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Merck to Eliminate 7,000 Jobs

Updated November 28, 2005

WHITEHOUSE STATION, NJ -- Merck & Co., facing a slew of lawsuits over Vioxx medication, announced a plan to cut as many 7,000 jobs and close five manufacturing plants by 2008,

"The actions we are announcing today are an important first step in positioning Merck to meet the challenges the Company faces now and in the future," said Richard Clark, chief executive officer and president of Merck & Co., Inc. "We are engaged in an ongoing effort to enhance efficiencies throughout the Company and improve the way we discover, develop, manufacture and market our medicines and vaccines and ensure that we get them to patients who need them as quickly, safely and efficiently as possible. Going forward, we also plan to pursue improved approaches to R&D, and marketing and sales. We look forward to discussing our initial plans at our Annual Business Briefing on December 15."

Merck will also lose exclusive rights next year to sell ZOCOR, a cholesterol medicine that is the company's top-selling drug. This will likely hurt revenues next year along with Vioxx suits.

Merck expects the initial phase of the cost reduction program to yield cumulative pretax savings of $3.5 billion to $4.0 billion from 2006 through 2010. A significant portion of the total restructuring savings through 2010, or approximately $2 billion, will result from the implementation of the new MMD supply strategy. These savings in manufacturing should enable Merck's gross margin beyond 2008 to return to levels consistent with those seen in the period prior to the loss of U.S. market exclusivity for ZOCOR.

As part of the global restructuring program, the Company expects to eliminate approximately 7,000 positions in manufacturing and other divisions worldwide, representing about 11% of its global work force, by the end of 2008. About half of the position reductions are expected to occur in the United States, with the remainder in other countries. Merck intends to sell or close five of its 31 manufacturing facilities worldwide and to reduce operations at a number of other sites. The Company also expects to close one basic research site and two preclinical development sites. The sites identified for closure are expected to be closed by the end of 2008, subject to compliance with legal obligations.

The pretax costs of the restructuring are expected to be $350 million to $400 million in 2005 and $800 million to $1 billion in 2006. Through the end of 2008, when the initial phase of the restructuring program is substantially complete, the cumulative pretax costs of the restructuring activities announced today are expected to range from $1.8 billion to $2.2 billion. Approximately 70% of the cumulative pretax costs are non-cash, relating primarily to accelerated depreciation for those facilities scheduled for closure.

Merck will implement its new supply strategy by creating a global facility network that combines the best of Merck manufacturing with the manufacturing capabilities of key external suppliers, introducing a new production system based on lean manufacturing principles, and developing a new approach to product commercialization to enable accelerated delivery of Merck's research pipeline through the launch phase.

As part of the strategy, Merck will reconfigure its manufacturing operations to create a global network that is better aligned to current and anticipated future product demand. The manufacturing division will also drive significant efficiencies, decrease headcount, and reduce or refocus operations throughout the plant network and the entire manufacturing division. These initiatives are designed to create a leaner, more efficient global network with plants operating at optimal capacity. The Company will also enhance its relationships with key external suppliers to leverage cost efficiencies while allowing it to focus internal manufacturing resources on core activities that provide competitive advantage for Merck.

Merck is also implementing a global rollout of lean manufacturing principles, which are guidelines for reducing the time from customer order to manufacturing, and streamlining the production system to reduce manufacturing costs, inventory and cycle time significantly throughout its network. A pilot program now under way at Merck's pharmaceutical manufacturing site in Arecibo, Puerto Rico, is delivering a 50% reduction in on-site cycle time and on-site inventory reduction of greater than 30%.

Merck is bringing together units from its manufacturing and research organizations to create a new commercialization organization focused on accelerating the delivery of its pipeline. Merck will identify dedicated commercialization facilities that will support production needs from late-phase clinical trials through the launch phase, with a goal of cutting 12 to 15 months from the time it now takes to develop new production processes and manufacture launch supplies. The newly structured group will be part of the manufacturing division. This key initiative will support ongoing efforts to reduce clinical trial cycle times.