NewCo to be a Leading Women’s Health
Company; Represents Total Revenue of Approximately $6.5 Billion for
Merck in 2020
- Separation to enhance focus of both Merck and NewCo to better
meet the needs of their patients and customers and achieve faster
growth and greater value for all stakeholders
- Merck to benefit from strong growth across its current pillars
of Oncology, Vaccines, Hospital and Animal Health, while aspiring
to be the premier research-intensive biopharmaceutical company
- Transaction enables Merck to achieve in excess of $1.5 billion
in operating efficiencies by 2024; targeting Non-GAAP operating
margin greater than 40%
- NewCo will pursue global leadership and sustainable growth in
Women’s Health; will realize full potential of its trusted Legacy
Brands and rapidly expanding Biosimilars products
- Merck to retain its dividend of $2.44 per share post separation
and anticipates future increases with the goal of achieving a 47%
to 50% payout ratio over time; NewCo expected to pay an incremental
dividend
- Transaction intended to be completed in the first half of
2021
Merck (NYSE: MRK), known as MSD outside the United States and
Canada, today announced its intention to spin-off products from its
Women’s Health, trusted Legacy Brands, and Biosimilars businesses
into a new, yet-to-be-named, independent, publicly traded company.
The spinoff will allow both management teams to drive increased
responsiveness to the particular needs of their patients and
customers and achieve faster growth through focused and
fit-for-purpose operating models.
Merck will continue to benefit from strong growth across its
current key pillars of Oncology, Vaccines, Hospital and Animal
Health, while remaining fully committed to investing in research
and development in pursuit of breakthrough innovations across all
areas of science and to driving value from its deep late-stage
pipeline. As a premier research-intensive biopharmaceutical
company, Merck will continue its pursuit to advance the prevention
and treatment of diseases that threaten people and communities
around the world.
“Over the past several years, we have purposefully shifted the
focus of our efforts and resources to our best opportunities for
growth,” said Kenneth C. Frazier, chairman and chief executive
officer, Merck. “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. 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.”
SPINOFF CREATES TWO INDEPENDENT GROWTH COMPANIES
Compelling Strategic Rationale for Spinoff
Merck believes the spinoff will deliver significant benefits for
both Merck and NewCo and create value for Merck shareholders. The
transaction is expected to create two companies with:
- Enhanced strategic and operational focus on key drivers to
accelerate growth,
- Improved agility to anticipate and respond to customer needs
and rapidly evolving market dynamics,
- Simplified operating models with reduced complexity and
improved efficiencies,
- Optimized capital structures and resource allocation to pursue
their distinct strategic agendas for long-term success and deliver
greater returns to shareholders, and
- Improved financial profiles making for unique and compelling
investment cases.
Merck to Retain its Portfolio of Key Growth Drivers in
Oncology, Vaccines, Hospital and Animal Health
Merck will retain its current growth pillars of Oncology,
Vaccines, Hospital and Animal Health and continue to invest in
research and development of breakthrough innovations across all
areas of science. Led by highly innovative products, including
KEYTRUDA (pembrolizumab), Lynparza (olaparib), Lenvima (lenvatinib
mesylate), GARDASIL (Human Papillomavirus Vaccine, Recombinant),
BRIDION (sugammadex), ZERBAXA (ceftolozane and tazobactam), and
BRAVECTO (fluralaner), as well as its leading diabetes business and
other key products, Merck will continue to benefit from broad
commercial scale and remains committed to ensuring continued access
to its innovative medicines across the globe.
The spinoff of NewCo will reduce Merck’s Human Health
manufacturing footprint by approximately 25% and the number of
Human Health products it manufactures and markets by approximately
50%. This will allow for a more focused operating model in support
of its growth products. As a result, Merck expects to optimize its
resources, grow faster and achieve meaningful operating margin
expansion over time through increased productivity and
efficiency.
