What’s Going On Here?Pharma giant Merck announced on Wednesday that it’s 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 analysts’ expectations. But with sales of its biggest drug coming in well below expectations – $170 million lower, to be precise – its stock still fell.
Merck’s investors, then, may be relieved to hear it’s now planning to fashion a whole new company from its legacy products, women’s health, and “biosimilar” 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 – 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. Merck’s also not the only pharma firm splitting itself in two: the UK’s GlaxoSmithKline – which reported disappointing earnings on Wednesday – has laid out its own plan to split off its consumer healthcare business, while France’s 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 – acquired as part of a $12 billion buy-out of Kite Pharma – brought in $10 million less than investors expected last year. It’ll be hoping its new coronavirus treatment, currently in trials, will perform better… | 
