Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Dow Pulled in Opposite Directions by Big Pharma

The week kicked off this morning with little hope for a budget deal in Washington, but as the trading day has moved along the clouds appear to be lifting. President Barack Obama will meet with congressional leaders this afternoon and Senate Majority Leader Harry Reid said he is "very optimistic" about an agreement this week.

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) opened Monday down about 80 points but has rallied all day: As of 3:15 p.m. EDT the index is up 55 points, or 0.36%.

Big pharmaceutical stocks Merck (NYSE: MRK  ) and Pfizer (NYSE: PFE  ) are pulling the Dow in different directions today. Merck is the biggest loser on the index, falling 1.2%, while Pfizer is the biggest winner, rising 1.6%, an unusual trading phenomenon.

Merck's daily troubles come from downgrades from Jefferies and Bernstein over the past two trading days. Downgrades can often have a short-term impact on a stock, but they're not a fundamental reason to be bearish over the long term because the daily move often wears off quickly.

What should be a concern is expiring patents and competition from the likes of AstraZeneca (NYSE: AZN  ) , which is betting big on immunotherapies for cancer treatment. Merck is one of a short list of companies with approved immunotherapies for cancer. A phase 1 clinical trial from AstraZeneca showed promising results last month and the treatment will now be tested against competitors such as Merck. AstraZeneca is worth watching for the breadth of products it can offer and the combination of drugs in its pipeline.  

Cancer treatments are a huge potential market, and with a head start already, the less competition Merck has, the better it will be for investors. Citigroup recently estimated that immunotherapies for cancer could account for $35 billion in annual sales, which could have a huge impact on declining sales throughout the industry.

MRK Revenue TTM Chart

MRK Revenue TTM data by YCharts.

It may be the Dow's biggest winner today, but you can see above that Pfizer has been hurt more than most by squeezed health-care spending and expiring patents. The sliver of good news last week was that trials showed promising results for rheumatoid arthritis drug Xeljanz and for high doses of psoriasis treatment tofacitinib. Both drugs are in late testing stages so they may be poised to begin contributing to revenue in the near future.

Looking at the big picture, both Merck and Pfizer are struggling with expiring patents and falling returns when they invest in research and development. I don't think we'll see health-care spending free up for the foreseeable future, which means there's less incentive to invest in growth and more incentive to just squeeze what they can from existing drugs.

That said, the U.S. market may be opening up to millions of new consumers, so less profit per user from a bigger base may not be all bad for the pharma industry.

Change is scary for big pharma
Obamacare is scary for investors in everything pharmaceuticals to insurance companies but it's also creating massive opportunities for investors to get ridiculously rich. In this free report, our analysts walk you through these opportunities and the companies that are positioned to exploit changes in the industry. The informational edge contained in it is invaluable, but can only be exploited profitably while the rest of the market remains in the dark. To access this free report instantly, simply click here now.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2681391, ~/Articles/ArticleHandler.aspx, 10/1/2016 11:30:08 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 14 hours ago Sponsored by:
DOW 18,308.15 164.70 0.91%
S&P 500 2,168.27 17.14 0.80%
NASD 5,312.00 42.85 0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 5:01 PM
^DJI $18308.15 Up +164.70 +0.91%
AZN $32.86 Down -0.19 -0.57%
AstraZeneca CAPS Rating: ****
MRK $62.41 Up +0.50 +0.81%
Merck and Co. CAPS Rating: ****
PFE $33.87 Up +0.55 +1.65%
Pfizer CAPS Rating: ****