Merck Closing Numerous Labs & Manufacturing Sites
18 CommentsBy Ed Silverman // July 8th, 2010 // 8:25 am
In a move the drugmaker hopes will save up to $3.5 billion, eight research sites and eight manufacturing plants will be closed over the next two years. The restructuring is part of an ongoing effort announced previously to cut billions of dollars in expenses by 2012 and the number of jobs to be affected will total about 15,000, or 15 percent, of the 100,000 headcount.
The research sites to be closed are located in Montreal; Boxmeer (Nobilon facility only), Oss, and Schaijk, Netherlands; Odense, Denmark; Waltrop, Germany; Newhouse, Scotland; and the Kendall Square facility in Cambridge, Ma., outside Boston. Meanwhile, Merck will now focus primarily on just seven therapeutic categories: cardiovascula, diabetes and obesity; infectious disease; oncology; neuroscience and ophthalmology; respiratory and immunology; and endocrine and women’s health (which will be transferred from the Netherlands to the US). Going forward, R&D will be centered in the US, Belgium, England, France, Switzerland, Singapore and Japan.
As for manufacturing, Merck wants to have 77 facilities, down from 91 at the time it purchased Schering-Plough last year. The total would includes 29 animal health facilities that are part of a joint venture planned between Intervet Schering-Plough and Sanofi-Aventis’s Merial. Later this year, Merck will start closing facilities in Comazzo, Italy; Cacem, Portugal; Azcapotzalco and Coyocan, Mexico; and Santo Amaro, Brazil. Plants in Mirador, Argentina and Miami Lakes, Florida, will be sold. In Singapore, chemical manufacturing will be phased out, but not at Schering-Plough site. Pharma manufacturing will continue at both locations (see the statement).
Condor
Again, scant surprise here — but sad news, to be sure.
A total of at least 15,000 Merck/Schering-Plough people will have lost their jobs, by the time the dust settles. But if one were to look back even just two years, that figure balloons to over 30,000 — between these two companies — Schering-Plough, and Merck.
I guess our notes about Fred’s $225 million are. . . well, ironic — and obscene — in view of today’s announcement.
Namaste
Gil Roth
And note that Merck’s announcement reads, “Merck continues to expect its total workforce to be reduced by approximately 15 percent across all areas of the combined company worldwide as part of the initial phases of its merger restructuring program.” We’ll see what the next round brings.
pharmavet
As long as Merck has to keep making wage and benefit concessions to the union bosses that money will have to come from somewhere.
Condor
Actually, pharmavet –
Merck is rather adroitly shifting some union jobs (at West Point, PA) to its NON-Union workforce in Durham, NC. So, your factual premise is flawed.
Moreover, to suggest that unions are the cause of the bust-up of Schering-Plough, and subsequent swallowing of its crushed parts, by Merck — is simply laughable.
Not credible on its face (there are only 28,000 unionized employees worldwide — on a base of 100,000 total).
Namaste, to all with a more realistic view of the world.
pharmavet
With 28% of a company’s work force unionized versus only 17% of today’s workers even belonging to a union, this is a noncompetitive situation. I’m pretty sure that if I put up a classified ad in all 50 states and the countries that Merck has plants in, asking for 28,000 non-union workers, I’m pretty sure that I could sign them all up by next week. Or at least implement a long term plan to relocate all my plants in right-to-work states that don’t have to offer confiscatory tax breaks for companies to move there.
pharmavet
This regression analysis clearly shows that greater R&D spend does not automatically translate to more approved NDA’s. The correlation coefficient is practically zero. No secret why R&D jobs are being shed by the tens of thousands.
http://industry.bnet.com/pharma/10008848/15000-layoffs-at-merck-illustrate-cruel-trend-more-rd-money-fewer-new-drugs/?tag=shell;content
Biotruth
I am saddened to hear about the loss of even more major R&D locations. Researchers have really been affected by all these closures at major pharma in the past 2 years. Cost-effective in the short term - yes - but are these companies short-circuiting their long-term internal science cores 5 or more years down the road? Many of the younger lab scientists are already leery of signing on with big pharma.
