Drugmaker Merck Tries To Jump-Start Slow Growth

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Merck ( MRK ) has brought in a new top scientist to shake up its research and development.

Roger Perlmutter, former top scientist atAmgen ( AMGN ), told analysts late last year he plans "major surgery" on the drugmaker's research operation, cutting dead-end projects, and focusing its laboratories on biotech and cancer medicines. He said there's too much red tape and not enough risk taking.

Merck has been criticized for being too cautious as rivals have moved into biotech and away from primary care medicines.


Merck's top-selling drug is Januvia, used to treat diabetes. Another top drug, Singulair, treats asthma.

The company has a long history. It traces its origins to apothecary Jacob Friedrick Merck, who acquired the Angel Pharmacy in Darmstadt, Germany, in 1668. In 1887, it opened a U.S. branch and 10 years later opened a pharmacy in Manhattan that became world renowned.

During World War I, the U.S. branch of the company was seized by the government and it supplied medical supplies to the U.S. military. After the war, Merck's U.S. branch became an independent company.

Right now, drugmakers are hot commodities on Wall Street. As of Wednesday's IBD, the Medical-Ethical Drugs industry group was ranked No. 4 out of 197 groups. But most of the group's action is driven by smaller and faster-growing biotech companies.

Merck has been a slow grower. Its five-year annualized growth rate is just 3%, but it has an Earnings Stability Factor of 5 on a 0 to 99 scale, where low numbers correspond to steady growth.

It pays a dividend of 44 cents a share quarterly, which works out to a 3.4% annual yield. The three- to five-year dividend growth rate is 3%, which means it hasn't been growing very much.

Analysts expect an 8% EPS slowdown in 2013 and an additional 1% slowdown in 2014.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: AMGN , MRK



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