Merck & Co. (MRK) said Thursday that it would close eight research sites and eight manufacturing plants to hit cost-saving targets promised as a result of last year’s takeover of Schering-Plough.

The site closings are part of Merck’s ongoing efforts to integrate Schering’s operations following the $49.6 billion deal closing in November. They also illustrate attempts by major pharmaceutical companies to control costs as they grapple with drug patent expirations and low research productivity. Pfizer Inc. (PFE) announced layoffs and site closures as a result of its $68 billion acquisition of Wyeth last year.

Merck, of Whitehouse Station, N.J., had pledged to generate annual cost savings of $3.5 billion by 2012 as a result of the Schering deal. Merck said it would take an unspecified charge in the second quarter to cover the costs of the restructuring.

In the first phase, announced in February, Merck said it would reduce its global work force by 15% by the end of 2012–or about 15,000 employees based on Merck’s head count of 100,000 as of Dec. 31. This was expected to account for about $2.6 billion to $3 billion of the targeted cost savings.

With the next stage, announced Thursday, Merck has said it will phase out operations at eight research sites over the next two years. The sites are located in Montreal; the Netherlands; Denmark; Germany; Scotland; and Cambridge, Mass.

Merck’s current best-selling drug, the Singulair asthma treatment, was discovered by scientists in Merck’s Montreal laboratories.

Merck said in a separate announcement Thursday that the Montreal-area research site employs 180 people. Some will be offered new positions elsewhere in Merck’s research network, while others will receive severance and support services.

Merck said it would invest C$100 million in research-and-development collaborations with Quebec-based companies and academic institutions over the next five years. Manufacturing and packaging operations at another Canadian facility will continue to support the North America region.

In the future, Merck’s research-and-development operations will be in seven countries: the U.S., Belgium, England, France, Switzerland, Singapore and Japan.

In addition, Merck will phase out operations at eight manufacturing plants, which are located in Italy, Portugal, Mexico, Brazil, Argentina and Miami Lakes, Fla. Merck will also close a site in Singapore but retain other manufacturing operations there.

Merck spokesman Ron Rogers declined to specify how many total jobs would be affected by the site closures but said they were part of the previously disclosed 15% reduction target.

Merck shares rose 0.9% to $35.74 in recent trading Thursday.

“These changes are crucial to drive future growth and realize the promise of being a global health care leader for the long term,” Chairman and Chief Executive Richard T. Clark said in a press release.

Together with prior site closures, Merck’s global manufacturing network will shrink to 77 facilities from 91 at the close of the Schering merger. This includes 29 animal-health plants slated to become part of a planned joint venture with Sanofi-Aventis SA’s (SNY) Merial unit.

Merck now expects the initial phases of the merger-related restructuring to generate savings of about $2.7 billion to $3.1 billion in 2012 toward the targeted $3.5 billion overall savings. The remainder of the targeted savings are expected to come from procurement savings and other items.

Merck also boosted its estimate of pretax costs to implement the initial phases of the restructuring program, to a range of $3.5 billion to $4.3 billion. In February, Merck had estimated the first phase of the restructuring would cost $2.6 billion to $3.3 billion. The costs stem from cash severance payments to terminated employees and other items.

The company said it will explore local partnerships and site sales for the research and manufacturing locations targeted for closures.

-Peter Loftus, Dow Jones Newswires; +1-215-656-8289; peter.loftus@dowjones.com

If you enjoyed this post then Subscribe to Savvy Investor via RSS