Merck cuts $2.5 billion from budget and 8,500 jobs

Merck & Co. announced that it will cut $2.5 billion from its budget and will also lay off 8,500 employees.  Of the budget cuts, $1 billion will come by the end of 2014, and approximately half of that will be to cuts in research and development.  Merck cited regulatory hurdles for experimental drugs as one reason for the cuts. Many other drug companies have announced similar cost-cutting measures.

Most drugs take approximately 10-15 years to develop; they are on-patent for over ten years before being brought to market.  The drugs that are on the market today were developed in the 1990s; the drugs that Merck is now developing (or rather, may be halting development on) would reach the market any time between now and the year 2030.   New drugs cost approximately one billion dollars to create and bring to market.

Ultimately, this is a signal that the large pharmaceutical companies do not think that they can recoup R&D costs in the future.  It is not for a lack of diseases to treat or ways to improve the lives of people suffering from chronic conditions; it is a statement that money being invested into drugs today will not see a profit when they are brought to market a decade from now.

Merck, Pfizer, and the rest could all be wrong about this – or it could be an early warning about the deleterious effects of socialised medicine. The medical device tax does not affect pharmaceutical companies, but there is nothing in the Constitution that prevents such a tax from being levied on new drugs, nor is there anything preventing the government from using its ever-increasing buying power to force the drug companies to sell at cost.  Companies that sell at cost don’t stay in business for very long.

Ultimately, it may look like Merck is being short-sighted, but it is really the American people.  We twice voted for a President who is willing to asacrifice expensive medical innovation in order to have “a big f-ing deal” of a law.

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Filed under Economics, ObamaCare

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