Frankfurt The Darmstadt-based Merck Group is trimming its pharmaceutical research for greater efficiency and is now also making cuts in staff. At the US site in Billerica near Boston, 133 of around 500 jobs in the research center there are to be cut, as Merck announced a few days ago.
According to the company, employees in basic research are mainly affected. The extensive research units for neuroscience and immunology as well as oncology will be retained and the focus will be on selected areas, the Darmstadt-based company explained.
The job cuts in the US are part of a larger realignment with which Merck boss Belen Garijo wants to double the productivity of drug research. This has not lived up to expectations in recent years.
The aim of the new strategy for research and development announced in November is to launch a new product every eighteen months on average or to obtain additional approval in an important area of application.
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Similar to other pharmaceutical companies, Merck intends to rely even more on external innovations, i.e. above all on acquisitions and alliances with biotech companies. More than half of the new products will come from such transactions in the future. The job cuts now planned in the USA should therefore also serve to generate leeway and additional resources for potential deals.
The Dax Group employs around 3,000 people worldwide in pharmaceutical research and development. In addition to Darmstadt and Billerica, the group also operates research centers in China, Japan, Israel and India. Merck leaves it open whether staff reductions are also planned there.
The Merck boss wants to increase productivity in the group.
(Photo: imago images/sepp spiegl)
When asked, the company explained: “We are continuously evaluating our business requirements to ensure that we are reacting to market dynamics and customer needs, while at the same time continuing to support our employees.” It is thanks to this transformation approach that the number of employees in Darmstadt by five percent, secure jobs and invest in capacities and training.
With the relatively strong cut, Merck is sending a contrary signal to the Bayer group, which recently announced that it would be focusing its pharmaceutical activities more strongly on the USA due to the growing price pressure in Europe. However, Merck emphasizes that Billerica remains a crucial part of the research strategy and presence of the healthcare business sector in the USA.
The group’s drug development has recently proven to be less successful than originally hoped. Several prominent product candidates from the company’s own research, including bintrafusp-alfa, a cancer drug jointly developed with GSK, failed in the crucial clinical studies. Most recently, the group stopped working on the cancer drug candidate Berzosertib due to a lack of prospects of success. Overall, he gave up more than half of his clinical projects in the past two to three years.
Turnover increases, research expenditure decreases
The group therefore had to scale back its longer-term ambitions in the pharmaceutical sector again and again. At the end of 2021, division head Peter Guenter announced five fundamentally new active ingredients that the company wanted to bring to market from the second half of the decade. This goal is also put into perspective by the new requirements.
The stopped studies and the reorganization of research are initially having a positive impact on the income statement: while sales in the Merck healthcare division increased by eleven percent to EUR 5.8 billion in the first nine months of 2022, spending on research and development fell by well six percent, which in turn had a positive effect on the operating margin.
However, the downsizing of the research program also affects longer-term prospects. The most important beacons of hope for the near future are the potential cancer drug Xevinapant and the drug Evobrutinib to treat relapsing forms of multiple sclerosis. Both products are in the final phase of clinical testing and could theoretically receive the first approvals from 2025 – provided the studies deliver positive results.
Otherwise, the product pipeline has been severely thinned out. It mainly focuses on projects in preclinical or early clinical research phases. As part of the new strategy, Merck is focusing primarily on antibody-drug conjugates, a new type of drug class in which cytotoxins are transported to tumor cells with the help of antibodies.
Merck’s health division contributes a third to group sales
On the other hand, the group is working on active ingredients that promote the death of tumor cells (apoptosis) or block DNA repair in cancer cells, which also leads to the death of the cells. However, these projects are subject to a high degree of uncertainty and will take a few more years before they can enter clinical trials relevant for approval.
Analysts assume that the Merck health division achieved sales of almost 7.9 billion euros in the past year. The division thus contributes a good third to total sales and is currently still benefiting from strong sales growth for the multiple sclerosis drug Mavenclad and the cancer drug Bavencio. There were also clearly positive currency effects.
However, the patents on Mavenclad expire in 2024. And apart from Bavencio and the cancer drug Tepmetko, the rest of the product range hardly enjoys patent protection.
More: How Merck became one of the most valuable industrial groups with a spirit of research and bold deals