Merck to slash budget to boost earnings

Merck, taking a cue from rival drugmakers that have slashed research spending to bolster earnings, has said it plans to cut annual operating costs by $2.5 billion (€1.84bn) and eliminate 8,500 jobs.

It said it aims to narrow its focus to products with the best chance of winning regulatory approval and achieving substantial sales. It will jettison research products with less likelihood of success. It plans to pull the plug on some drugs already in late-stage trials, and will license some products to other companies.

The job cuts, more than 10 per cent of the company’s global workforce of 81,000, would be in addition to previously announced cuts of 7,500 positions.

About 40 per cent of the cost-cutting, or $1 billion, will be realised by the end of next year, and will come equally from marketing and administrative areas and from research and development.

The rest of the cuts will be completed by the end of 2015.

"We're not doing indiscriminate cuts in research and development; we're doing surgery around where we should invest," said Merck chief executive Kenneth Frazier in an interview.

He said the company was now evaluating which drugs or disease areas to discard and which to keep, but few decisions have yet been made.

“And by attacking our cost bases, we will free up resources for mergers and acquisitions and business development,” Mr Frazier said, noting the company’s strong interest in buying new drugs or licensing them from other drugmakers.

Many Merck products have failed to win regulatory approval in recent years, and the company has suffered delays in getting products to market. Moreover, Wall Street is concerned about sharply slowing sales growth for diabetes drug Januvia, Merck’s biggest growth engine over the past three years. Rival drugs and newer classes of diabetes treatments have hurt Januvia sales. – (Reuters)