Merck’s $3B cost-cutting initiative includes optimization of its manufacturing network

Merck is looking to achieve $3 billion in annual cost savings by the end of 2027, a multi-year initiative that includes a new restructuring program designed to “reduce its global real estate footprint” and optimize its manufacturing network. The company made the announcement on Tuesday along with its second-quarter 2025 financial results.

While Merck provided few details on the restructuring program, which is expected to result in annual cost savings of approximately $1.7 billion by the end of 2027, the drugmaker said it is “aligning the geography of its global manufacturing to its customers and reflecting changes in the company’s business.”

CEO Rob Davis told analysts during Tuesday’s Q2 earnings call that the multi-year optimization initiative “will redirect investment and resources from more mature areas of our business to our burgeoning array of new growth driver.”

CFO Caroline Litchfield said the restructuring program will enable Merck to fully reinvest $3 billion of cost savings from lower-growth areas of its business to higher-potential areas, while leveraging “technological advancements to enable productivity and streamline our operations.”

At the same time, Merck continues to make long-term investments in its U.S. manufacturing and R&D capabilities, which includes the start of construction for a $1 billion, 470,000-square-foot biologics center of excellence in Wilmington, Delaware.

The Wilmington site will serve as a launch and commercial production center for next-generation biologics — including antibody-drug conjugates — and will become the future U.S. manufacturing home for its blockbuster cancer therapy Keytruda.

The optimization effort comes as Merck looks to offset revenue losses from Keytruda’s 2028 patent expiration, while preparing for the Trump administration’s planned 15% tariff on pharmaceuticals imported to the U.S. from the European Union. 

Davis told analysts on Tuesday that the company needs to see “more clarity” from the Trump administration on the agreement with the EU.

“It’s still not clear exactly how this relates relative to the 232 investigation and the timing,” Davis said. “Until there’s further guidance, I can’t really speak to it.”

Initiated under Section 232 of the Trade Expansion Act, the U.S. Department of Commerce is investigating the feasibility of increasing domestic capacity for pharmaceuticals and pharmaceutical ingredients to reduce import reliance, and whether pharma-specific tariffs are necessary. The probe is expected to conclude soon.

Davis said even if the 15% tariff was implemented immediately, it would have “minimal impact” on Merck “based on all the work we’ve done around inventory management and moving our manufacturing to the U.S.”

Since 2017, Merck contends it has invested more than $12 billion in domestic infrastructure, including recent expansions in North Carolina. In March, the company announced the opening of a 225,000-square-foot vaccine manufacturing facility at its site in Durham, North Carolina. The drugmaker invested $1 billion in the plant, which manufactures Merck’s human papillomavirus (HPV) vaccines Gardasil and Gardasil 9.

Merck plans to spend an additional $9 billion over the next four years to further grow its U.S. manufacturing and R&D footprint, including a $3.5 billion investment in biologics and small molecule manufacturing sites and capabilities.