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By Jared S. Hopkins
Drugmaker Merck & Co. will spin off $6.5 billion in assets, including women's-health products and cholesterol treatments that have lost patent protection, that are equal to 15% of its prescription drug sales.
The move to shed the products will allow Merck to focus on faster-growing cancer drugs, vaccines and animal-health items, Merck Chief Executive Ken Frazier said.
"We're thinking about, as we look forward, what are the right steps that we can do to position the company for the long-term," Mr. Frazier said in an interview.
Other drugmakers in recent years have hived off lower-margin segments to recapture heady sales growth from cancer drugs and others. Most notably, Pfizer Inc. is merging its off-patent drugs with Mylan NV. Also, Pfizer and GlaxoSmithKline PLC combined their over-the-counter drugs.
By getting rid of legacy medicines with sagging sales, the big drugmakers are hoping to see faster sales growth from newer drugs. But the strategy deprives companies of the steady cash flow from older products and requires them to hit on risky experimental therapies.
Under its plan, Merck will spin off nearly 90 products into a new company, which will be publicly traded. The products will generate $6.5 billion in sales this year, according to Merck.
The products include some former big sellers, like the cholesterol drugs Zetia and Vytorin. Other products Merck will divest are contraceptives NuvaRing and Nexplanon, which combined for $1.3 billion in sales through the first nine months of last year.
Mr. Frazier said that dividing the products into two companies, each focused on maximizing its own portfolio, is the best way for their sales to grow.
The deal will lead to more than $1.5 billion in savings by 2024 for Merck and reduce the company's manufacturing footprint by about 25%, the company said. The transaction is intended to be completed during the first half of next year.
The new company, which hasn't yet been named, will have more than 10,000 employees and be based in New Jersey. It will be led by Kevin Ali, a Merck veteran and current head of enterprise portfolio strategy who answers to Mr. Frazier.
The board chairman will be Carrie Cox, a former executive of Schering-Plough, which merged with Merck about a decade ago.
The split will leave Merck, which had $42 billion in 2018 sales, even more dependent on cancer therapy Keytruda, which generated about $8 billion in sales through the first nine months last year.
Some analysts and investors have expressed concern that Merck may become too dependent on Keytruda. By 2024, Merck's $20 billion in cancer-drug sales will be nearly 40% of company revenue, JPMorgan Chase & Co. projects.
But Keytruda sales are growing rapidly, and analysts estimate it could become the top-selling prescription drug of all time.
Mr. Frazier said Merck considered other options for the assets that it will spin off, including housing them in a wholly-owned subsidiary. He said Merck didn't "try to sell off pieces of this portfolio."
Mr. Frazier said several products will lose, or recently lost exclusivity, in the short-term but the new company will achieve growth in the low-single-digits. About 75% of the company's sales will come outside the U.S., while the majority of American sales will come from patent-protected drugs.
The new company will also include its biosimilars, which are lower-price copies of branded biologic drugs. Merck sells three biosimilars through its partnership with Samsung Bioepis Co. Sales were about $250 million last year, according to Merck.
Biosimilar sales and prescriptions have been slower in the U.S. as compared with in Europe. Women's health products have also faced challenges. Allergan PLC explored selling its women's health segment but didn't strike a deal before it agreed last year to be acquired by AbbVie Inc.
Write to Jared S. Hopkins at email@example.com
(END) Dow Jones Newswires
February 05, 2020 06:59 ET (11:59 GMT)
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