No Quick Fix for Merck

Motley Fool Income Investor recommendation Merck (NYSE:MRK) has made good on plans to snap up biotech companies, saying Tuesday it will buy two small players. What may come as a surprise, though, is that these deals won't meaningfully buff up Merck's drug pipeline, because neither company has drugs in late-stage trials. Instead, Merck is acquiring new technology that has the potential to improve the efficiency of drug development. These deals won't please investors looking for a quick fix, but the long-term strategy here has some legs.

Merck's bigger, and arguably more compelling, deal of the day was for GlycoFi, for which it will pay $400 million. GlycoFi is purely a technology company, with no drugs in development. However, the privately held firm has attracted some big-time attention. In addition to its Merck collaboration, GlycoFi has alliances with Eli Lilly (NYSE:LLY) and MedImmune (NASDAQ:MEDI).

GlycoFi offers special types of yeast that produce therapeutic proteins with highly uniform glycoforms, or sugar structures. According to the company, about 70% of therapeutic proteins are glycoproteins -- peptides with sugar structures attached. These structures can affect protein activity; however, the industry standard for biomanufacturing -- mammalian cell culture -- typically yields protein batches with the same peptide backbone but a mixture of glycoforms.

GlycoFi's technology allows for isolating different glycoforms and identifying those with the highest potency. Once these glycoforms are found, the company's yeast technology can produce the proteins in large batches.

For Merck's second purchase, it will pay $80 million for Abmaxis, a specialist in "in-silico," or computational design, of monoclonal antibodies. The firm has a specialized process of discovery, selection, and small-scale production of antibodies that it believes produces antibodies faster and with greater potency, specificity, and stability. However, the company has not started testing its candidates in preclinical trials.

These deals don't offer Merck a big payoff right now, but they could improve Merck's development efforts. In addition, and perhaps as importantly, if either of these technologies bears fruit, Merck's ownership of them could allow it to pull in more biotech partners, which have been the major innovators in creating new medicines in recent years. These signal that Merck is taking a long view, so investors will have to be patient.

For related stories:

• Merck Outclassed
• Merck Marking Time
• Will Acquisitions Patch Merck's Pipeline?

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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article