CEO: Merck on track for $2.5B in cost savings

A bit more than a year after announcing plans to cut 8,500 jobs, including hundreds in the Philadelphia suburbs, Merck & Co. chief executive officer Ken Frazier said Monday that the drugmaker was on track to deliver the $2.5 billion in annual cost savings that he promised to Wall Street.

"Last October, we launched a multiyear initiative to transform Merck and build a platform for sustained future growth," Frazier said in a statement. "One year later, we delivered solid third-quarter results and are making steady progress in our transformation, including divesting noncore assets, reducing our expense base, and investing in our promising new product launches and pipeline."

Shares of Merck, one of the big companies that make up the Dow Jones industrial average, slipped $1.16, or 2 percent, to close Monday at $56.45 after the company released third-quarter results.

Merck, based in Whitehouse Station, N.J., has large operations in the Philadelphia suburbs of Upper Gwynedd and West Point, Montgomery County.

Frazier did not mention any new layoffs or plant closures in the conference call with financial analysts. Merck has announced several batches of layoffs in recent years, with the implementation of one sometimes overlapping with that of another.

Merck said in July that it had eliminated about 4,135 of the 8,500 positions announced in October 2013 and expected to complete that phase by the end of 2014, with the promised cost savings arriving by the end of 2015.

As of June 30, Merck had about 73,000 employees, down from 94,000 at the end of 2010.

Merck completed the sale of its over-the-counter medicine business to Bayer on Oct. 1. That $14 billion deal gave Merck $9 billion after taxes, the company said.

Merck said Monday that third-quarter revenue was $10.6 billion, down 4 percent from the same period a year ago.

Profit in the quarter fell 27 percent, from $1.15 billion in 2013 to $842 million in 2014. Its nine-month profit rose 24 percent, from $3.7 billion in 2013 to $4.6 billion in 2014.

Frazier and other Merck officials tie future hopes to immunotherapy cancer medication and newer drugs to treat hepatitis C.

In September, the Food and Drug Administration approved Merck's drug Keytruda for use by patients with melanoma, a form of skin cancer, if they had not responded well to other treatments. However, Merck hopes to get approval to use Keytruda by itself or in combination with other drugs in dozens of other areas of cancer treatment.

Merck said Monday that the FDA had granted a so-called breakthrough designation to Keytruda for evaluation as a treatment in non-small-cell lung cancer in patients who have not responded to several other therapies.

Bernstein Research analyst Tim Anderson said in a note to clients that the Merck "story" pitch to investors "generally works from a qualitative perspective" - driven mainly by newer cancer drugs and hepatitis C pipeline prospects - but "the earnings trajectory for Merck seems lackluster relative to peer companies. Overall, however, Merck remains a higher-quality name trading at about an average valuation."

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