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Big Pharma Fights Off the Dow's 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 are slipping on the day, and the Dow Jones Industrial Average (DJINDICES: ^DJI  ) can't sustain its recent upward momentum. The Dow Jones has fallen into the red from the start of the trading session this morning, and as of 2:15 p.m. EDT, the blue-chip index has lost more than 60 points. While most stocks are in the red, big pharma's Merck (NYSE: MRK  ) and Pfizer (NYSE: PFE  ) are staying strong for investors, as the former has gained 0.2% while the latter has stayed near breakeven. Let's catch up on what you need to know.

Is Merck on safe ground?
Merck won good news for investors recently, as the company's combination therapy for hepatitis C, its MK-5172 and MK-8742 drugs, won a breakthrough therapy designation from FDA regulators. The designation is designed to help speed up the regulatory approval process for drugs used to treat diseases in need of treatment.

It's a good sign for Merck investors, who have waited for signs of optimism from the company's research and development unit. Merck's R&D division boasts some of the highest costs as a percentage of sales among big pharma, yet it's failed to produce many big-time approvals recently for a company in need of sales help. Merck's struggling in the aftermath of patent expirations, particularly for former top-seller Singulair, and investors rightly are worried about how Merck will make up for lost sales in the future.

The company's looking to pare down its R&D division in the future, but will cost-cutting be enough? The firm's plan to cut 8,500 jobs is expected to save around $2.5 billion over the next two years, and that move will certainly help Merck's short-term goals of reviving its financial performance in the wake of the patent cliff.

Still, this company will need to do more in terms of scoring drug approvals. If its hep-C combination uses its breakthrough therapy to succeed, it'll help -- but not solve -- this firm's financial downturn.

Rival Pfizer's hit the snags on patent losses recently, too, but this is one firm much better suited for the long-term. The company's sales have dropped behind Lipitor's losses. Yet Pfizer boasts a much more robust pipeline than Merck, even though it uses a smaller percentage of its sales to fuel research & development.

With promising potential blockbuster drugs such as Eliquis, its blood thinner developed alongside partner Bristol-Myers Squibb, on hand, Pfizer's ahead of Merck so far in the race to fight back from the patent cliff's hits.

How the Dow can fuel your dividend portfolio's gains
Big Pharma stocks like Pfizer and Merck are top dividend plays, but the best dividend investors know how important it is to diversify your portfolio across the market's many industries. If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

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Related Tickers

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