Merck KGaA put its consumer-health unit on the block Tuesday in a move that will focus its health-care activities on the riskier business of developing prescription medicines.
Darmstadt, Germany-based Merck is considering options for its consumer-health operations, including a full or partial sale, or strategic partnership, the company said. A final decision hasn’t been made.
The move is a bet on Merck’s growing pipeline of prescription drugs for diseases like cancer and multiple sclerosis. Merck has struggled to launch lucrative new drugs in recent years, though it has confidence in its current development pipeline, forecasting new drugs could generate more than EUR2 billion ($2.38 billion) in yearly revenue by 2022.
Merck shares were trading up 2.9% at 94.70 euro Tuesday afternoon.
“We have continued to transform Merck…over the last years into a leading science and technology company,” Chief Executive Stefan Oschmann said in a statement.
Merck’s consumer-health unit manufactures over-the-counter drugs and generated sales of EUR860 million in 2016 from a portfolio of 10 core brands that serve more than 40 markets. Citi analyst Peter Verdult estimated it could fetch a price of EUR1.8 billion to EUR2.7 billion from a full sale.
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Drug makers face pressure to scale up consumer-health businesses amid a wave of consolidation in the segment. In 2015, GlaxoSmithKline PLC and Novartis AG pooled their consumer-health businesses into a Glaxo-controlled joint venture. France’s Sanofi SA swallowed Boehringer Ingelheim GmbH’s consumer-health unit last year.
Belén Garijo, who heads Merck’s health care business, said in the statement that the company lacked the financial firepower to build its growing consumer health unit to the “required scale.”
For companies like Glaxo and Sanofi, reliable revenues from big consumer-health businesses help smooth out the more unpredictable sales of prescription drugs, which succeed or fail on the outcomes of costly and risky clinical trials and whose sales drop sharply after patent expiration.
A sale of the consumer-health unit would focus Merck’s health-care arm purely on prescription medicines. Earlier this year, Merck sold its biosimilars business–which developed generic versions of biologically made drugs–to Fresenius SE in a deal worth up to EUR670 million.
Merck’s other operations–which sell laboratory supplies and high-tech materials for items like smartphone screens–could cushion the German company from the ups and downs of developing new drugs. Merck has bulked up both of these businesses through acquisitions in recent years.
“We view this as a sensible capital-allocation decision, reflecting both increasing confidence in the pharma pipeline and prioritization of investment elsewhere across group,” said Citi’s Mr. Verdult in a note to clients.
Merck said proceeds from any transaction would be used to help meet its financial targets.
The company isn’t affiliated with U.S.-based Merck & Co.
Write to Denise Roland at Denise.Roland@wsj.com
(END) Dow Jones Newswires
September 05, 2017 09:15 ET (13:15 GMT)