What Merck’s Cuts Really Mean

Jobs will be lost, but most will remain, an industry expert believes. Merck will never be the same.

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By Paul Thomas, Managing Editor

Last week, Merck announced major cuts in its workforce — 7,000 by the end of 2008, it says — and that it would be closing or selling off five of its manufacturing sites. Sites that will be closed or sold include:
  • Albany, Ga., which which employs 350 workers;
  • Danville, Pa., with 430 workers;
  • Okazaki, Japan, at manufacturing and research facilities of subsidiary Banyu Pharmaceuticals; and
  • Kirkland, Quebec, at a Canadian subsidiary, as part of a plan to cut 235 jobs across Canada.
(Click here for the thoughts of some Danville residents in the days leading up to the announced closing.)

The Rahway, N.J., facility will remain open, but will focus more on clinical trials production and less on “long-term” operations, Merck said. The company will announce which other plants will be affected in the coming days and weeks.

Merck’s announcement was earthshaking news within an industry already reeling from downsizing and site closures. And yet, says Cheryl Buxton, global markets managing director, life sciences, for Korn/Ferry International, the decision was not surprising.

“Not too many people were that shocked,” Buxton says. “The industry has been gradually cutting back anyway. Many other firms have already taken the actions that Merck is taking, often because of mega-mergers. Sanofi-Aventis and Pfizer have already done these exercises.”

But Merck’s announcement is noteworthy, Buxton adds, because it is, well, Merck. “Merck has been a bastion of stability for so long, but it’s now taking after the rest of the industry,” says Buxton. Merck’s troubles with Vioxx and the resulting lawsuits are not so much to blame as the fact that there has been a general “drift” of pharmaceutical manufacturing jobs out of the U.S. And whenever a company has a change of leadership — as Merck has, hiring new president and CEO Richard Clark last summer — change is inevitable and the elimination of jobs is common, she adds.

What will it all mean? For Merck employees that remain, life may never be the same, Buxton says. “There’s going to be far more churn as a result of this announcement,” she believes. “Most people joining Merck have always done so with a long-term career in mind, and Merck has been brilliant in finding good people and growing them internally.” Senior employees will want to stay on, Buxton says, “but more recent hires are going to ask themselves, ‘Is it really worth staying?’ “

For those whose jobs are directly impacted by the downsizing, all may not be lost. Buxton expects all of the sites marked for closing to be sold and kept open. “If a site is FDA compliant, some specialty manufacturer will usually buy it,” she says. “Most employees are retained in these cases, though their responsibilities and contracts often change.”

In the end, Merck will survive, Buxton believes. “It is very cash-rich, plus it still has wonderful talent,” she says. “And, despite everything, it still has a wonderful reputation.”

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