Merck & Co. Inc. said on Wednesday it will spin off its women’s health, biosimilar drugs and older products into a separate publicly traded company as it tightens its focus on growth drivers like cancer drug Keytruda and vaccines.
The new company’s assets currently make up around 15 per cent of Merck’s total sales and around half of its drugs that treat people.
Merck will retain its animal-health business, as well as drugs used for acute care in hospitals, such as Bridion, which reverses the effects of anesthesia.
Merck shares fell 3.7 per cent to US$85.12 after the U.S. pharmaceutical company also reported quarterly Keytruda sales below Wall Street’s lofty estimates.
The spinoff is a culmination of the company’s strategy of concentrating on a few key areas, particularly oncology, where Merck has turned the immunotherapy Keytruda into one of the world’s top-selling drugs, Merck chief executive Kenneth Frazier said in an interview.
“The whole key to this is that it allows Merck to be much more focused on its greatest growth opportunities,” he said.
That starts with Keytruda, now a mainstay of many cancer regimens including for newly diagnosed advanced lung cancer, the biggest commercial opportunity in oncology. Its sales jumped nearly 45 per cent to US$3.11-billion, below analysts’ estimates of US$3.24-billion, according to Refinitiv data.
Sales of the assets that will make up the new company were expected to fall or be flat through 2024, but it can achieve growth through management attention, said Kevin Ali, a Merck veteran who will head the new company.
Merck, which expects to complete the transaction in the first half of 2021, said the new company will send it US$8-billion to US$9-billion through a special tax-free dividend. The new entity is expected to have US$8.5-billion to US$9.5-billion in debt.
Merck forecast cost savings of over US$1.5-billion by 2024 after the spinoff.
Announcement of the spinoff without more colour on management succession could cause some concern for investors, said Cantor Fitzgerald analyst Louise Chen.
Merck in 2018 scrapped a policy requiring chief executives to step down at age 65, ensuring that Mr. Frazier, who turned 65 last year, can remain at the helm.
However, the spinoff was not related to succession, Mr. Frazier told Reuters.
“Our board has a process in place for succession. This is really again taking actions today that will assure the longer-term growth.”
Merck also reported an adjusted quarterly profit of US$1.16 per share, beating analysts’ estimates by a penny.