Germany's Merck recently hinted at coming cost cuts, acknowledging development setbacks would force the company to recalibrate. Now, Merck has announced that cost cuts are a definite, and payroll cuts are likely.
Just how much the company intends to chop out of its cost structure isn't public, nor is a job-cuts target. But Merck executives say the reductions will hit every segment of its business and every region in which it operates to free up money for deployment elsewhere. "[O]ver the next two years Merck needs to address unprecedented market shifts, increasing competition in key product areas and existing inefficiencies in its own organization to ensure the long-term success of its business model," CEO Karl-Ludwig Kley said in a statement.
Merck's next move is consulting with employee reps for "socially acceptable solutions where they are possible." No cost-savings numbers or headcount figures will be announced until that process is further along, although the company does have "a view on what needs to be achieved." It sounds as if the company knows how much it wants to save, but will apportion the cuts depending on local reactions--and resistance.
Analysts said the cost cuts are absolutely necessary, given increased competition for Merck's multiple sclerosis blockbuster Rebif and faltering attempts to back up the drug's sales with new products. "The Serono pipeline has completely and utterly failed," Sanford Bernstein's Jack Scannell told Bloomberg. "They're left with a margin structure and cost base which simply isn't commensurate with the volume of sales they have."