Merck & Co to create a separate cancer unit as patent cliff looms

Merck & Co is splitting its main pharmaceutical unit in two in an effort to better highlight the parts of the business that are growing, as it stares down a patent cliff for its best-selling cancer drug Keytruda.

Keytruda’s been driving Merck’s growth for nearly a decade, accounting for almost half of the company’s total sales last year. But new US federal drug pricing policies will bring lower-priced competitors into the market within the next few years. The drug giant has been working hard to diversify its pipeline and has some promising new treatments, including a more effective pneumonia vaccine Capvaxive and a novel lung disease treatment Winrevair.

To help the performance of its new products stand out, Merck will create a division that includes medicines for infectious diseases and other non-cancer drugs like diabetes treatment Januvia, the company said Monday. That division will sit alongside a unit for cancer drugs that will house Keytruda, at one point one of the best-selling medications in the world.

Merck shares were up about 1% at 11:08 am in New York. The stock has risen more than 16% this year. Analysts said the decision to split the businesses is positive and makes sense strategically during a critical period for Merck.

It makes the growth story “a little easier to analyse,” said Jared Holz, a health-care specialist at Mizuho. Holz said other pharmaceutical companies, including Pfizer Inc and Johnson & Johnson, have made similar strategic decisions. What investors really want to see from Merck, however, is more M&A, Holz said. “That’s what continues to reduce the exposure they have to Keytruda,” he said.

Keytruda’s patents are expected to begin expiring in 2028, exposing it to lower-cost competition.

However, the company could extend the exclusivity period by a few years – potentially until 2033 – thanks to additional patents on the drug’s formulation, Bloomberg Intelligence said in a recent note.In September, Merck snagged US regulatory approval of a formulation that’s faster and easier to administer. The medicine, called Keytruda Qlex, is given in minutes as a shot under the skin. It’s a key component of the drugmaker’s strategy to continue reaping Keytruda’s fortunes.

Merck is also counting on the non-cancer unit – called the specialty, pharma and infectious diseases business – to help offset the expected Keytruda sales decline.

The company is looking to further bolster its pipeline with deals. Chief Executive Officer Robert Davis told investors in January that he sees an opportunity for acquisitions worth tens of billions of dollars.

Late last year, the company acquired Cidara Therapeutics Inc., a biotech company developing a new type of flu treatment.

The drugmaker also said it’s currently conducting about 80 late-stage trials.

Jannie Oosthuizen, a company insider, will run the new cancer business. Brian Foard, most recently of Sanofi SA, will lead the other medicines unit. Both will report to Davis.

The Wall Street Journal reported on the moves earlier Monday.