Merck's Slide Helps Drag Down the Dow's Triple-Digit Drop
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.
Stocks took a pounding today, as the Dow Jones Industrial Average nosedived late in the trading session. Big pharma didn't get a pass, as both Merck and Pfizer are among the Dow's biggest losers, falling 0.8% and 1.9%, respectively. Let's catch up on what you need to know.
Merck looks to animal health
One big national ruling set the table for today's slide, as investors have grown wary of the U.S. economy's progress. A federal judge ruled that the city of Detroit's bankruptcy case can move into the restructuring phase, upsetting opposition and giving an excuse for investors looking to take profits before any hiccup in the Dow's year-to-date run. While Detroit's fate won't likely affect your top stocks much, it's a cautionary sign that some parts of the U.S. haven't felt the recovery's effects -- and Detroit-based carmakers, such as Ford, took a hit today in light of the news.
Merck was down as the company's rumored to be one of a handful of firms interested in a potential acquisition of rival Novartis' animal health division. Animal health's become a big draw in health care lately, and Merck boasts one of the top units in its own animal health business. Merck's unit currently ranks as the second largest animal health division in the industry, although the company's wrangled with potentially spinning off the business in recent months.
It's a similar path to what Pfizer took with its own animal health business, Zoetis. Pfizer's refocused on making branded pharmaceutical drugs, cutting out unrelated businesses like Zoetis to hone all of its assets on what it does best. It's served Pfizer well so far, and Merck, which has been slammed by pressures from the patent cliff, could use a financial boost from the potential sale or spinoff of its own unit.
On the other hand, gobbling up Novartis' animal health business could poise Merck as the dominant force in animal health, if the company's looking to become more diversified as it moves forward. However, other firms, such as Bayer, also are vying for Novartis' business, meaning that Merck investors should keep a close eye on whether Merck will bid too much for this potential buy. In an era where many big pharma firms are slimming down, it's critical that Merck not overextend is hand.
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