What's going on?

Pharma giant Merck announced on Wednesday that it�s spinning off a few of its businesses into a new, smaller company. Warning: side effects may include streamlined costs, higher revenues, swelling, paranoia, and/or abnormal sensations.

What does this mean?

Merck had a busy Wednesday: the pharma giant announced fourth-quarter earnings, reporting a profit that ever so slightly beat analysts� expectations. But with sales of its biggest drug coming in well below expectations � $170 million lower, to be precise � its stock still fell.

Merck�s investors, then, may be relieved to hear it�s now planning to fashion a whole new company from its legacy products, women�s health, and �biosimilar� drugs divisions. The new firm should make around $6.5 billion in yearly revenue, and could save the company $1.5 billion in costs by 2024.

Why should I care?

For markets: Split personalities.
Merck will hold onto its oncology, vaccine, and hospital/animal health businesses � all of which have a lot more potential for growth. That means investors will soon have a decision to make: they can either invest in low-growth but reliable existing drugs, or in the high-growth but risky research and development business. And since the value of a conglomerate is often less than the sum of its parts, they might be glad of the choice. Merck�s also not the only pharma firm splitting itself in two: the UK�s GlaxoSmithKline � which reported disappointing earnings on Wednesday � has laid out its own plan to split off its consumer healthcare business, while France�s Sanofi might do the same.

The bigger picture: Risky business.
All these new research-focused businesses come fraught with risk, as drugmaker Gilead proved on Tuesday. Its cancer therapy drug Yescarta � acquired as part of a $12 billion buy-out of Kite Pharma � brought in $10 million less than investors expected last year. It�ll be hoping its new coronavirus treatment, currently in trials, will perform better