NewCo to be Comprised of Products from Merck’s Women’s
Health, Trusted and Medically Important Legacy Brands and
Biosimilars Businesses
NewCo will pursue global leadership and focused, sustainable
growth in Women’s Health led by the growing and patent-protected
NEXPLANON (etonogestrel implant) franchise and fueled by its
leading contraceptive and fertility businesses. NewCo expects to
establish a leading position in Biosimilars along with its partner,
Samsung Bioepis Co., Ltd., focusing on its current portfolio
including RENFLEXIS (infliximab-abda) and BRENZYS (etanercept) in
immunology and ONTRUZANT (trastuzumab-dttb) in oncology, and is
well-positioned to be a partner in the commercialization of
biosimilars worldwide. NewCo will have a large portfolio of highly
profitable and trusted brands consisting of dermatology, pain,
respiratory, select cardiovascular products including ZETIA
(ezetimibe) and VYTORIN (ezetimibe/simvastatin), as well as the
rest of Merck’s Diversified Brands, with strong cash flows that
will support investments in future growth opportunities. In
addition, NewCo will pursue opportunities to partner with
biopharmaceutical innovators looking to commercialize their
products by leveraging NewCo’s scale and presence in fast growing
international markets.
NewCo will have a global footprint with approximately 75% of
sales generated from ex-U.S. markets, significant scale and
geographic reach, world-class commercial capabilities, and
approximately 10,000 to 11,000 employees. NewCo is expected to be
headquartered in New Jersey.
FINANCIAL OUTLOOK
Merck Targeting 40%+ Operating Margins by 2024; Believes
Revenue Potential is Underappreciated; Retaining Current
Dividend
Merck expects strong revenue growth each year through 2024,
which will accelerate as a result of the spinoff.
Merck continues to expect meaningful operating margin expansion
over time. The spinoff of NewCo should enable Merck to achieve
incremental operating efficiencies in excess of $1.5 billion by
2024, while continuing to increase investment in key growth drivers
and pipeline assets. Merck is therefore targeting Non-GAAP
operating margins greater than 40% in 2024, higher than what Merck
expected to achieve pre-spinoff.
Merck expects to receive $8 billion to $9 billion through a
special tax-free dividend from NewCo. Merck expects that these
funds will be allocated to business development or share
repurchases and will provide more details about the planned usage
of these funds closer to the spinoff date.
Merck will retain its current 2020 dividend of $2.44 per share
and anticipates future increases with the goal of achieving a 47%
to 50% payout ratio over time.
Combined Value Creation
Shareholders holding both Merck and NewCo post spinoff are
expected to benefit from increased combined non-GAAP (generally
accepted accounting principles) earnings per share assuming
dilution (EPS) over time, as well as higher combined dividends. The
combined non-GAAP EPS of the two companies is expected to be
nominally lower initially than what Merck would have achieved
pre-spinoff, reflecting costs necessary to operate NewCo as an
independent company. However, as a result of the incremental growth
that NewCo is expected to achieve, combined with the benefit of
ongoing operating efficiencies at Merck enabled by the spinoff, the
company expects Merck and NewCo to realize higher combined non-GAAP
EPS within 12 to 24 months post-spinoff.
NewCo Expects to Achieve Strong Profitability and
Low-Single-Digit Revenue Growth from 2021 Base; Expects to Pay
Incremental Dividend
The products to be spun off into NewCo are expected to generate
2020 revenue of approximately $6.5 billion within Merck, with a
non-GAAP operating margin of approximately 45%. As an independent
company from a 2021 base-year of approximately $6.0 billion to $6.5
billion in revenue, NewCo is expected to achieve low-single-digit
revenue growth. Inclusive of costs necessary in standing up NewCo
as an independent company, non-GAAP operating margins are expected
to be in the mid-30% range in the first year post separation and
increase over time. NewCo’s earnings before interest, taxes,
depreciation, and amortization (EBITDA) margins are expected to be
in the low-to-mid 40% range in the first year post separation and
increase over time.
NewCo is expected to have $8.5 billion to $9.5 billion in
initial debt, with substantial cash flow that will provide ample
financial flexibility for potential business development, debt
paydown and a meaningful dividend. This expected dividend will be
entirely incremental to Merck’s dividend.
LEADERSHIP AND GOVERNANCE
NewCo to be Led by Experienced Pharmaceutical
Executives
Kevin Ali, who brings three decades of pharmaceutical commercial
experience from within Merck, will be named chief executive officer
of NewCo. Ali has led Merck’s enterprise portfolio strategy
initiative, reporting to Frazier, for the past year. Prior to this,
Ali served in many leadership roles within Merck, including
president, MSD International; president, Emerging Markets; senior
vice president in charge of the Bone, Respiratory, Immunology and
Dermatology franchise; managing director of Germany and managing
director of Turkey.
“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
healthcare needs of women,” Ali said. “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.”
