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Merck KGaA sees job cuts, price hikes pay off in Q3

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Merck KGaA is already seeing the payoff from cost cuts. The German drugmaker beat expectations on third-quarter earnings, thanks in part to lower costs. Higher drug prices helped, too. In fact, the company raised its outlook for the year because of increased demand for its drugs, Bloomberg reports.

The company now says it expects sales to amount to €10.9 billion ($13.9 billion) to €11 billion ($14.1 billion), up from previous estimates of €10.7 billion ($13.7 billion). Earnings excluding one-time items for the year? €2.9 billion ($3.7 billion) to €2.95 billion ($3.8 billion). So far this year, the company has taken €400 million ($511.7 million) in charges related to its job cuts and restructuring.

It's been a road for Merck ($MRK) this year. The company announced early this year that it would close the Geneva headquarters of its Merck Serono unit, where some 1,250 employees worked, plus shut down or cut back at two other Swiss facilities. The news included about 600 outright job cuts, plus 750 potential transfers--which some locals considered tantamount to layoffs, given that they weren't likely to decamp from Switzerland for Germany. Employees staged a series of high-profile protests.

Meanwhile, the company suffered some key R&D setbacks, adding more urgency to its cost-cutting plans. The cancer drug Erbitux failed two late-stage trials, throwing a wrench into Merck's hopes for a broader market. And the company dropped its potential MS treatment cladribine, leaving its late-stage pipeline all but empty.

The Erbitux disappointments show in this quarter's sales. It turned in flat sales of €224 million ($286.6 million), a result that Kepler Capital analyst Martin Voegtli called "disappointing." A more "positive surprise," he said, was Rebif's performance; the drug's sales leapt by 10% to €499 million ($638.5 million). Overall, the Merck Serono unit saw sales increase by 10% to €1.62 billion ($2.07 billion).

Analysts like the results of the restructuring so far. "We believe that the restructuring taking place at Merck is bearing fruit and (is) important for future growth opportunities," Silvia Quandt Research analyst Claudia Lakatos told Reuters.

- read the Reuters news
- get more from Bloomberg

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