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Is Merck KGaA on Track with its "Fit for 2018" Program?

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Merck KGaA (MKGAF) provided an update on its “Fit for 2018” transformation and growth program. The company said that its biopharmaceutical division, Merck Serono, remains on track for the program. The company discussed its plans regarding the candidates in its immunology, oncology and immuno-oncology pipeline including atacicept, TH-302 and anti-PD-L1.

Additionally, the company briefed its strategy for maintaining sales and improving profitability of Erbitux, Rebif and fertility products while focusing on emerging markets.

We remind investors that Merck KGaA had initiated the two-step “Fit for 2018” transformation and growth program in 2011. While the company maintained focus on organizational and personnel changes in the first phase of the program (completed in 2013), it embarked on the second phase with a renewed emphasis on growth in 2014.

Merck KGaA has investment plans worth €100 million for the development of biosimilars in 2014. In 2015, the company intends to step up investment in this field in the range of €130 million – €150 million based on results from ongoing phase I studies.

Meanwhile, Merck KGaA is seeking a partner for the development of its immuno-oncology candidate, anti-PD-L1. It expects to strike a deal with one of the major oncology players, by year-end. Additionally, the company is pursuing an in-licensing agreement for a late-stage biosimilar.

Merck KGaA also plans to initiate two to five phase III studies between 2015 and 2016.

Our Take

We are pleased with Merck KGaA’s progress with its pipeline. Moreover, we are positive on the company’s activities on the collaboration and agreements front, which include a recent antibody drug conjugate agreement with Sutro Biopharma and a marketing agreement with Lupin Ltd. for emerging markets. The company’s efforts to expand R&D activities are encouraging since successful development and commercialization of additional products should help drive long term growth.

Merck KGaA currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the biotech sector are Gilead Sciences Inc. (GILD), Biogen Idec Inc. (BIIB) and Regado Biosciences, Inc. (RGDO). All these stocks carry a Zacks Rank #1 (Strong Buy).

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