Merck: Poised for Growth and Eager to Go

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It's new. It's exciting. It had better pay off.

That basically sums up Merck's (NYSE: MRK  ) post-acquisition pipeline, which the company outlined for investors yesterday. The acquisition of Schering-Plough has undoubtedly helped the pipeline. Schering-Plough makes up about 35% of the current value of the combined company, but 45% of the combined pipeline came from Schering-Plough. If you look at drugs that will have an effect the soonest, phase 3 drugs and those awaiting decisions on marketing applications, nearly half of the drugs -- 11 out of 23 -- came from Schering-Plough.

Ironically, Schering-Plough stocked its pipeline through its smaller acquisition of Dutch Akzo Nobel's Organon BioSciences subsidiary. Companies can often get bigger potential rewards for the money by purchasing smaller companies with fewer drugs on the market -- think Eli Lilly's (NYSE: LLY  ) acquisition of ImClone Systems -- or even development-stage drugmakers, as Bristol-Myers Squibb (NYSE: BMY  ) and Johnson & Johnson (NYSE: JNJ  ) did last year. Of course, those potential rewards come with increased risk, and don't offer an immediate fix for ailing revenue lines like larger acquisitions do.

It's a little late at this point to convince Merck to use one or both of those strategies, so let's get back to the pipeline. In general, Merck's and Schering-Plough's pipelines fit pretty well -- apparently better than Pfizer's (NYSE: PFE  ) pipeline melded with Wyeth's. There were only two places where Merck had to choose between rival compounds -- one for hepatitis C and one for cancer.

That's good news because Merck can use all the growth it can get its hands on. Blood pressure medications Cozaar/Hyzaar, a $3.6 billion franchise, are losing patent protection this year, and other blockbuster products like HPV vaccine Gardasil and cholesterol drugs Vytorin and Zetia have stalled out.

Merck's potential looks a lot better than it did a year ago, but only time will tell if the results pan out enough to justify the $41 billion price tag.

Pfizer is a Motley Fool Inside Value recommendation. Johnson & Johnson is an Income Investor recommendation, and Motley Fool Options recommended buying calls on the shares. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (2)

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  • Report this Comment On March 02, 2010, at 9:00 PM, LoneWolf888 wrote:

    MRK's buy of Millipore yesterday (3/1/2010) will slow the upward price movement of the stock.. Unquestionably, a great company with an eye to the future, MRK basically overpaid for Millipore. Standard + Poors has downgraded the debt of MRK due to the gargantuan price paid for this acquisition. The synergies will not materialize on MRK's bottom line for at least 3 years.

    A great pipeline in hand thanks to the Schering acquisition, this is a 5 star, not a 4 star ranking.

    Time frame 2-4 years - Price $48 --

  • Report this Comment On March 02, 2010, at 9:55 PM, LoneWolf888 wrote:

    Well pardon me, due to the absurdity of MRK Germany and MRK USA both being referred to as MRK, I confused the 2 separate entities...Disregard my Miilipore comments above as MF does not permit you to delete your own comments...

    The Millipore acquisition has nothing to do with MRK USA ....Hence, MRK (USA) is outstanding in all respects, including its fabulous 4.1% dividend ..S Tarts all the way ..

    Strong Buy ....

  • Report this Comment On March 02, 2010, at 9:58 PM, LoneWolf888 wrote:

    Disregard my above comments on the Millipore acquisition..MRK Germany is the buyer NOT MRK USA.

    Stuoid to have 2 separate entities bith called MRK..

    Hence, MRK -- USA is outstanding 5 stars ..

    MF does not permit you to delete your own comments ..

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