Last Tuesday, Drug maker Merck announced that it will lay off thousands of employees. Merck plans on cutting 8,500 jobs, which is in addition to the 7,500 job cuts that were previously announced. The company explains that these job cuts are a part of “a global initiative to sharpen its commercial and research and development (R&D) focus.” In addition to these job cuts, Merck also announced that it will move its global headquarters from Whitehouse Station, New Jersey to Kenilworth, New Jersey.
What is the reason for this major overhaul? The main reason for this overhaul is Merck has had development setbacks for its experimental drugs in cardiovascular, surgery, and osteoporosis. This overhaul is part of a boarder strategy to improve Merck’s R&D, which also includes the hiring of Roger Perimutter to replace Peter Kim as head of Merck’s R&D. Merck has also re-evaluated its real estate needs. Merck has determined that it could accomplish greater cost savings and operational synergies by closing both its Summit campus and its Whitehouse facility. This transition is expected to begin next year and be completed in 2015.
What to take away from these decisions? It seems that Merck is making these decisions by dealing with current issues and with an eye on the future. The cost cutting decisions that Merck is making addresses past deficiencies. The developmental setbacks for its drugs in cardiovascular, surgery, and osteoporosis have led to overspending. In order to deal with these financial difficulties, Merck needs to reconstruct its budget. By laying off an additional 8,500 jobs, Merck frees up money that it can use to invest in future developmental drugs. The success of this re-investment towards the future can lead to future expansion.