Merck to Spin Off $6.5 Billion In Products -- WSJ
February 06 2020 - 3:02AM
Dow Jones News
By Jared S. Hopkins
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 6, 2020).
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 see risky experimental
therapies gain approval by regulators.
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 $46.8 billion in 2019
sales, even more dependent on cancer therapy Keytruda, which
generated about $11 billion in sales 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
percentage 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.
Merck also reported earnings for the fourth quarter on
Wednesday. The company recorded a net income of $2.4 billion, or 92
cents a share, compared with $1.8 billion, or 69 cents a share, a
year earlier. Excluding one-time items, the company reported
earnings of $1.16 a share, compared to the $1.15 a share analysts
were expecting.
Write to Jared S. Hopkins at jared.hopkins@wsj.com
(END) Dow Jones Newswires
February 06, 2020 02:47 ET (07:47 GMT)
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