Merck Announces Major Spinoff of Women's Health, Biosimilars and Legacy Products

Merck, based in Kenilworth, New Jersey and known outside the U.S. and Canada as MSD, is spinning off products from its Women’s Health, Legacy Brands and Biosimilars businesses. It plans to launch a new, independent, publicly-traded company to handle those products. No name for the new company has been announced.

“Over the past several years, we have purposefully shifted the focus of our efforts and resources to our best opportunities for growth,” said Kenneth C. Frazier, chairman and chief executive officer of Merck.

That would seem to refer to its “key pillars,” which are Oncology, Vaccines, Hospital and Animal Health.

Frazier added, “This has led to the exceptional results we are reporting today. Given the opportunities now in front of us, we believe we can benefit from even greater focus. At the same time, we believe additional resources and focus will help ensure that our expansive portfolio, including many trusted and medical important products, reach their full potential.”

The argument is that the spinoff will result in two independent growth companies. They are expected to have improved strategic and operational focus, more flexibility to respond to customer needs and the market, simplified operating models, optimized capital structures and resource allocation, and better financial profiles for “unique and compelling investment cases.”

The new company will decrease Merck’s Human Health manufacturing footprint by about 25% and the number of Human Health products by about 50%.

On the Women’s Health front, the new company will lead with its Nexplanon (etonogestrel implant) franchise and its contraceptive and fertility businesses.

The Biosimilars will work with its partner Samsung Bioepis Co., Ltd., and includes Renflexis (infliximab-abda) and Brenzys (etanercept) in immunology, and Ontruzant (trastuzumab-dttb) in oncology.

For its Legacy Brands, the company has a large portfolio of products in dermatology, pain, respiratory, and cardiovascular. These include Zetia (ezetimibe) and Vytorin (ezetimibe/simvastin) and the rest of Merck’s Diversified Brands.

Merck notes that the new company’s footprint will generate about 75% of sales outside the U.S. and have about 10,000 to 11,000 employees. It will likely be headquartered in New Jersey.

“By optimizing our human health portfolio,” Frazier said, “Merck can move closer to its aspiration of being the premier research-intensive biopharmaceutical company, while also properly prioritizing a set of products at NewCo that are important to public health and the patients who rely on them, and which present real opportunities for growth.”

With the original Merck, it is projecting strong revenue growth each year through 2024, targeting 40% and higher operating margins. It expects to gain $8 billion to $9 billion in a special tax-free dividend from the new company, which it will allocate to business development or share repurchases. The company says it will retain its current 2020 dividend of $2.44 per share and expects future increases, hoping to hit a 47% to 50% payout ratio over time.

Kevin Ali will be the chief executive officer of the new company. He has led Merck’s enterprise portfolio strategy initiative for the past year. Before this, he was president, MSD International, president of Emerging Markets, and senior vice president in charge of the Bone, Respiratory, Immunology and Dermatology franchise.

“Built on the foundation of a trusted, high-quality portfolio, NewCo will help people around the world live healthier lives, with a special focus on investing in innovations for the distinct healthcare needs of women,” Ali said. “We are committed to becoming a leader in Women’s Health driven by organic and inorganic opportunities fueled by our portfolio of trusted legacy brands and our commitment to growing our rapidly expanding biosimilars business.”

Carrie Cox will be the new company’s chairman of the board. Cox was formerly chair of Array BioPharma, chief executive officer and chair of Humacyte, president of Global Pharmaceuticals at Schering-Plough, and executive vice president of Pharmacia Corporation and vice president of Women’s Health Care at Wyeth-Ayerst Laboratories.