April 27, 2012 5:39 pm

Merck dismisses idea of divestitures

Kenneth Frazier, chief executive of the US drugmaker Merck, signalled on Friday that he does not plan to follow Pfizer’s path and split up the company.

Discussions over divestitures have been brewing in the pharmaceutical sector after Pfizer announced last year that it would look to sell or spin-off its infant nutrition and animal health businesses in an effort to focus on making medicines. Last week Pfizer sold the nutrition business to Nestlé for $11.8bn.

“We are pleased with the assets that we have in the company business portfolio, and we believe that both animal health and consumer care complement our human health business and contribute to the top and bottom line growth,” Mr Frazier said on a conference call with analysts.

“What we’re trying to do around here is focus on creating long-term shareholder value, and we believe that both animal health and consumer care can help contribute to that,” he added.

Analysts have questioned if Merck should divest the businesses because they would likely trade at higher multiples than where the company currently trades.

Sales from Merck’s animal health and consumer care division grew by 7 per cent and 8 per cent, respectively, during the first quarter compared with the same period a year ago. Pharmaceutical sales rose 3 per cent year-on-year.

Timothy Anderson, pharmaceutical analyst at Bernstein Research, said that Merck had a good quarter overall, but lamented that since 2007 “the company’s pipeline has not delivered much and in fact there have been some noticeable setbacks”.

Mr Frazier said that Merck’s R&D pipeline is “undervalued and under-appreciated” and that the company is committed to “unlocking the value” of its drug research. He added that the company is not relying on its own internal R&D, but that it will look to add to its portfolio to advance certain types of therapies such as diabetes drugs.

Merck’s net income rose 65 per cent year-on-year to $1.76bn, or 56 cents a share during the first three months of the year as deep cost cutting made up for tepid sales. Revenues rose just 1 per cent to $11.7bn.

Shares of Merck slipped 0.21 per cent to $38.89 in midday trading.

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