Merck Rebuying its Former Drug Ingredient Factory
TRENTON, N.J. (AP) — Drugmaker Merck & Co. has agreed to buy back a central Pennsylvania factory from the contract manufacturer that bought it 2 1/2 years ago.
Merck and the owner of the Cherokee Pharmaceuticals plant, outsourcing firm PRWT Services Inc., said they "mutually agreed" to the sale.
PRWT spokeswoman Sherri Kyle-Jones said the deal came "as a result of the challenging environment in the pharmaceutical industry."
Drug companies have been slashing costs wherever they can, amid stagnant or declining revenue. They're being squeezed as blockbuster drugs get generic competition, research programs fail to produce enough lucrative new drugs and government health programs in Western countries demand lower prices due to weak economies.
The factory in Riverside, Pa., makes active ingredients for prescription medicines, along with agricultural chemicals and other products. Merck agreed to the repurchase because the factory supplies a key active ingredient for one of its drugs.
"They do make a product that's critical to our supply chain," spokesman Ron Rogers said.
He said the sale should be completed by Sept. 3; terms were not disclosed. Merck will then take about six months to decide the future of the factory, about 80 miles northwest of Philadelphia, and its 454 employees.
"We need first to gain a fuller picture of the current manufacturing portfolio, as well as the capacity and the financials," Rogers said.
The plant will continue its current production in the meantime.
Merck owned the factory for roughly 60 years before selling it in January 2008 to Philadelphia-based PRWT, which also operates subsidiaries called U.S. Facilities and PRWT Business Process Solutions.
"As a result of this decision, we'll now focus on our core business," Kyle-Jones said, describing that as providing drugmakers with payment processing, facilities management and other services.
Merck shares added 41 cents at $35.77.
The deal comes as Merck continues streamlining operations since buying fellow drugmaker Schering-Plough Corp. for $41 billion last November.
In July, Merck said it will close or sell eight factories and eight research sites around the world. With the repurchase of the Cherokee plant, it will have 78 manufacturing sites.
Merck also has eliminated about 21,000 people from the combined Merck and Schering-Plough work force, leaving about 95,000 people.