PharmaGossip recently had a very good overview of the forces driving the cutbacks in R&D and how it is affecting research scientists. From PharmaGossip this past June 17, this now-memorable blog post had this description of the shiny new Merck lab building in the Cambridge, MA area:
“Across the Atlantic in Cambridge, Mass., Adrian Ivinson, director of Harvard’s NeuroDiscovery Center, is reminded of the shifts underway in the industry every time he looks out of his window. Over the road, the ‘gorgeous, state of the art labs’ no longer house Merck & Co Inc’s neuroscience team. ‘They only built it a few years ago and had this wonderful neuro group in there,’ Ivinson says. ‘Now they’re gone.’ ”
A good overview of the latest big pharma R&D commitments in Cambridge, MA (Boston area) was in Chemical & Engineering News (May 3)at http://pubs.acs.org/cen/email/html/8818bus1.html
Biotruth
I am saddened to hear about this confirmed loss of even more major R&D locations. Researchers have been affected by these closures and the loss of entire research units at major pharma in the past 2 years. While it is definitely cost effective in the short term, aren’t these companies short-circuiting their science core and in-house brain power 5 or more years down the road? Many of today’s newest generation of research scientists are already leery of signing on with big pharma here in the US.
PharmaGossip recently discussed the forces driving the cutbacks in R&D and also how it is affecting research scientists. From a June 17 blog post, it shared this now-nostalgic description of the Merck lab building in the Cambridge, MA area:
“Across the Atlantic in Cambridge, Mass., Adrian Ivinson, director of Harvard’s NeuroDiscovery Center, is reminded of the shifts underway in the industry every time he looks out of his window. Over the road, the ‘gorgeous, state of the art labs’ no longer house Merck & Co Inc’s neuroscience team. ‘They only built it a few years ago and had this wonderful neuro group in there,’ Ivinson says. ‘Now they’re gone.’ “
Condor
Hey pharmavet –
I see you won’t let any actual facts get in the way of your rhetoric.
The vast bulk of the 28,000 union employees are in Europe — and are protected under Works Council structures.
This is common in global pharma — ask Sanofi; ask Pfizer; shoot! — ask GSK.
So — almost all of what you wrote, about state to state moves. . . is ill-informed.
There are about 3,800 unionized US workers, and Merck is already moving (during the next three years) many of those jobs, as I indicated.
Sheesh.
Sardonicus
Pharmavet,
It is true enough that R&D spending does not correlate well with approved NDAs. The real question is, what does? The evidence (see Munos, Nature Rev Drug Disc 2009) suggests that what really matters is how many times you try: Not how much money you throw at the problem, or what technology you use, or how you manage your portfolio, but just how often you try. Or, in other words, we are not smart about drug discovery at all, and the industry survives by dumb luck. Nassim Taleb would say: We are in the business of capturing Black Swans.
But that does NOT imply that it is smart to shed R&D jobs by the tens of thousands — and it almost certainly implies that site and area consolidations such as those planned by Merck (and other pharma companies) are rank folly. Rather, the implication is that you should have a lot of small fishing expeditions, each strong enough to haul in what they catch, but small enough to avoid bureaucracy. And that instead of being “focused” they should be driven by stochastics, randomly exploring.
Condor
One other note — concerning an additional annual $750 million of UNSAVED expenses, in 2012, and beyond.
Hidden, “in plain view”, as it were — in today’s Merck SEC Form 8-K on the facilities closings, is a piece of news that may cause Merck to open off, tomorrow, on the NYSE.
Most recently, in its Barclay’s presentation in March 2010, Whitehouse Station projected annual incremental savings from the merger of $3.5 billion, annually in 2012 and beyond.
Today, that figure was revised downward, to between $2.7 and $3.1 billion. That is potentially an additional $750 million of incremental expense burden, every year.
“[TODAY:] . . . .The Company expects the first and second phases of the Merger Restructuring Program to result in annual savings in 2012 of approximately $2.7 billion to $3.1 billion. . . .
March 24, 2010: Substantial cost synergies – incremental $3.5 billion cost synergies in 2012. . . .”
Is $750 million, annually, in incremental expense burden in 2012 and beyond, enough to dip the stock in the morning? [It had been trading off, after-hours on the NASDAQ, down $0.43 -- on pretty strong volume. It recovered, to settle unchanged, at the end of tonight's NASDAQ session.]
