Merck Announces Global Initiative to Sharpen Commercial and R&D Focus


October 1, 2013 6:30 am ET

Company Redesigns Operating Model; Reduces Cost Base

  • Initiative targets net reduction in annual operating expenses of approximately $2.5 billion by the end of 2015
  • Plan includes new workforce reductions of approximately 8,500 positions, in addition to pending, previously announced reductions
  • Company reaffirmed 2013 full-year non-GAAP EPS target of $3.45 to $3.55; revised GAAP EPS range to $1.58 to $1.82

Merck (NYSE:MRK), known as MSD outside the United States and Canada,
today announced a global initiative to sharpen its commercial and
research and development (R&D) focus. The multi-year initiative will
enable Merck to better target its resources behind those opportunities
that have the potential to deliver the greatest return on investment,
including bolstering its pipeline and implementing a more agile
operating model, with a significantly reduced, more flexible cost

“These actions will make Merck a more competitive company, better
positioned to drive innovation and to more effectively commercialize
medicines and vaccines for the people who need them,” said Kenneth C.
Frazier, chairman and chief executive officer, Merck. “Today’s
announcement further underscores that we are committed to improving our
performance in the short term while also investing for the long term to
create value for patients, customers and shareholders.”

The company expects to realize approximately $2.5 billion in annual net
cost savings by the end of 2015 and estimates that $1.0 billion, or 40
percent, of the savings will be realized by the end of 2014. The company
anticipates that the substantial majority of savings will come from
marketing and administrative expenses and R&D. These savings are off of
the company’s full-year 2012 expense levels. By the end of 2015, the
workforce reductions announced today, combined with pending, previously
announced reductions of approximately 7,500, will result in a decrease
of about 20 percent in Merck’s total global workforce of 81,000
employees. Total pre-tax costs for the new restructuring program are
estimated to range between $2.5 billion and $3.0 billion. The company
estimates that approximately two-thirds of these costs will result in
cash outlays, primarily related to separation expense, and approximately
one-third are non-cash, primarily related to accelerated depreciation of
facilities to be closed or divested.

“While these actions are essential to ensure that Merck can continue to
fulfill its mission into the future, they are nevertheless difficult
decisions because they affect our dedicated and talented colleagues. We
appreciate the contributions of all our employees, and we will support
them during this time of transformation,” said Frazier.

Overall, this global initiative will focus on three key areas:

Redesigned Operating Model and Reduced Cost Base

  • The company evaluated all aspects of how it operates as a business and
    is adopting a significantly streamlined and more flexible cost
    structure and operating model in response to business challenges and
    the rapidly changing external environment.
  • Through new cost efficiencies, the company will:

    • Better allocate resources across the enterprise to those areas
      that present the highest-potential growth opportunities, such as
      its anti-PD-1 immunotherapy program for oncology;
    • Invest in new licensing and business development activities to
      acquire external innovation and commercial opportunities to
      strengthen the pipeline; and
    • Maintain a high level of cash returned to shareholders through
      both the dividend and the company’s stock repurchase program.
  • The company will also reduce its global real estate footprint,
    particularly in New Jersey where it is headquartered. It will also
    continue to move forward with ongoing plans to improve the efficiency
    of its manufacturing and supply network.

Sharpened Commercial Focus

  • Within the core human pharmaceutical and vaccine business, Merck will
    continue to support its in-line portfolio and prepare for promising
    launches in the pipeline.
  • The company will increase its focus on the key therapeutic areas that
    meet unmet medical needs, provide the best opportunities for the
    business and deliver the greatest value for customers – diabetes,
    acute hospital care, vaccines and oncology.
  • Merck is creating a new, integrated unit to ensure that the company is
    prepared to successfully bring MK-3475, its investigational anti-PD-1
    immunotherapy, to patients throughout the world.
  • Geographically, the company will increase its focus in ten prioritized
    markets, which account for the majority of revenue in its
    pharmaceutical and vaccine business. These markets are the United
    States, Japan, France, Germany, Canada, United Kingdom, China, Brazil,
    Russia and Korea.

Refocused and Prioritized Research and Development

  • Merck has prioritized its R&D efforts to focus on candidates capable
    of providing unambiguous, promotable advantages to patients and payers.
  • This focus will include programs such as the company’s anti-PD-1
    immunotherapy program in oncology, BACE for Alzheimer’s disease
    (MK-8931), its next generation HCV program and V503, the company’s
    9-valent HPV vaccine.
  • Merck will pursue emerging product opportunities independent of
    therapeutic area or modality and build its biologics capabilities.
  • The company will out-license or discontinue selected late-stage
    clinical development assets and reduce its focus on platform
  • The company will make externally sourced programs a greater component
    of its pipeline strategy.

