Pfizer Leads the Dow's Comeback

Pfizer Leads the Dow's Comeback

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The markets have staged a steady comeback today, with the Dow Jones Industrial Average climbing all the way up from a near-triple-digit drop to pull into the green. As of 2:15 p.m. EDT, the Dow has gained more than 50 points, with most blue-chip stocks on the index in the green. Big Pharma's leading the index in two different directions today, as Merck has bottomed out among Dow stocks while Pfizer stands atop the index's gains. Let's catch up on what you need to know.

Merck tumbles on a downgrade
Merck's on the downswing today after receiving a downgrade from analyst Tim Anderson of Bernstein. Anderson dropped the stock from outperform to market perform, citing the pressure of generic competition on Merck's future as the company struggles to translate its drug pipeline into FDA approvals. The stock has fallen about 1.3% so far.

Merck's research and development expenditures have drawn serious criticism from Wall Street. While the company recently announced that it will overhaul R&D spending to slash jobs and costs at the division, investors still have to keep a wary eye out for the company's future. The Merck pipeline isn't as strong as many Big Pharma competitors, and delays and FDA rejections have hurt the company over the past year. Most recently, the FDA turned back Merck's quest to get anesthesia drug sugammadex approved.

How bad is Merck's situation? Outside of top-selling diabetes drugs Januvia and Janumet, few of Merck's biggest blockbusters are growing strongly. Singulair, once Merck's biggest revenue generator, has been slammed by generic competition en route to losing more than 75% of its sales from a year ago over the first six months of 2013. Considering that Singulair recorded more than $2.2 billion worth of sales in 2012's first half, the drug's patent loss has been catastrophic to the company. Unless Merck can kick growth back up with Januvia and Janumet while actually translating its pipeline into meaningful approvals, this stock could be in for some trouble ahead.

Rival Pfizer's not having a tough day at all, as the stock's up 1.4% to lead the Dow so far. There is little news from the company, but taking a look at Pfizer shows a company in much better position to succeed in the long term than Merck. Pfizer boasts a colossal pipeline that's seen a few key approvals in the recent past, most notably with hyped blood thinner Eliquis being OK'd at the end of last year. The drug is expected to record up to $5 billion of annual revenue at its peak, something that will pay off big for Pfizer and partner Bristol-Myers Squibb.

Pfizer's also been hit with generic competition, as former star drug Lipitor, which recorded more than $2.6 billion in revenue over last year's first six months, has seen sales taken down by more than 50% over that same time frame in 2013. However, growth from drugs such as top-seller Lyrica and Celebrex have helped Pfizer overcome Lipitor's falling fortunes. While Pfizer might be struggling with some falling sales now, its future looks bright for the long term.

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Originally published