Merck's $303 Million Ambryx Deal Great For Investors

Jun.28.12 | About: Merck & (MRK)

In the pharmaceutical industry, collaboration and innovation seem to be particularly critical for success. Merck (NYSE:MRK) has done particularly well in these areas lately, despite some minor bad news. As a result of its focus on collaboration and its continued innovation, I believe this is a good stock that should be increasing. Some competitors might be better investments at the moment, but Merck is definitely worth checking out.

Merck is initiating more partnerships that have great potential for bringing success to the company and the stock. It has recently signed a $303 million deal with Ambryx, and this deal should benefit both companies. The companies will work together to create "rationally optimized biologic drug conjugates." Both companies have skills to offer, and they should complement one another well. I think that Merck and its investors will be pleased with this decision, especially when the research from this collaboration begins to bring great results. This may not have an effect on Merck stock immediately, but I think it is a good move that should bring success in the bigger picture.

Merck is in the news for other collaboration as well. It has recently announced that it will team up with Geisinger Health System on a multi-year project for improving patient health outcomes. In financial terms, this may not be a very big move for the company, but it is important in the way it relates to public image and ethics. The company is working to get patients more involved with their treatments and make it more likely that patients will stay on treatment plans. This shows that Merck is working toward better health, even when it is not the most financially-pressing concern it must deal with. I believe this is great and will help the company's image, but it probably will not have much impact on the stock.

Other companies are recognizing the importance of collaboration as well. Sanofi (NYSE:SNY) is joining forces with the Joslin Diabetes Center to develop new treatments for diabetes and related disorders. Sanofi will be able to benefit from the expertise of Joslin and become a bigger force in the market for diabetes treatments. I think this will have a positive impact on the stock, as Sanofi is also having great success in collaboration.

Collaboration is only one way that Merck is growing stronger though. Merck Animal Health recently announced the U.S. approval of its antibiotic ZUPREVO, which helps treat BRD in beef and non-lactating dairy cattle. Joseph Roder, the anti-infectives marketing manager, claims, "Effective BRD treatment and control is critical to protecting cattle and keeping beef operations sustainable. ZUPREVO provides both options and puts you in control." This shows that Merck is making significant progress related to an area of high demand, and this will have a great impact on its animal health unit.

It is no small feat to get approval for a new product, and this issue has been hurting other competitors in the field. Pfizer (NYSE:PFE) failed to get approval for its rare-disease drug tafamidis. The company will need to do additional studies before it can move forward, and while this is not surprising, it is unfortunate for the company that it must continue to work in order to gain approval.

This is much different than the news surrounding competitors GlaxoSmithKline (NYSE:GSK) and Novartis (NYSE:NVS). These companies will be receiving U.S. government grants to develop vaccines against pandemics and bioterrorist threats. This support is great news for the companies and should benefit shareholders as well. GlaxoSmithKline stock and Novartis stock should both be increasing as a result of this good news.

While most things have seemed positive, there are some negative stories in the recent news for Merck as well. It has recently received upsetting news in its patent infringement lawsuit with Apotex. While the court noted that Merck's Nasonex patent is valid, Apotex's product is not infringing on that patent. As a result, Apotex may offer its generic product on the market before Merck's patent expires, which could offer some competition to the company. This would be a long way off though, as Apotex's drug has not yet received approval from the U.S. Food and Drug Administration (FDA). Until the company gets approval from the FDA and makes solid marketing plans, I do not think this should make any real impact on Merck stock.

The company has also confirmed its plans to close the Swiss headquarters of its Serono division. Merck is attempting to determine what will be most profitable in the future, and while closing the headquarters may concern some investors, it is a necessary move when it comes to Merck's long-term growth. While some investors may react with fear, others will see it as an important decision from the company. With that in mind, I expect this event to have a neutral effect on the stock.

In comparison to some of its competitors, Merck's problems may look even more minor. While Merck does have some negative stories in the news, therefore, these are insignificant and should not have much of an impact on the stock.

AstraZeneca (NYSE:AZN) and Palatin Technologies (NYSEMKT:PTN) have recently stopped their obesity drug trials after a subject grew ill. This may have been an allergic reaction that began after the first dose, and the subject has recovered. This has delayed their trials, nevertheless, and it will have a negative impact on the stocks, even if it does not have such a substantial impact.

Halting clinical trials, however, is minor in comparison to the problems facing Pfizer. As I noted earlier, it did not get approval for its rare-disease drug, but its legal problems are the main cause of problems in the company. It is working to resolve these issues, as it has recently paid $896 million to settle roughly 60% of the cases related to its menopause drugs. Many claim that these drugs have caused cancer in women, and this is no small thing for the company to live down. It will continue to work on settling these cases, but this event will keep hurting the company in financial terms and in the way it affects Pfizer's public image. As a result of these problems, I expect bad things from Pfizer stock at the moment.

Merck continues to stand out as a particularly good stock in the pharmaceutical industry. It is taking advantage of collaboration opportunities and has recently had its animal health treatment approved. While it is closing the Swiss headquarters and has some other negative news as well, this is all relatively minor. As a result, I think Merck stock will be doing well for the moment, and it is also in a good position to do well in the long term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.