Venerable pharmaceutical company Merck
How does this strategy help Merck? For pharmaceutical investors, the mantra has become: "It's the pipeline, stupid." Many of Merck's peers, such as Pfizer
Another big pharma strategy to quickly rejuvenate aging drug portfolios has been to license drugs from biotech companies. One of the biggest of these deals was Bristol-Myers Squibb's
For its part, Merck, despite an impending loss of patent protection for its cholesterol-lowering drug Zocor, has mostly shied away from both of these approaches. Instead, the drug giant has decided to acquire smaller firms for their technology, maintain its core focus on small molecule drugs, and build from within. With its lead candidate in only mid-stage trials, Aton won't be a quick fix to Merck's Zocor problem, but evidently Aton's pipeline will complement technology acquired from another acquisition, and hopefully yield results in the years ahead.
Merck's maneuvers to date have not been particularly popular with investors, with the stock down almost 24% from its 52-week high. The strategy has also been painful for Merck employees, since the firm has had to lay off workers. Still, there's a good chance the drug giant may be on to something.
The concept of economies of scale may hold in other industries, but the jury is out as to whether greater size makes pharmaceutical research more efficient. While Pfizer is sitting on top of the world at the moment, just a few years after its mega-merger, GlaxoSmithKline is on the ropes. And though licensing from biotech has its allure, Bristol Myers' initial fiasco with Erbitux showed that not having full control over the development process can be dangerous.
This may not gel with some investors, who demand consistently higher revenue and profits, but it doesn't seem that drug development can simply be ramped up as need arises. It relies on talent and creativity. While past performance is not necessarily an indicator of future success, Merck's track record suggests that if investors take a page from the company and remain patient, they'll be rewarded.
Will the tortoise win the race? Does Merck have the right idea with its slow-and-steady strategy? All this and more on the Merck discussion board. Only on Fool.com.
Fool contributor Brian Gorman is a freelance writer in Chicago, Ill. He does not own shares of any companies mentioned in this article.