Dow Up Slightly as Merck's Earnings Show Continued Slide for Big Pharma

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Stock markets were mixed today as employment data did little to inspire either bulls or bears on Wall Street. Payment processing firm ADP said private employment rose 175,000 people in January, which was the worst reading in five months but was probably affected by cold weather across the country.  

At 3:30 p.m. EST the Dow Jones Industrial Average was up about 16 points, a lull in the sell-off we've seen on Wall Street recently.

Big challenges face Big Pharma
Merck (NYSE: MRK  ) was the big earnings report today and it continued the negative slide for pharmaceutical companies. Fourth-quarter revenue was down 3.4% to $11.3 billion and net income fell 14% to $781 million, or $0.26 per share. Asthma treatment Singulair continue to suffer from the loss of patent protection, seeing a 38% decline in revenue on top of a 67% drop in the year-ago period.

Merck's numbers were largely in line with expectations and the stock is up about 0.2%, but Pfizer (NYSE: PFE  ) is now pulling back from its gains of the last few days. The challenge for Big Pharma is easy to see in the chart below. As drugs have come off patent they haven't been replaced by new products, and that's led to sliding revenue over the past three years. Net income has remained fairly strong but margins can only be expanded so far before the top line becomes concerning over the long term.

MRK Revenue (TTM) Chart

MRK Revenue (TTM) data by YCharts.

The hope is that new cancer treatments will fill the pipeline for drugmakers; on that front Merck today announced three separate collaboration agreements to test the effects of Merck's MK-3475 immunotherapy cancer treatment in combination with treatments from Pfizer, Amgen, and IncyteAnother 20 cancers were also added to the list of cancer types Merck will test the treatment for.

Cancer treatments are the next growth engine for Big Pharma, as the excitement for Pfizer over the last week shows. The hope is that Merck took a step in the right direction with its announcements today.

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