Merck to spin old drugs into ‘NewCo’ focused on generics, women’s health

Merck & Co has followed the lead of other big pharma groups like Pfizer and GlaxoSmithKline by hiving off its mature and off-patent drugs into a new company.

The decision will take some 90 products worth around $6.5 billion in 2020 out of Merck’s top line, or around 15% of its total sales.

It will leave the main company as a leaner outfit focused more closely on faster-growing medicines in its main areas of oncology – spearheaded by flagship cancer immunotherapy Keytruda (pembrolizumab) – along with vaccines, hospital products and animal health.

The move does however leave Merck even more reliant on Keytruda, something that worried shareholders even before the latest move, which will eat into available cash flow as it tries to bring pipeline projects forward.

Among the products due to be spun out into the new company – dubbed NewCo for now – are Merck’s biosimilar medicines partnered with Samsung Bioepis, its contraceptive franchise including implant Nexplanon (etonogestrel), and off-patent cholesterol drugs Zetia (ezetimibe) and Vytorin (ezetimibe/simvastatin).

The new firm will have around 10,000 employees and will be led by Kevin Ali, a long-serving Merck executive who has been leading Merck's enterprise portfolio strategy initiative – reporting directly to Frazier – for the past year.

 Other senior appointments include Carrie Cox, named NewCo’s chairman, who formerly held the same position at Array Biopharma.  

Merck’s chief executive, Kenneth Frazier, said the move will create two companies that will benefit from “greater focus,” more agility and improved growth.

The company is also expecting to trim around $1.5 billion from its annual operating costs by 2024, which will boost its margins, and will reduce its manufacturing footprint by around a quarter.

Taking older, slower-growing drugs off the books has become a popular strategy in pharma. Pfizer is combining its Upjohn generic drug business with Mylan, for example, whilst also playing down its position in consumer health via a joint venture with GlaxoSmithKline.

Other companies like AstraZeneca have taken the approach of systematically selling off brands to other companies, a different approach that has much the same effect.