December 26, 2010 in Business

Merck hopes smart thinking will pave way to big dividends

Universal Press Syndicate
 

Merck’s (NYSE: MRK) acquisition of privately held SmartCells looks like a smart move – assuming it didn’t overpay.

SmartCells’ draw, its SmartInsulin, is only in preclinical development. It has a long way to go before it’s on the market, if it gets there. Ideally, Merck was smart enough to hedge some of the development risk by tying a large portion of the $500-million-plus milestone payments to clinical advancements far in the future.

SmartInsulin is rather risky, since it uses an unproven technology, but it’s a potential blockbuster if it works. The drug senses the concentration of glucose and then releases insulin as the glucose levels fall. Rather than constantly pricking their fingers to get glucose levels, and then injecting insulin, diabetics might only have to inject the drug once a day and let the SmartInsulin release as necessary.

Merck already sells Januvia, its very successful diabetes drug, so SmartInsulin would be a good fit.

The Smart technology could even extend beyond insulin. It could be used to sense any molecule and then release a drug. Drugs that have a tight therapeutic window - where too much is bad and too little doesn’t do enough - would be good candidates.

If SmartCells succeeds, its purchase will make Merck look like a downright genius no matter how much it paid upfront to buy the company.

Ask the Fool

Q: Is it better to start receiving Social Security benefits early, or late? – J.D., Providence, R.I.

A: There’s no one-size-fits-all answer. Collecting early means you’ll receive less each month, but you’ll receive payments for more months. The difference between age 62 and age 66 is 48 payments. If you have any reason to believe you won’t live a long time, starting early can be best, but it can also make sense for other folks. After all, money you receive early can be invested, or can permit you to leave other investments in place longer. Also, some people have little choice; they simply need the income before retirement age.

There’s a significant upside to delaying your benefit, though: For every year that you delay it, the value of your payout rises about 8 percent. That’s not a small sum, and it can add up considerably over a few years. Given that many of us will live a very long time, it can end up being well worth having waited.

There are other considerations, too. If your income surpasses a threshold, some of your benefit will be taxed. If you plan to work a little before your retirement age, your benefits may be temporarily reduced. Look at the question from many angles, and perhaps consult a financial planner as well.

Q: What are “day” and “GTC” stock orders? – B.R., Lexington, Ky.

A: When you place an order with your broker, you specify, among other things, whether it’s good just for the day or until canceled (GTC). GTC orders remain in effect until they’re executed, canceled or expire (typically one to three months after the order is placed). Learn more about brokerages at www.broker.fool.com.

My dumbest investment

My all-time dumbest investment, without a doubt, was in Euro Disney. Walt Disney stock had been my first trade. I had the original, frameable share. My uneducated thinking was, “How could such a great company, with great stories, theme parks and history, fail?” The answer that I did not have at that time was a lot of arrogance. Disney didn’t sufficiently study the French culture, and as a result this venture has been a required subject for many business grad courses, under the heading “What does not work when expanding your firm into new cultures.” – Lenri, online

The Fool responds: The Disneyland Paris theme park turned itself around after considerable reworking, but Euro Disney is still struggling. Differences that the company didn’t initially appreciate include the fact that while Americans often buy their meals at Disney parks, many French would bring their own. The alcohol-free environment was fine with Americans, but the French were used to wine being available. Many businesses have had a hard time expanding into new regions and cultures, but global dominators find ways to make it work.


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