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Merck's Kenilworth campus, which the company announced on Tuesday would become the world headquarters. The news came on the same day the drugmaker said it would shutter its Summit campus and lay off 8,500 employees worldwide.

(Ed Murray/The Star-Ledger)

When Summit Mayor Ellen Dickson ended her 8 a.m. phone call with a Merck executive Tuesday, she was in shock.

The drugmaker's 88-acre campus in Summit, which was slated to be Merck's new global headquarters, would instead be shuttered in a year, the mayor was told.

“It was very disappointing,” Dickson said. “The impact of Merck leaving will be felt throughout Summit.”

Minutes later and 10 miles away, Kenilworth Mayor Kathi Fiamingo took a very different call from the same executive. The news was just as surprising: Merck’s 100-acre Kenilworth campus — formerly owned by Schering-Plough, would become the company’s new world headquarters.

“I was out of the office, and dancing around,” Fiamingo said. “I was being foolish, but it was just so great.”

Merck’s real estate about-face was part of a dizzying day of news in which the pharmaceutical giant announced a global cost-cutting plan to lay off 8,500 workers and save about $2.5 billion. The latest workforce reductions come on top of the 7,500 previously announced job cuts. Combined, they add up to 20 percent of Merck’s workforce, which stands at 81,000 worldwide.

In a statement, the second-largest U.S. drugmaker said the cuts were part of an effort to sharpen “commercial and R&D (research and development) focus and reduce costs,” including the size of its workforce and global real estate footprint.

Merck employs more than 8,500 people in New Jersey at sites in Branchburg, Cokesbury, Kenilworth, Rahway, Summit, Union, and Whitehouse Station. Lainie Keller, a Merck spokeswoman, said layoffs are expected in New Jersey, but it was too early for a precise number.

Last October, Merck said it would shutter its 500-acre current world headquarters in Whitehouse Station, which it still plans to do by the end of next year. In Kenilworth, the company recently closed its manufacturing division.

Merck has been hit hard by plunging sales for its former top seller, the asthma and allergy pill Singulair, along with baldness medication Propecia and Clarinex, an allergy pill, among others.

In a conference call, Merck Chief Executive Ken Frazier said the company will devote more resources to vaccines, cancer, diabetes and hospital care. “In other therapeutic areas, we will significantly reduce our resources,” he said.

The company will place more emphasis on developing drugs with the most sales potential, which means getting the business side to work more closely with researchers, he said.

The moves were a positive sign for investors, as Merck shares rose $1.13 Tuesday, to close at $48.74. Despite its problems, the company’s stock is up about 19 percent this year.

In a note to investors, Morningstar research analyst Damien Conover said Merck’s “strategic shift toward specialty care and R&D will help lay the groundwork for stronger innovation.”

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But Rutgers Business School professor Mahmud Hassan wondered what took so long. “Merck’s been limping along for the last several years, relying on one drug, Januvia,” he said. Sales of that blockbuster diabetes medication are now being threatened as several new competitors are in the final stages of development or scheduled to debut their own versions in the next two years.

Hassan added that Merck's decision to lay off thousands of workers was a short-term fix, and that trying to sell off properties will be a difficult proposition in the current economy.



"Who's going to buy Whitehouse Station at this time?" Hassan said. "It's massive."

That Hunterdon County facility, opened in 1992, now houses about 2,100 employees and has 1 million square feet of office space. Employees and contractors there will move to the Kenilworth office, which now has about 1,500 workers, Keller said.

Merck’s animal health unit — the second largest globally — will shift from Summit to another in-state location, while certain manufacturing, laboratory and other functions will move to sites in New Jersey or Pennsylvania.

Before Tuesday’s call, Fiamingo was bracing for more bad news.

Two months ago, Kenilworth’s mayor was watching Merck continue to shrink its presence in the Union County borough. The company had just sent layoff notices to the last of the manufacturing workers there and the campus’ future was uncertain, she said. Merck pays a quarter of Kenilworth’s overall property tax bill, although the amount was slightly reduced when the manufacturing unit closed.

“I was holding my breath, waiting for the other shoe to drop,” the mayor said. “And then they told me, and I thought, finally, some good news.”

It was the same feeling around this time last year in Summit, when officials cheered the news that Merck would move its headquarters there — to the one time Ciba Geigy site — likely adding to its existing 1,600 employees. The drugmaker is Summit’s second largest employer and largest taxpayer, the mayor said, contributing more than $9 million a year in local and county taxes.

Merck will continue to pay taxes as long as it owns the Morris Avenue property, but Dickson acknowledged the departure is “a very tough blow. I was hoping when I got the call it was to tell me they were going to put up another building,” she said.

A meeting had been scheduled for next week between Merck and city officials to discuss final approval for the new headquarters designation.

That transition was to be completed by the end of 2014. Now, the site’s eventual closure will follow a similar timeline, and a new meeting is scheduled for this week to discuss possible uses and prospective buyers.

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