The Upside Of Upjohn

Merger rumors have long swirled around Upjohn (UPJ). But Oppenheimer investment strategist E. Michael Metz, who thought Upjohn would be taken over last year, says the drug giant may make it to the altar in 1995. What's different now?

Freedox fears, says Metz. The drug, which aims to prevent secondary tissue damage from neurological injuries, is one of Upjohn's major new-product efforts. Clinical trials are ongoing, but enrollment in the U.S. was suspended after a safety commission saw a higher mortality rate in patients on the drug than on a placebo. "Upjohn put a lot of confidence in Freedox," says Metz. "Now, it's highly questionable whether it will succeed. Upjohn can't tell shareholders to wait six months for a blockbuster product." An Upjohn spokesman says: "We continue to believe in Freedox." Is merger pressure on? Upjohn declined to comment.

A domestic buyer who could cut duplication in marketing and R&D to plump up the bottom line might pay as much as 50, says Metz. A foreign buyer might pay handsomely to get Upjohn's R&D skill. The stock trades at 34. Investors get a 4.4% yield, and the dividend looks safe, since Upjohn has little leverage and no external capital requirements. The stock sells at a below-average p-e of 12.

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