Glaxo, Merck to spin off some businesses to focus on high-profit cancer drugs and vaccines

Shares of Merck and Glaxo, two of the world’s largest drugmakers, were each off about 3 to 4 percent in trading Wednesday after the companies used their year-end earnings reports to announce plans to split some of their slower-growing businesses, so they can concentrate on more-profitable products such as cancer drugs and vaccines.

Merck ended the day at $85.83, down 2.9 percent, and Glaxo closed at $45.07, down 4.4 percent.

Merck plans to spin off its women’s health, “trusted legacy brands,” and biosimilar products group into a new company, chief executive Kenneth C. Frazier told investors. The new company will employ as many as 11,000, mostly from current staff at Merck and MSD (the company’s name overseas), spokeswoman Pamela Eisele said.

The company hasn’t identified all the products and facilities that would be spun off. Sales of the two lead products in the company’s Women’s Health unit varied in 2019: Merck’s NuvaRing birth control inserts declined, while Nexplanon birth control implants rose.

Kenilworth, N.J.-based Merck, which employs more than 12,000 at its Pennsylvania labs, manufacturing centers and offices including its complex in West Point, Montgomery County, posted 2019 sales of $46.8 billion, up 11 percent from the year before (adjusted for foreign exchange).

Cancer drug Keytruda accounted for all the company’s growth and nearly one-fourth of Merck’s total sales — $11.1 billion, up 55 percent from the year before. Merck says the manufactured antibody has recently been approved to fight additional cancers, including certain bladder cancers in the United States, kidney cancers in Japan, lung cancers in China, and head and neck cancers in Europe.

Total Merck profits for the year rose to $9.8 billion, from $6.2 billion a year earlier, and would have been more without charges for the acquisition of Texas-based cancer drug developer Peloton Therapeutics and a write-down in the value of skin infection drug Sivextro.

U.K.-based GlaxoSmithKline, which employs more than 5,000 in the Philadelphia area at its Collegeville research and development labs, King of Prussia factory, and South Philadelphia marketing and sales base, is setting up a two-year plan for spinning off its Consumer Healthcare unit, chief executive Emma Walmsley said in a statement.

Glaxo reported earnings of $9 billion on sales of $44 billion last year. Those profits were up 23 percent over the previous year (12 percent on a per-share basis), with sales up 8 percent (after adjusting for currency changes).

Consumer Healthcare, which accounts for about 30 percent of GSK’s sales, grew 2 percent last year after discounting the impact of acquisitions and divestitures — faster than GSK’s larger Pharmaceuticals division, but not as fast as its Vaccines unit, which has been boosted by rising sales of GSK’s shingles and meningitis vaccines.

“It’s going to have significant scale as the world’s leading consumer health-care company,” Walmsley told investors during Wednesday’s quarterly earnings conference call. She said the as-yet unnamed spin-off will have “leading positions in respiratory, in pain relief, in vitamins and minerals, and a top one or two positions in 10 of the top 15 markets in the world.” The spin-off will include consumer businesses from Pfizer as well as Glaxo.

Under pressure from investors to boost profits, drug companies have followed chemical companies such as Wilmington-based DuPont Co. in selling, spinning off, or taking public slow-growing product lines and low-profit commodities. Results aren’t always encouraging — at least for the castoffs: Over the last year, the S&P U.S. IPO and Spin-Off Index has returned about half the stock performance of the S&P 500.