Financial Targets

Merck reiterated its full-year 2013 non-GAAP1 (generally
accepted accounting principles) earnings per share (EPS) target range of
$3.45 to $3.55 and revised its GAAP range to be between $1.58 and $1.82.
The company expects to record charges relating to the new restructuring
program of approximately $900 million to $1.1 billion in 2013, a
majority of which will be recorded in the third quarter. The 2013
non-GAAP EPS target range excludes acquisition-related costs, costs
related to restructuring programs and certain other items. A
reconciliation of anticipated 2013 EPS, as reported in accordance with
GAAP to non-GAAP EPS that excludes certain items, is provided in the
table below.


$ in millions, except EPS amounts

    Full Year 2013
GAAP EPS     $1.58 to $1.82


    1.87 to 1.73
Non-GAAP EPS that excludes items listed below     $3.45 to $3.55

Acquisition-related costs3

    $5,400 to $5,200
Restructuring costs     1,900 to 1,600
Net decrease (increase) in income before taxes     7,300 to 6,800

Income tax (benefit) expense4

    (1,700) to (1,600)
Decrease (increase) in net income     $5,600 to $5,200

Analyst Conference Call

Investors, journalists and the general public may access a live audio
webcast of the call today at 8:30 a.m. EDT on Merck’s website at
Software needed to listen to the webcast is available on Merck’s website
and should be downloaded prior to the beginning of the webcast. A replay
of the webcast will be available at approximately 11:00 a.m. EDT on Oct.
1 and will remain on the website for 12 months.

Institutional investors and analysts can participate in the call by
dialing (706) 758-9927 or (877) 381-5782 and using ID code number

Members of the media are invited to monitor the call by dialing (706)
758-9928 or (800) 399-7917 and using ID code number 72330994.
Journalists who wish to ask questions are requested to contact a member
of Merck’s Media Relations team at the conclusion of the call.

About Merck

Today’s Merck is a global healthcare leader working to help the world be
well. Merck is known as MSD outside the United States and Canada.
Through our prescription medicines, vaccines, biologic therapies, and
consumer care and animal health products, we work with customers and
operate in more than 140 countries to deliver innovative health
solutions. We also demonstrate our commitment to increasing access to
healthcare through far-reaching policies, programs and partnerships. For
more information, visit
and connect with us on Twitter,
and YouTube.

Forward-Looking Statement

This news release includes “forward-looking statements” within the
meaning of the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995. These statements are based
upon the current beliefs and expectations of Merck’s management and are
subject to significant risks and uncertainties. There can be no
guarantees with respect to pipeline products that the products will
receive the necessary regulatory approvals or that they will prove to be
commercially successful. If underlying assumptions prove inaccurate or
risks or uncertainties materialize, actual results may differ materially
from those set forth in the forward-looking statements.

Risks and uncertainties include but are not limited to, general industry
conditions and competition; general economic factors, including interest
rate and currency exchange rate fluctuations; the impact of
pharmaceutical industry regulation and health care legislation in the
United States and internationally; global trends toward health care cost
containment; technological advances, new products and patents attained
by competitors; challenges inherent in new product development,
including obtaining regulatory approval; Merck’s ability to accurately
predict future market conditions; manufacturing difficulties or delays;
financial instability of international economies and sovereign risk;
dependence on the effectiveness of Merck’s patents and other protections
for innovative products; and the exposure to litigation, including
patent litigation, and/or regulatory actions.

Merck undertakes no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or
otherwise. Additional factors that could cause results to differ
materially from those described in the forward-looking statements can be
found in Merck’s 2012 Annual Report on Form 10-K and the company’s other
filings with the Securities and Exchange Commission (SEC) available at
the SEC’s Internet site (

1 Merck is providing certain non-GAAP information that
excludes certain items because of the nature of these items and the
impact they have on the analysis of underlying business performance and
trends. Management believes that providing this information enhances
investors’ understanding of the company’s performance. This information
should be considered in addition to, but not in lieu of, information
prepared in accordance with GAAP.

2 Represents the difference between calculated GAAP EPS and
calculated non-GAAP EPS, which may be different than the amount
calculated by dividing the impact of the excluded items by the
weighted-average shares for the period.

3 Includes expenses for the amortization of intangible assets
recognized as a result of mergers and acquisitions, as well as
intangible asset impairment charges. Also includes integration and other
costs associated with mergers and acquisitions.

4 Includes the estimated tax impact on the reconciling items,
as well as a net favorable impact related to the settlements of certain
federal income tax issues.

Media Contacts:
Kelley Dougherty, 908-423-4291
Steven Cragle, 908-423-3461
Investor Contacts:
Carol Ferguson, 908-423-4465
Joe Romanelli, 908-423-5185

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