Whatās Going On Here?Pharma giant Merck announced on Wednesday that itās spinning off a few of its businesses into a new, smaller company. Warning: side effects may include streamlined costs, higher revenues, swelling, paranoia, and/or abnormal sensations. What Does This Mean?Merck had a busy Wednesday: the pharma giant announced fourth-quarter earnings, reporting a profit that ever so slightly beat analystsā expectations. But with sales of its biggest drug coming in well below expectations ā $170 million lower, to be precise ā its stock still fell.
Merckās investors, then, may be relieved to hear itās now planning to fashion a whole new company from its legacy products, womenās health, and ābiosimilarā drugs divisions. The new firm should make around $6.5 billion in yearly revenue, and could save the company $1.5 billion in costs by 2024. Why Should I Care?For markets: Split personalities.
Merck will hold onto its oncology, vaccine, and hospital/animal health businesses ā all of which have a lot more potential for growth. That means investors will soon have a decision to make: they can either invest in low-growth but reliable existing drugs, or in the high-growth but risky research and development business. And since the value of a conglomerate is often less than the sum of its parts, they might be glad of the choice. Merckās also not the only pharma firm splitting itself in two: the UKās GlaxoSmithKline ā which reported disappointing earnings on Wednesday ā has laid out its own plan to split off its consumer healthcare business, while Franceās Sanofi might do the same.
The bigger picture: Risky business.
All these new research-focused businesses come fraught with risk, as drugmaker Gilead proved on Tuesday. Its cancer therapy drug Yescarta ā acquired as part of a $12 billion buy-out of Kite Pharma ā brought in $10 million less than investors expected last year. Itāll be hoping its new coronavirus treatment, currently in trials, will perform betterā¦ | 