Merck Lays off 8,500 employees

Brand name drug companies face stiff competition with generic brands.

A car enters the employee entrance at the headquarters for drug maker Merck on March 9, 2009 in Kenilworth, N.J.
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Merck, a leading manufacturer of drugs and pharmaceuticals announced Tuesday it plans to cut 8,500 jobs. This announcement follows their previous cuts of 7,500 jobs that have yet to implemented. Between the two announcements Merck plans to slash 20 percent of its 81,000 workers during the next two years.

Kenneth Frazier, Merck CEO, told journalists during a webcast, most of the cuts would be to the sales and administrative departments, with limited cutback to the research and development side of the company.

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"It's about being more efficient," he told CNN.

"Our company is still committed to innovative R&D and bringing forward transformative products that make a difference in human health," Frazier said.

The cuts were made to help the company cut costs even though the expected total severance pay for the employees will be $2.5 to $3 billion dollars. In the long run the job reductions will save the company an estimated $2.5 billion a year.

Merck's announcement prompted a 2.2 percent rise in the company stock.

"The stock market almost always reacts well to big expense cuts," Erik Gordon, an analyst and professor at University of Michigan's Ross School of Business, told Time Magazine.

With these job cuts, Merck has also decided to move its headquarters from Whitehouse Station, N.J., to an existing facility in Kenilworth, N.J., in 2015.

Job cuts are nothing new for the drug company, which has been regularly cutting jobs for about a decade.

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The main reason for the cuts can be attributed to generic drug maker companies squeezing into the drug industry with cheaper, more competitive prices, the Associated Press reports. For example, Singulair, Merck's allergy treatment drug, got stiff competition in 2012 as other generic companies came out with their own cheaper version of the drug, causing a decline in sales. The same has happened with other heavily marked drugs made by Merck, including Propecia, used to combat baldness, and Clarinex, an allergy medicine.

The other challenge Merck has faced, which has lead in part to the cuts, is the company has not been able to create enough new drugs to make up for the loss of profit from generic competition. Merck's press release stated it will now focus on the "prioritized markets, which account for the majority of revenue in the pharmaceutical and vaccines business," These "prioritized markets" include the U.S., Japan, France, Germany and Canada, as well as other high revenue generating countries.

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