Pharma giant Merck is cutting 7,200 jobs after its profits this year dropped 28% in the third quarter.

The job cuts, which amount to around 12% of the total workforce, will hit all areas of the company. Merck does say it will be “enhancing its research operations” but this will be via expanding what it calls “access to worldwide external science” (statement).

More external science is not necessarily good for researchers inside Merck, and the company says three basic research sites will close by the end of 2009: Tsukuba in Japan, Pomezia in Italy and Seattle in the United States.

Morningstar analyst Damien Conover told Reuters:

The big take away is that Merck appears to be hitting a lot of setbacks and therefore causing its long-term growth to slow slightly. Not only are they having these setbacks with the current business, as we look forward to Merck over the next two years they’re going to lose some major products to generic competition.

Merck’s woes are generally being seen as indicative of wider problems in the industry, for example by Forbes, which sees fewer new drugs coming to market, lower sales and current blockbusters coming to the end of their patents. “If we don’t change these business models we’re not going to survive as an industry, not to mention as a company,” it quotes Merck’s chief executive Richard Clark as saying.

More locally, the Seattle Times says of the closure there: “The planned cuts mark a setback for the Seattle biotechnology sector, many of whose publicly traded companies have been marred by layoffs and poor market performance this year.”