Merck KGaA CEO Says Pharmaceutical Unit Integral to Strategy

Jan 22, 2014 6:50 am ET

(Updates stock price in seventh paragraph. Click DAVOS <GO> for more on the World Economic Forum.)

Jan. 22 (Bloomberg) -- Merck KGaA is committed to its pharmaceutical business after failing to deliver new medicines as expected, Chief Executive Officer Karl-Ludwig Kley said.

New products to treat cancer should yield concrete results in the next 12 to 18 months, and the early-stage pipeline of medicines in development could pay off in three years or more, he said in an interview yesterday at the World Economic Forum in Davos, Switzerland.

“The pharma business is an integral part of our strategy going forward,” said Kley, 62, who has been CEO of the family- controlled company since 2007. “We are working hard to get the early stages up to the pipeline, but the payback on these investments will not be in the next two years.”

Merck’s 2007 acquisition of Swiss biotechnology company Serono for 16.6 billion Swiss francs ($18.2 billion) hasn’t paid off. Merck’s last blockbuster drug approval, of the cancer medicine Erbitux, came in 2003. Still, Darmstadt, Germany-based Merck’s stock is trading at a record because the company cut costs and expanded outside of health care.

Sales of Erbitux, multiple sclerosis treatment Rebif and fertility drug Gonal-f remain stable even in the face of competition, Kley said.

“We have in place a very sound agenda to defend or even slightly increase our biotech franchise, which is still 60 percent of our business,” Kley said. “Putting these aspects together I do see a solid year for the pharmaceutical business going forward.” Emerging markets will play “an important role” in how the company performs in 2014, he said.

Record High

Merck rose 0.8 percent to 134.10 euros at 12:45 p.m. in Frankfurt. The stock yesterday closed at the highest since the shares started trading in 1995, giving the company a market value of 28.9 billion euros ($39.2 billion). Merck has returned an average of 17 percent a year in the past five years, matching the return for the Bloomberg Europe Pharmaceutical Index.

Merck has been expanding outside of drugs after acquiring biotechnology-equipment supplier Millipore in 2010 for about $6 billion. The company agreed last month to buy AZ Electronic Materials SA, a specialty chemicals supplier to the electronics industry, for 1.6 billion pounds ($2.6 billion). Merck also overhauled the management of its health-care business.

Merck still has about 8 billion euros ($10.8 billion) left to make acquisitions, Barclays analysts wrote in a note Dec. 5. The company reports fourth-quarter results on March 6.

--Editors: Phil Serafino, Andrew Pollack