Merck Puts Focus On Lower Debt, Sees Smaller Takeovers After 2022

Merck & Co is making organic growth and debt reduction a priority over the next 2 years and thereafter it is more likely to target smaller to medium-sized acquisitions, its CEO Stefan Oschmann said.

Speaking at the company’s virtual Capital Markets Day, Oschmann said that he expects Merck (MRK) to continue to deliver profitable growth and high margins, while maintaining a low risk profile in the coming years despite a challenging market environment. Following the Versum acquisition last year, Merck will be focusing on organic growth while rapidly lowering its debt until 2022, Oschmann added.

“Our Healthcare pipeline, our Process Solutions business with products and services for drug manufacturing and our Semiconductor Solutions business will be the main growth drivers of Merck in the coming years,” Oschmann said. “We don’t rule out large transformative deals as of 2022, yet in view of our strong business portfolio, at present the likelihood is higher that we will complement our businesses through a number of smaller to medium-sized acquisitions after 2022.”

Furthermore, Merck backed its 2020 financial outlook confirming that it expects slight to moderate organic growth of net sales and EBITDA pre this year. The company’s sales for the full year are estimated in the range of € 16.9 billion and € 17.7 billion ($20.02 billion-$20.97 billion) and EBITDA pre in a range of € 4.45 billion to € 4.85 billion.

For the healthcare business sector, Merck restated its target to achieve around €2 billion in sales from its pipeline by 2022. Moreover, the pharmaceuticals and chemicals company expect sales performance in its core business to remain at least stable through to 2022. For its life-science business, Merck forecasts 6% to 9% average annual organic sales growth in the medium-term.

The comments come just days after Merck announced that it will invest $1 billion into Seattle Genetics (SGEN) as part of an oncology collaboration related to the cancer drug ladiratuzumab vedotin. Seattle Genetics and Merck will co-develop and sell Seattle Genetics’ antibody-drug ladiratuzumab vedotin, which is currently in Phase 2 clinical trials for breast cancer and other solid tumors.

Merck shares are currently trading down 7.4% year-to-date, while analysts have a Strong Buy consensus on the stock. That breaks down into 7 Buy ratings versus 2 Hold ratings. Meanwhile, the average analyst price target of $93.63 implies 14% upside potential in the coming year.

In a bullish note, Morgan Stanley analyst David Risinger last month reiterated a Buy rating on the stock with a $89 price target, saying that the company is not appreciated enough as the market is focusing more on its patent expirations, while overlooking its pipeline of new drugs.

“Merck speaks softly and carries a big stick,” Risinger wrote in a note to investors. “It’s not promotional, but it has extraordinary science and compelling assets.”

“I expect Merck to have positive Covid-related news in the coming months, and that may drive the stock higher,” the analyst added.