Germany's Merck KGaA has plenty of resources to devote to big M&A deals, as it showed last week when it bought British specialty chemicals maker AZ Electronic Materials for $2.6 billion. But company executives told shareholders at its annual meeting on Friday that future growth may be less about giant acquisitions than it is about making strategic deals and internal changes to boost its pipeline.
Toward that end, the company is searching for pharma licensing deals and planning to invest €100 million ($138 million) in biosimilars, according to a company statement. These investments "are just as feasible as acquisitions," executive board chairman Karl-Ludwig Kley said in a statement.
The investments will be vital for holding revenues and earnings steady this year, Kley said. In 2013, the company boosted sales 4% to €10.7 billion ($14.8 billion) and earnings before taxes and one-time items 9.7% to a record €3.3 billion ($4.6 billion). But declining royalty, license and commission income will depress earnings by about €100 million, not including the costs emanating from the AZ acquisition, the company says. Merck KGaA plans to make more detailed forecasts when it releases earnings on May 15.
Kley told attendees of the annual meeting that the company's investments would be aimed at fueling both organic and inorganic growth. "We are able to take ambitious steps. We can afford investments and acquisitions," he said in a speech, according to Reuters. "We will use this leeway over the next few years."
The company clearly recognizes the need for a successful R&D makeover. It hasn't had a new potential blockbuster in more than a decade. Its once high-profile MS therapy collapsed, and its much anticipated cancer vaccine Stimuvax failed Phase III trials in 2012. (It's now back in a new Phase III.) That year, Merck KGaA closed its big R&D center in Switzerland, after which it embarked on a reorganization that included layoffs and a management shakeup.
Merck KGaA has already undertaken some early-research partnerships to bolster its pipeline. On April 1, it teamed up with Pfizer ($PFE) and the Broad Institute to sequence the genes of patients with the autoimmune disease lupus. The companies hope the collaboration will point them toward potential new blockbusters to treat a disease that affects 5 million people worldwide.