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Merck KGaA Gives Details On Planned Efficiency Program

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02/24/2012 | 05:51pm CEST

-- Germany's Merck provides details about efficiency program.

-- Conglomerate joins a long list of drug makers revamping themselves.

-- Merck KGaA shares fall after restructuring update.

(Adds details, share details, background.)

   By Neetha Mahadevan 

Pharmaceutical and chemical company Merck KGaA (>> Merck KGaA) said Friday it launched a cost-cutting and efficiency plan in the wake of increased price pressures in the U.S. and Europe and a series of drug development setbacks.

The company said the plan could involve job cuts across all businesses and regions to reduce costs and address "unprecedented market shifts", but it didn't disclose details, saying management still needed to speak with relevant stakeholders for a mutually acceptable solution.

"Over the next two years, Merck needs to address unprecedented market shifts, increasing competition in key product areas and existing inefficiencies in its own organization to ensure the long-term success of its business model," Chief Executive Karl-Ludwig Kley said in a statement.

With its new cost-cutting drive, the German chemical and pharmaceutical company joins a long list of other drug makers who are revamping themselves in response to falling sales and profitability.

The need to cut costs is partly due to mounting pressure stemming from health care reforms in the U.S. and Europe, where governments are increasingly reluctant to reimburse expensive drugs and advocate the use of cheaper generic medicines. Companies such as AstraZeneca Plc (AZ.LN), Novartis AG (NVS), Roche Holding AG (ROG.VX), Pfizer Inc (>> Pfizer Inc.), Eli Lilly & Co (>> Eli Lilly & Co.) have all embarked on cost saving or restructuring programs to keep costs under control.

In addition to set-backs in its drug pipeline, Merck has also been hit by a slowdown in demand at its chemicals division, which led to disappointing developments in the last year and prompted it to tighten its outlook time and again.

In the second-quarter, it recorded a 6.5% drop in revenue at its chemicals division, while in the third-quarter profits fell due largely to weakness in its performance materials division.

The efficiency measures are part of Merck's comprehensive transformation program, announced last year, and comprises two phases, the company said.

In the first two years, Merck plans to set up a new leadership organization, implement efficiency measures and focus on long-term growth, while the second phase will be focused on exploiting new growth opportunities, it added.

Merck KGaA shares fell after the news and at 1545 GMT traded down 1.2% at EUR79.70, while the DAX benchmark index traded 0.6% higher.

-By Neetha Mahadevan, Dow Jones Newswires; +49 69 2972 5507; [email protected]

(Sten Stovall contributed to this article.)

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