Carrie Cox will be named NewCo’s Chairman of the Board of
Directors. Cox has extensive experience in the pharmaceutical
industry and deep expertise in women’s health, formerly serving as
chairman of Array BioPharma Inc., CEO and chairman of Humacyte
Inc., president of Global Pharmaceuticals at Schering-Plough
Corporation (acquired by Merck in 2009), executive vice president
of Pharmacia Corporation and vice president of Women’s Health Care
at Wyeth-Ayerst Laboratories, Inc.
“I am delighted to be joining the leadership of NewCo and
excited by the growth opportunities in its portfolio,” Cox said.
“The time has come for a company dedicated to serving the
healthcare needs of women, in addition to a broad portfolio that
continues to be important for the public health needs of patients
around the world.”
More information about NewCo Board, governance structure and
management team will be provided in the future.
Transaction Intended to be Completed in the First Half of
2021
The transaction is intended to take the form of a tax-free
distribution to Merck shareholders of a new publicly traded stock
in NewCo. The spinoff is expected to be completed in the first half
of 2021, subject to market and certain other conditions.
Conference Call
Merck will discuss this transaction on its previously scheduled
earnings conference call today, Feb. 5, at 8:00 a.m. EST, which
investors, journalists and the general public may access via a live
audio webcast on Merck’s website at
https://investors.merck.com/events-and-presentations/default.aspx..
Institutional investors and analysts can participate in the call by
dialing (706) 758-9927 or (877) 381-5782 and using ID code number
8583879. Members of the media are invited to listen to the call by
dialing (706) 758-9928 or (800) 399-7917 and using ID code number
8583879. Journalists who wish to ask questions are requested to
contact a member of Merck’s Media Relations team at the conclusion
of the call.
For further information, please visit
https://merck.unleashinggrowthpotential.com.
About Merck
For more than 125 years, Merck, known as MSD outside of the
United States and Canada, has been inventing for life, bringing
forward medicines and vaccines for many of the world’s most
challenging diseases in pursuit of our mission to save and improve
lives. We demonstrate our commitment to patients and population
health by increasing access to health care through far-reaching
policies, programs and partnerships. Today, Merck continues to be
at the forefront of research to prevent and treat diseases that
threaten people and animals – including cancer, infectious diseases
such as HIV and Ebola, and emerging animal diseases – as we aspire
to be the premier research-intensive biopharmaceutical company in
the world. For more information, visit www.merck.com and connect
with us on Twitter, Facebook, Instagram, YouTube and LinkedIn.
Forward-Looking Statement of Merck & Co., Inc.,
Kenilworth, N.J., USA
This news release of Merck & Co., Inc., Kenilworth, N.J.,
USA (the “company”) includes “forward-looking statements” within
the meaning of the safe harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. Examples of
forward-looking statements include statements with respect to the
company’s plans to spin-off certain of its businesses into an
independent company, the timing and structure of such spin-off, the
characteristics of the business to be separated, the expected
benefits of the spin-off to the company and the expected effect on
the company’s dividends. These statements are based upon the
current beliefs and expectations of the company’s management and
are subject to significant risks and uncertainties. There can be no
guarantees with respect to whether the proposed spin-off will be
completed on the proposed timetable or at all. If underlying
assumptions prove inaccurate or risks or uncertainties materialize,
actual results may differ materially from those set forth in the
forward-looking statements.
Risks and uncertainties include but are not limited to,
uncertainties as to the timing of the proposed spin-off;
uncertainties as to the status of any required regulatory
approvals; the possibility that various conditions to the
consummation of the spin-off may not be satisfied; the effects of
disruption from the transactions contemplated in connection with
the spin-off; general industry conditions and competition; general
economic factors, including interest rate and currency exchange
rate fluctuations; the impact of pharmaceutical industry regulation
and health care legislation in the United States and
internationally; global trends toward health care cost containment;
technological advances, new products and patents attained by
competitors; challenges inherent in new product development,
including obtaining regulatory approval; the company’s ability to
accurately predict future market conditions; manufacturing
difficulties or delays; financial instability of international
economies and sovereign risk; dependence on the effectiveness of
the company’s patents and other protections for innovative
products; and the exposure to litigation, including patent
litigation, and/or regulatory actions.
The company undertakes no obligation to publicly update any
forward-looking statement, whether as a result of new information,
future events or otherwise. Additional factors that could cause
results to differ materially from those described in the
forward-looking statements can be found in the company’s 2018
Annual Report on Form 10-K and the company’s other filings with the
Securities and Exchange Commission (SEC) available at the SEC’s
Internet site (www.sec.gov).
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