Merck & Co spin off could start a trend in big pharma

Merck & Co’s strategy to spin off its older drugs and biosimilars into a new stand-alone business will be closely watched by other pharma companies considering the same move, analysts have said.

The big pharma raised eyebrows yesterday after it decided to spin off several assets into “NewCo”, a standalone business with a separate stock market listing.

Products in NewCo will be Merck’s biosimilar medicines partnered with Samsung Bioepis, its contraceptive franchise implant Nexplanon (etonogestrel) and women’s health products, and off patent cholesterol drugs Zetia (ezetimibe) and Vytorin (ezetimibe/simvastatin).

This will leave Merck & Co to focus on faster-growing areas of the business, mainly based around cancer immunotherapy Keytruda, plus vaccines, hospital products and animal health.

Tiffany Chan, analyst in immunology at GlobalData, told pharmaphorum in an email: “In the women’s health division the company’s portfolio has largely remained unchanged, with many drugs having lost patent exclusivity or market share to competitors.

“In regards to biosimilars, most of big pharma have entered this space with good reason. However Merck may also anticipate a high level of competition and slow overall growth, especially in comparison to a coveted blockbuster drug.”

Analysts from GlobalData pointed out that Merck & Co is not alone in deciding to divest its products – on the same day GlaxoSmithKline gave a timeline for the spin out of its consumer health products business.

Nevertheless the decisive move taken this week by Merck & Co is symbolic of a wider trend in the industry and could by a catalyst for similar activity, said Michael Breen, associate director of infectious diseases at GlobalData.

He said: “Whether or not Merck’s calculus portends any changes in the industry as a whole will hinge heavily on NewCo’s success, which will certainly be closely watched by industry players and investors alike.”

Kelly Lambrinos, senior analyst in cardiovascular and metabolic disorders and female health noted that NewCo has a “strong advantage” from its origins in Merck and its extensive experience in multiple therapy areas including women’s health.

This “can present an attractive opportunity for investors, allowing it to maintain a strong presence in the field,” said Lambrinos.

NewCo will be competing against the likes of Ferring, Allergan, Bayer and Teva in women’s health, and its biosimilars arm will be aided by the strong partnership with Samsung Bioepis, GlobalData’s team of analysts said.