We’ll see. Namaste, to all of good will.
pharmavet
Sardonicus, good points. Sort of reminds me of the weekly front page column in the Wall Street Journal, entitled “Pros versus Darts”. It compared the percentage of correct stock picks by professional traders versus results attained by simply throwing darts at a dartboard. As I recall, some weeks the pros won; other weeks the darts won. Personally, if my company is spending billions of dollars on drug development, I would like to have a higher probability of success than that.
I think that the greater number of tries has to be coupled to a philosophy of “Fail Fast”, as Jason Chew wrote about recently in US News and World Report. Approximately 20 years ago this expression was coined by the late Dr. W. Leigh Thompson of Eli Lilly. If we can identify the more likely failures early on then we save much money. Unfortunately sometimes ego gets in the way, and a powerful Director won’t let his/her pet project die because of inherent belief in their own perspicacity.
I have a number of colleagues from the “Old Merck”. What distinguished Merck was that they would spend much longer time in Phase II (relatively less expensive) compared to other Big Pharma companies. They wanted to be as certain as possible that when a drug went into Phase III (relatively more expensive) it had the greatest possible chance of success. As a result, better than 95% of Merck compounds going through Phase III were ultimately approved.
I’ll end with a connundrum that explains why things won’t improve: In today’s environment, if you went to your manager and told him/her that you wanted to extend all clinical project timelines by 2-3 years in Phase II in order to insure higher probability of success in Phase III and ultimately save the company money, you would quickly find yourself in need of touching up your resume or purchasing a dartboard.
Sardonicus
Pharmavet,
The problem with spending extra years in phase II is of course that all the time, patent expiry gets nearer… Depending on what a team is working with, a year’s delay might cost several hundred million dollars, regardless of how much you spend during that year. I think ‘Old Merck’ would have worried less about that because me-too competitors and generics did not appear as fast as today; today the window of making money is narrow.
I distrust the ‘fail fast’ slogan. Its fundamental weakness is that there are always an infinity of reasons that can be used to cast doubt on the future success of the project — and they include baseless fearmongering as well as problems that can be overcome with a little effort. So if we merely focus on eliminating potential failures quickly, we are highly likely to eliminate the wrong projects for the wrong reasons.
The real answer is to build knowledge quickly, so informed decisions can be made in an earlier stage. Even in vitro characterization can be done much more exhaustive than it has been done traditionally, at least if you are willing to spend $5000 per compound rather than $5. But the major barrier to building knowledge is not money, but the irrepressible wish of pharma management to get simple yes/no answers, instead of a window on the true complexity of life.
pharmavet
Sardonicus, I agree with your last point that we need to provide managers with a range of options rather than simple yes/no answers. My wife used to be Director of Project Management at a major pharma company in charge of Decision Analysis. She would run Monte Carlo Simulations and present the decision makers with a range of options and probabilities of success. She even would go further and explain the strengths and limitations of modeling. However, it is difficult for the VP of Clinical Development to make good decisions if he/she does not understand the analytics process. You may as well just provide him/her with a coin and ask him/her to flip it.
I am a strong believer in Value Based Management (VBM). Yes, the VBM process ultimately leads to a single number, the Net Present Value (NPV), but to understand the strengths and limitations of NPV you have to have the critical skills to understand and question the assumptions built into the model. You’re right. The VP’s just want the NPV, the larger the better.
I’m continually amazed by the lack of sophistication that senior decision makers bring to the decision making process.
ContractPharma
Outsource, outsource, outsource. Wall Street likes it. Big pharma reluctantly comes to the same conclusion. Cut out the fat/salaries and overhead and shift the burden to smaller, more nimble players. This tragedy spells (mostly good) opportunities for cGMP validated contract pharmaceutical players like Catalent, Sharp, Compass and Anderson.
Sardonicus
ContractPharma, my experience is that for a pharma company outsourcing cuts out everything /except/ the overhead and the fat (management) salaries… And that is logical enough: What you retain is the administrative, logistic and managerial burden, while you outsource the actual work. Often enough everything gets done once, but managed twice — once at the contractor, and once internally. The overhead can increase to a degree that is/was completely unexpected, because most managers underestimate communication problems.
