Merck's 2013 Leaves Questions Lingering for Investors

Stocks have had a great year in 2013, and the market's biggest names haven't been slowed down a bit as the Dow Jones Industrial Average (DJINDICES: ^DJI  ) has soared to 18% year-to-date gains. But not all of the Dow's blue chip components have been equal this year. Take big pharma household name Merck (NYSE: MRK  ) : While Merck's beaten the Dow and had a great year, this stock's fallen into the bottom half of the index among year-to-date performers, and trails some of its biggest health-care rivals in 2013. What's gone right (and wrong) for Merck this year? Let's take a look back at 12 months of progress for one of the biggest names in the health-care business.

The patent cliff's huge hit
It's safe to say that Merck has struggled with the patent cliff this year, but it's been a big problem across all of big pharma. Merck's chief rival and fellow Dow member Pfizer (NYSE: PFE  ) has seen its sales slide behind falling revenue from cholesterol-fighting drug Lipitor. Pfizer's former top seller lost patent protection last year, and has seen revenue plunge 49% year-over-year through 2013's first months.

Same story at Merck, although the company's big patent-cliff loss, Singulair, has suffered a much bigger blow. Singulair, a treatment for asthma and respiratory illnesses, has seen its sales drop off by 74% year over year through the first nine months of 2013 -- a loss of more than $2 billion in revenue.

Meanwhile, stagnating growth from some of Merck's more promising drugs have led to Singulair's blows being felt with extra vigor. Diabetes duo Januvia and Janumet are this company's stars for the next several years, but they haven't performed that way for Merck in 2013. Januvia, already the recipient of more than $2.8 billion in sales through the first nine months of the year, has seen its sales slip slightly over that period of time. Januvia and Janumet still have room to run, but sliding revenue wasn't what Merck had in mind for its top diabetes drugs heading into this year.

Shaking up development
If Januvia's sluggishness hasn't been bad enough, Merck has taken hits in its pipeline, as well. The biggest news from Merck's R&D division in 2013 came all the way back in February, when the company announced that it would delay the FDA filing of promising bone treatment odanacatib until 2014. That unnerved many investors, despite the promise odanacatib still offers. Many analysts peg the compound, if approved, at peak sales of more than $1 billion, and odanacatib's chances of passing the FDA look very good.

However, Merck's lackluster pipeline drew more and more criticism as the year went on. It's for much more than just the odanacatib misfire, too. Merck spends more on its R&D as a portion of sales than some of its competitors, and for less results. In 2012, for instance, Merck spent 17.2% of its total revenue on research and development. That was a far greater sum than rival Pfizer, which spent only 13.3% of its total revenue on R&D -- and Pfizer's pipeline is one of the best in the business.

The good news going forward is that investors forced Merck's hand in October. The company announced job cuts and savings, and half of the latter will come from R&D. Overall, the plan's expected to save Merck around $2.5 billion annually by 2015. That's desperately needed for this firm, as Merck looks to counter the effects of Singulair's loss, and further upcoming patent expirations in coming years.

A year stuck in neutral
Merck's stock might have done well overall for investors in 2013, but it's been an up-and-down year for the company. Odanacatib's filing delay was more of a nuiscance than real trouble, but Januvia's slowdown, and Singulair's colossal patent-cliff-related hit, have taken a toll on Merck's financials. While the company's savings and cost-cutting plan should help into the future, Merck needs to light a fire under its R&D division to find its next great drugs -- all while keeping its current crop of products on the market selling at peak performance.

How you can maximize your financial performance in the new year
While Merck's been a good stock this year, there's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

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: 2763314, ~/Articles/ArticleHandler.aspx, 9/30/2016 1:07:35 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 3 hours ago Sponsored by:
DOW 18,143.45 -195.79 -1.07%
S&P 500 2,151.13 -20.24 -0.93%
NASD 5,269.15 -49.39 -0.93%

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

9/29/2016 4:35 PM
^DJI $18143.45 Down -195.79 -1.07%
MRK $61.91 Down -1.39 -2.20%
Merck and Co. CAPS Rating: ****
PFE $33.32 Down -0.67 -1.97%
Pfizer CAPS Rating: ****