Merck is dividing itself in two, spinning off a variety of products into a $6.5 billion business — which is yet to be named — while focusing on its own key pharmaceutical products, the Kenilworth-based drugmaker announced Wednesday.
The publicly traded company, which Merck called “NewCo” in a news release, would include Merck’s Women’s Health, Legacy Brands and Biosimilars businesses. It would have a global footprint, with roughly 75% of its sales generated outside the U.S., and would include 10,000 to 11,000 employees, Merck said in its release. The company is expected to be headquartered, like Merck, in New Jersey.
Merck, meanwhile, would focus on its products from the Oncology, Vaccines, Hospital and Animal Health units and remain a global, research-focused biopharmaceutical company. The spinoff would reduce the Human Health manufacturing footprint by about 25% and its Human Health products by about 50%.
“Over the past several years, we have purposely shifted the focus of our efforts and resources to our best opportunities for growth,” Chairman and CEO Kenneth Frazier said in a prepared statement. “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 medically important products, reach their full potential.
“We have therefore made the decision to separate into two growth companies: Merck and NewCo.”
Kevin Ali, the leader of Merck’s enterprise portfolio strategy initiative, will be CEO of the new company, Merck said. Carrie Cox will be chairman of the board.
“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 health care needs of women,” Ali said in a statement. “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.”
Merck said the spinoff could result in as much as $1.5 billion in operating efficiencies by 2024, while increasing operating margins to a potential 40% by the same year. The company would receive $8 billion to $9 billion in a tax-free dividend from the new company, with plans to allocate the funds to business development or share repurchases.
“By optimizing our human health portfolio, 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,” Frazier said.
Merck said it anticipates NewCo to generate 2020 revenue of $6.5 billion within Merck, and $6 billion to $6.5 billion in 2021 as an independent company, with low single-digit revenue growth.
The transaction is expected to be completed in the first half of 2021, subject to various conditions.