Merck To Spin Off Slow-Growing Women's Health, Legacy, Biosimilars Businesses: What You Need To Know

Pharma giant Merck & Co., Inc. MRK announced Wednesdaythat it plans to splinter into two companies in a bid to pursue aggressive growth.

Separately, the company reported largely positive fourth-quarter results and issued robust guidance for the full year 2020.

A ‘Lean And Mean' Growth Mantra 

Merck said it plans to spin-off products from its women's health care, legacy brands and biosimilars businesses into a new, independent publicly traded company.

The company said it plans to focus on its strong growth businesses - oncology, vaccines, hospital and animal health.

Merck also reaffirmed its commitment to invest in R&D to pursue breakthrough innovations and drive value from its deep late-stage pipeline.

Merck said it expects the spin-off to deliver significant benefits for both the legacy Merck and the NewCo and to create value for shareholders.

The NewCo is expected to be headquartered in New Jersey and will have 10,000 to 11,000 employees, Merck said. It will generate about $6.5 billion in revenue for Merck in 2020, the company said.

"Over the past several years, we have purposefully shifted the focus of our efforts and resources to our best opportunities for growth," Kenneth Frazier, Merck's chairman and CEO, said in a statement.  

The move will enhance Merck's strategic and operational focus on key drivers to accelerate growth, reduce complexity and improve efficiencies, increase agility in responding to customer needs and market dynamics and optimize capital structure and resource allocation to pursue a strategic agenda, the company said. 

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The transaction, which is planned in the form of a tax-free distribution to Merck shareholders, is expected to be completed in the first half of 2021 subject to market and other closing conditions, Merck said.

Merck also named insider Kevin Ali as the CEO of the NewCo and pharma industry veteran Carrie Cox as chairman of the board.

The NewCo will likely achieve low-single digit revenue growth and a non-GAAP operating margin in the mid-30% range in the first year after the separation, according to Merck. 

Merck's NewCo Portfolio

The NewCo will focus on the women's health businesses' patent-protected Nexplanon franchise and contraceptive and fertility businesses, Merck said.

It also expects to establish NewCo as a leading player in biologics with its partner Samsung Bioepis, focusing on Renflexis and Brenzys in immunology and Ontruzant in oncology.

The NewCo will also include a large portfolio of highly profitable and trusted brands consisting of dermatology, pain, respiratory and select cardiovascular products, including Zetia and Vytorin, as well as the rest of Merck's diversified brands, the company said.

Merck's Q4 Report 

Separately, the company reported sales growth of 8% to $11.9 billion, roughly in line with the consensus estimate of $11.98 billion.

The adjusted EPS came in a penny better than the consensus at $1.16. The company's full-year EPS guidance was above consensus, while the sales guidance was in line.

"We remain positive on the stock and continue to believe that MRK's growth prospects are underappreciated," Cantor Fitzgerald analyst Louise Chen said.

The firm has an Overweight rating and $107 price target for Merck.

The stock was down 3.05% at $85.69 at the time of publication.

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