Another option would be for Merck to buy one of its partners. The company is developing cancer drug vintafolide with Endocyte, Inc. (NASDAQ:ECYT). Merck is on the hook for $880 million in milestones if development of the drug goes well. The pharma can save that cash if it’s willing to roll the dice before the milestones are triggered; vintafolide is in a phase 3 trial for ovarian cancer and phase 2 studies in lung and breast cancer.
There’s also Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA). Merck has experience with the company since they developed ridaforolimus together, but Merck would be buying Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) for its new wholly owned leukemia drug Iclusig. I like the potential of the drug — although at a $3.4 billion market cap, there’s a lot of sales already priced in.
Buying back Merck & Co., Inc. (NYSE:MRK) stock is clearly the safer route, but buying a company or three to boost its drug offerings has more potential. For share repurchases, there’s no opportunity to grow the investment beyond the immediate boost to EPS, while the benefit from increased earnings a drug provides can compound over time.
The article Merck Stock Is a Good Investment (According to Merck) originally appeared on Fool.com and is written by Brian Orelli.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.