We should be smarter than trying to run pharma companies on the basis of what Wall Street likes. And we should be well aware that other industries have already discovered the limits of sensible outsourcing and are even internalizing some activities again.
Outsourcing has its place, but we need to define that well. It makes sense to outsource very specialized work, that an individual pharma company would have to do at a small scale and at a high overhead cost, while an outsourcing partner can attract work from a number of different companies and perform it at a larger and more efficient scale. There may for example be a good market for outsourcing in toxicology, although there are already a lot of players. It also makes sense to outsource when you need a temporary increase in capacity, and an internal investment would go to waste later. Companies often outsource to get access to specialized skills, but that kind of contract can become addictive, and I would be cautious about it. And sometimes also to get freedom to operate, i.e. do the work in a country where some patent has not been filed.
But outsourcing activities as-is merely in the hope that somebody else will do exactly the same at lower cost is a fool’s game. Even if wages elsewhere are (temporarily) lower, you face both the profit margin of the vendor and the internal overhead.
pharmavet
CRO’s have evolved over the last 30 years from companies that we in Pharma used basically as a supplement to our own clinical monitors to companies which now do the bulk of the clinical monitoring in most large trials. They no longer do the discounting that they used to do in order to “get the business”. They now consider themselves to be full “partners” in the clinical development process, a characterization that I do not subscribe to. As such, CRO budgets have ballooned to the point where they do NOT save money to the company, even when benefits are considered. Yes, they do keep our fixed overhead costs down, but the reality is that the higher variable costs that they represent cancel out the fixed cost savings.
In order to avoid being nickel-and-dimed by the CRO “budget creep” process (i.e. the polite term is “change orders” in CRO- speak), the sponsor must require that everything be done on an overall fixed contract basis. CRO’s love to present us with 10 page spreadsheets itemizing everything down to postage. Most of us know that 75% of those numbers are guesstimates at best. Give me a one page budget with the major itemizations, let me do my own spreadheets and most of the time I can knock at least 25% off the budget. These days CRO’s are hurting for work, and everything is negotiable with the sponsor. No change orders are permitted in my shop (unless it is a company-generated protocol amendment); otherwise the CRO eats the excess cost.
P.S. Note to sponsors. Don’t insist on a “dedicated” CRO project team. It’s out of your control anyway. Plus, even if the CRO promises such, you can basically expect the project to change hands at least several times during the study. That’s why our best efforts are needed in monitoring the CRO.
Ironicus
At the same time that MNC pharmas are furiously outsourcing traditional work to other countries possessing labor practices that would be considered illegal in the West, MNC pharmas are paying big money to those individuals that are directing the management of such projects. So a limited number of carrion-eaters can make good money until the last cow dies.
Once the US and EU permitted opening the labor pool in the rest of the world without first insisting on proper governmental regulation of social costs such as pollution control and quality of life, the average worker compensation in the US was doomed to go down. Long-term unemployment (9%-15%) is social cancer and the US would succumb to it. Keeping 500,000 young, active individuals out of the overall labor pool is one factor in keeping the defense budget where it is today. The US needs 5% unemployment merely for social stability. Since the US cannot monitor or correct corrupt labor management practices overseas, there is only one option - US wages must get reduced until the US is competitive on overall cost (transport of goods favors us somewhat in this regard). What the long-term planners must figure out is what will be the US median wage in a world of open labor markets and 5% unemployment in the US. And from that, the impact on all costs held hostage(such as home prices) in the US can be made. They will go down, of course, thereby taking more wind out of the eonomy\\\’s sails. Today the US sees the first bit of instability from this new global wage scale. It will be at least 20 years before real wage equilibrium is achieved. China workers will make more and US workers will make less. But in the interim, unemployment due to wage imbalance in a country that is being guided by Tea Party principles will result in nothing less than slow starvation and pain. It might bring smiles to the likes of the Glenn Beck wannabes and bucks to the likes of Goldman Sachs but the joy ends there. The mega-rich capitalists at least have been to India and China and they know exactly what sort of grinding poverty they are introducing to the US; The Tea Party leaders are many of them still trying to spell \\"India\\". They are blissfully ignorant while the mega-rich capitalist is culpable. Both are calamities if they care nothing for quality of life and consequent social order.