating Model and Reduced Cost Base
-- The company evaluated all aspects of how it operates as a business and
is
adopting a significantly streamlined and more flexible cost structure
and
operating model in response to business challenges and the rapidly
changing external environment.
-- Through new cost efficiencies, the company will:
-- Better allocate resources across the enterprise to those areas
that present the highest-potential growth opportunities, such as
its anti-PD-1 immunotherapy program for oncology;
-- Invest in new licensing and business development activities to
acquire external innovation and commercial opportunities to
strengthen the pipeline; and
-- Maintain a high level of cash returned to shareholders through
both the dividend and the company's stock repurchase program.
-- The company will also reduce its global real estate footprint,
particularly in New Jersey where it is headquartered. It will also
continue to move forward with ongoing plans to improve the efficiency of
its manufacturing and supply network.
Sharpened Commercial Focus
-- Within the core human pharmaceutical and vaccine business, Merck will
continue to support its in-line portfolio and prepare for promising
launches in the pipeline.
-- The company will increase its focus on the key therapeutic areas that
meet unmet medical needs, provide the best opportunities for the
business
and deliver the greatest value for customers -- diabetes, acute hospital
care, vaccines and oncology.
-- Merck is creating a new, integrated unit to ensure that the company is
prepared to successfully bring MK-3475, its investigational anti-PD-1
immunotherapy, to patients throughout the world.
-- Geographically, the company will increase its focus in ten prioritized
markets, which account for the majority of revenue in its pharmaceutical
and vaccine business. These markets are the United States, Japan,
France,
Germany, Canada, United Kingdom, China, Brazil, Russia and Korea.
Refocused and Prioritized Research and Development
-- Merck has prioritized its R&D efforts to focus on candidates capable of
providing unambiguous, promotable advantages to patients and payers.
-- This focus will include programs such as the company's anti-PD-1
immunotherapy program in oncology, BACE for Alzheimer's disease
(MK-8931),
its next generation HCV program and V503, the company's 9-valent HPV
vaccine.
-- Merck will pursue emerging product opportunities independent of
therapeutic area or modality and build its biologics capabilities.
-- The company will out-license or discontinue selected late-stage clinical
development assets and reduce its focus on platform technologies.
-- The company will make externally sourced programs a greater component of
its pipeline strategy.
Financial Targets
Merck reiterated its full-year 2013 non-GAAP(1) (generally accepted
accounting principles) earnings per share (EPS) target range of $3.45 to
$3.55 and revised its GAAP range to be between $1.58 and $1.82. The company
expects to record charges relating to the new restructuring program of
approximately $900 million to $1.1 billion in 2013, a majority of which will
be recorded in the third quarter. The 2013 non-GAAP EPS target range
excludes acquisition-related costs, costs related to restructuring programs
and certain other items. A reconciliation of anticipated 2013 EPS, as
reported in accordance with GAAP to non-GAAP EPS that excludes certain
items, is provided in the table below.
$ in millions, except EPS amounts Full Year 2013
----------------------------------------------- ------------------
GAAP EPS $1.58 to $1.82
----------------------------------------------- ------------------
Difference(2) 1.87 to 1.73
----------------------------------------------- ------------------
Non-GAAP EPS that excludes items listed below $3.45 to $3.55
----------------------------------------------- ------------------
Acquisition-related costs(3) $5,400 to $5,200
----------------------------------------------- ------------------
Restructuring costs 1,900 to 1,600
----------------------------------------------- ------------------
Net decrease (increase) in income before taxes 7,300 to 6,800
----------------------------------------------- ------------------
Income tax (benefit) expense(4) (1,700) to (1,600)
----------------------------------------------- ------------------
Decrease (increase) in net income $5,600 to $5,200
----------------------------------------------- ------------------
Analyst Conference Call
Investors, journalists and the general public may access a live audio
webcast of the call today at 8:30 a.m. EDT on Merck's website at
http://www.merck.com/investors/events-and-presentations/home.html. Software
needed to listen to the webcast is available on Merck's website and should
be downloaded prior to the beginning of the webcast. A replay of the webcast
will be available at approximately 11:00 a.m. EDT on Oct. 1 and will remain
on the website for 12 months.
Institutional investors and analysts can participate in the call by dialing
(706) 758-9927 or (877) 381-5782 and using ID code number 72330994.
Members of the media are invited to monitor the call by dialing (706)
758-9928 or (800) 399-7917 and using ID code number 72330994. Journalists
who wish to ask questions are requested to contact a member of Merck's Media
Relations team at the conclusion of the call.
About Merck
Today's Merck is a global healthcare leader working to help the world be
well. Merck is known as MSD outside the United States and Canada. Through
our prescription medicines, vaccines, biologic therapies, and consumer care
and animal health products, we work with customers and operate in more than
140 countries to deliver innovative health solutions. We also demonstrate
our commitment to increasing access to healthcare through far-reaching
policies, programs and partnerships. For more information, visit
www.merck.com and connect with us on Twitter, Facebook and YouTube.
Market News and Data brought to you by Benzinga APIs© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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