Merck to buy two biotech firms for $480M
No. 2 U.S. drug manufacturer looks to beef up pipeline with acquisitions of GlycoFi, Abmaxis.
By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - Merck & Co., Inc. agreed to buy GlycoFi, Inc. and Abmaxis, both biotechs, to strengthen its pipeline, the drug manufacturer said Tuesday.

Merck, the no. 2 drug manufacturer in America, will pay $400 million in cash to completely acquire the privately-held biotech GlycoFi, which specializes in a protein-making process called yeast glycoengineering, a process that is considered faster than more conventional methods of making protein-based drugs.

Merck also agreed to completely acquire Abmaxis, another privately-held biotech, for $80 million. Abmaxis specializes in the discovery of antibody-based products to be used in drugs and diagnostics.

Merck's (up $0.39 to $34.84, Research) stock price edged up more than 1 percent in morning trading. The deals are expected to close in the second quarter of 2006, Merck said.

Merck, which has a market capitalization of $75 billion, has partnered with GlycoFi since 2005 on developing experimental vaccines. Merck has collaborated with Abmaxis since 2004, and the biotech helped Merck re-engineer and improve a monoclonal antibody.

Merck's acquisitions appear to be long-term investments, analysts said, as the biotechs are unlikely to produce new drugs any time soon.

"With all of these being in the early stages of development, it's kind of a crap shoot," said Les Funtleyder, analyst for Miller Tabak.

But Funtleyder added that Merck has made an educated gamble, since it has an existing relationship with both biotechs.

"That's sort of the cautious way to do things: get to know the people and get to know the technology before you jump in," said Funtleyder. "They've had a good hard look at who they're buying."

Also, Funtleyder said Merck's acquisition of GlycoFi could eventually prove lucrative because monoclonal antibodies can be used in the production of cancer drugs: a huge, growing market.

Al Rauch, analyst for A.G. Edwards & Sons, said "there are no near-term products to come out of this," but the acquisition of GlycoFi's technology could eventually "help [Merck] get products to the market sooner."

"[Merck's] not getting products per se from this; they're getting the technology platform to help them develop drugs in a shorter amount of time," said Rauch.

This is the latest acquisition of relatively small biotechs by a major drug manufacturer. Merck and rival Pfizer (down $0.03 to $25.51, Research), the world's largest drugmaker, have been aggressively buying biotechs and entering partnerships in the quest to develop new drugs to fill the sales gap left by blockbusters going off-patent.

"Our acquisition of Abmaxis provides Merck with the opportunity to optimize and humanize antibodies, as well as to discover new antibodies," Dr. Peter Kim, president of Merck Research Laboratories, said in a press release. "This, coupled with Merck's own industry-leading capabilities in yeast expression technology and our acquisition of GlycoFi and its complementary technologies, positions us to become a significant player in the important and growing field of biological drugs."

Merck, which totaled $22 billion in worldwide sales in 2005, is based in Whitehouse Station, N.J. GlycoFi, based in Lebanon, N.H., has about 55 employees and was founded in 2000. Abmaxis is based in Santa Clara, Calif. and was founded in 2000.

The analysts interviewed for this story do not own shares of Merck stock.

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To read about Merck's first-quarter earnings, click here.

To read about Big Pharma versus biotechs, click hereTop of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.