Small Town Feels the Effect of Merck Consolidation

Ed Silverman | January 28, 2011 | Health Care
The loss of some 1,400 jobs in Kenilworth will touch restaurateurs and real estate agents, and is emblematic of changes in the pharmaceutical sector throughout the state

Mike Rannigan shakes his head and digs his hands deep into his pants pockets when he thinks about the many Merck employees who will probably no longer eat the hot dogs and burgers he serves at the Galloping Hill Grill, a landmark eatery located at the busy Five Points intersection in Kenilworth.

Over the next 12 to 18 months, more than 1,400 jobs at the Merck facility less than a mile down the road will start disappearing as the pharmaceutical giant continues the process of consolidating operations at the headquarters of former rival, Schering-Plough. Since Merck’s $41 billion acquisition of Schering-Plough was consummated two years ago, Merck has begun eliminating thousands of jobs and closing numerous plants around the world.

But it’s not only Merck employees who feel the pain. The transfers and layoffs ripple out through Kenilworth like a small shockwave, disrupting local businesses, charities and even public services. What’s more, the consolidation at Kenilworth is being mirrored across the state — albeit not on such a large scale — as pharmaceutical firms continue to merge and move.

In Kenilworth, though, the pain is going to be outsized. Roughly 900 legal, marketing and other administrative positions will gradually be transferred to Merck headquarters in Whitehouse Station and a few other sites scattered around the state. And about 580 manufacturing jobs will leave New Jersey entirely as some operations are moved to other parts of the country. This adds up to more than half of the 2,600 people who currently work there, although another 350 will eventually be transferred from other locations at a biologics research and development center that Merck hopes to build on the site. The net result is a loss of some 1,110 people. And to Rannigan, many of them are familiar faces who will no longer walk through his doors.

“We’ve got quite a few of them that come here regularly. Some would come in here at least twice a week for lunch. We’ll be okay, I think, in that there’s a hospital nearby and Kean College, too. But sure, it’s going to hurt everybody around here,” says Rannigan. “Let’s not kid ourselves. Those jobs are moving so far away that no one is going to travel back here for a hot dog, as good as they are.”

A Wave of Consolidations

The cutbacks, unfortunately, are nothing new to New Jersey, which continues to call itself the nation’s medicine chest, even as a wave of consolidations has swept the pharmaceutical industry over the past several years and left fewer global nerve centers within its borders. Once familiar names with headquarters here have disappeared amid mergers and acquisitions — Pharmacia and Warner-Lambert were bought by Pfizer; Sandoz and Ciba-Geigy merged into Novartis; more recently, Roche bought Genentech and transferred many more jobs to California than were shifted into the state.

Not surprisingly, the industry overhaul has had a startling effect as approximately 4,600 jobs were lost last year alone, according to the Healthcare Institute of New Jersey, a trade group that represents drug and device makers. The losses also reflect similar cutbacks, but on a less spectacular scale at other locales, such as the former pilot plant in Bridgewater that was shuttered by Sanofi-Aventis and the unspecified number of layoffs that are expected to affect Bristol-Myers Squibb employees in the greater Princeton area as the drug maker trims 3 percent of its worldwide workforce.

Of course, the job losses also affect a large number of communities as employees are either transferred or lose jobs altogether, causing displacement and economic uncertainty, especially in towns where a facility or a large concentration of personnel has been based. Consequently, New Jersey no longer resembles a state with a large number of company towns, as many companies are simply gobbled up by others. Instead, towns are losing people, taxes and, to a large extent, character.

“Schering-Plough was a great corporate citizen and was wonderful to our town,” says Kathi Fiamingo, Kenilworth’s mayor. “They supported a lot of community organizations — financially and also by opening up their facilities. They made a home for the library program once a year and our annual health fair. Anytime we needed something, you called up the guys at Schering and they were the first one to lend a hand. They gave us a significant donation to obtain a new ambulance. They were good to the police department. But we know that’s done. It’s over. The relationship is gone.”

Maintaining the Tax Base

For the moment, the tax base will remain the same, which is a good thing for Kenilworth, given that Merck is, far and away, the largest taxpayer in the town. Last year, the drug maker paid $9.7 million in taxes, accounting for 28 percent of the $34.5 million in taxes collected. Of course, this may very well change, since Merck has not yet disclosed its intentions for the property. A Merck spokesman says the drug maker may look to sell or lease some of the buildings. He declined to provide square footage, but did make a point of saying there are plans to spend $120 million on the biologics research and development pilot plant, although the timing is uncertain. Merck is expected to appear before the town planning board later this week.

Of course, the impact will be felt in different ways. Take housing. It’s not clear how many of the disappearing Merck jobs are held by people who live in or near Kenilworth, but some number of employees will soon face the prospect of a long commute, transferring elsewhere or unemployment. And these will place additional pressure on already sagging housing values. By the same token, some of the 350 jobs that Merck says will be shifted to Kenilworth may prompt some home buying. But that R&D facility is not yet approved, let alone under construction.

“A complete closedown would really hurt, but this sort of development can cause a larger amount of houses for sale on the market than ever before, and stay there for a longer period of time. It’s been a very sought-after community,” says Rudy Cammarota, a long-time Kenilworth realtor. “And when they brought in new employees, they looked for houses in Kenilworth. And now we’ve lost that.”

The mayor, meanwhile, is considering pushing to transform some of the unused space on the Merck campus into a research and development enterprise zone, similar to what was done in Michigan when Pfizer began leaving what used to be Pharmacia operations there.

“I’d like to embrace the whole concept of bringing business into New Jersey and an R&D zone for the pharmaceutical industry,” she says. “Let’s bring in the high-dollar R&D. You know, ‘Oh boy, have we got a campus for you.’ But it’s a long-term goal and we don’t know what Merck will do the property yet.”

Such notions are laudable, but viability may be another matter. The state is already strapped and cutting back funding for economic development programs designed to benefit biotechs. The U.S. Department of Labor did award the state a $3.6 million grant to retrain laid-off pharmaceutical talent and create a bioscience cluster in hopes of keeping those people from moving elsewhere. But whether Merck would allow the Kenilworth site to become home to such an initiative, or anything similar, is an unknown. And one long-time observer of the New Jersey economy is skeptical that such projects can compensate for the huge outflow of jobs.

“The reality is that somebody has to want to come here with investments,” says Norman Glickman, an economist and an urban and public policy professor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. “As for the state, I don’t know where the money can come from. And quite frankly, I don’t think those incentive programs really do much good. People invest because they want the opportunities, not simply because an incentive is offered. The sad truth is that drugs have always been a big part of the state economy, but it’s gradually going away.”

This reality makes Anibar Orozco grimace. The manager of La Griglia, an upscale seafood grill, is hopeful that the 350 jobs earmarked for the R&D facility can eventually compensate a little for the many other jobs that are soon to leave. But he acknowledges that these jobs will be missed, even though the restaurant draws a steady business from the surrounding area. “No one wants to see them go, but what can you do?” he says, as he prepares for a busy Saturday night crowd. “This happens to big companies. We’ll have to work hard to find other customers.”

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