Big Pharma Deals Send Dow Lower

Merck and Pfizer held back the Dow today. Mergers and acquisitions are impacting both companies.

May 2, 2014 at 3:30PM
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On a day when the Department of Labor issued a seemingly great jobs report, the Dow Jones Industrial Average (DJINDICES:^DJI) was off 0.28% late in trading. A big reason is the index's two big pharma companies, Merck (NYSE:MRK) and Pfizer (NYSE:PFE), falling as acquisition and sale rumors swirl.

The U.S. economy added 288,000 jobs in April, the most since January 2012. Unemployment fell to 6.3% as the labor force shrank by 806,000 people, a surprise number that should be taken with a grain of salt. Over the long term, the labor force will shrink as workers retire and there are fewer young people to replace them in the labor force. Still, that's a huge number and there's probably a lot of seasonality after a long winter.

Overall, more jobs is good for the economy and that should be the takeaway today.

Big Pharma holding back the Dow
Merck was the biggest Dow decliner today, falling 2.5% as of 3:30 p.m. EDT. The company is ending its trial for an ovarian cancer treatment it was testing with Endocyte after the drug failed to meet the companies' efficacy goals. The independent Data Safety Monitoring Board recommended that they stop the trial, and Merck will take on manufacturing costs related to the drug. In the grand scheme, this isn't a deal breaker for Merck, but it's a disappointing result nonetheless.  

There are also reports that Merck is near a $14 billion deal to sell its consumer unit to Bayer. Management has said it wants to sell some assets to increase operating leverage, and peeling off the consumer business will be a piece of that.  

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Pfizer's headquarters will be busy with the AstraZeneca bid and may not be headquarters for long.

Elsewhere in pharma deal-making circles, AstraZeneca has reportedly rejected Pfizer's $106 billion acquisition billion bid. Pfizer is trying to acquire AstraZeneca's cancer treatment pipeline, and could move its headquarters to London in an effort to save on taxes as well.  

Pfizer has been pursuing the deal for months, but AstraZeneca CEO Pascal Soriot said the refreshed offer doesn't adequately pay the company for its new drug pipeline. If the AstraZeneca board doesn't change its mind, or the offer isn't increased, Pfizer could take the proposal straight to shareholders in a hostile takeover. That's a long, costly process that Pfizer wants to avoid, and the standoff is one reason shares are down 1.5% today.

This won't be a quick process, but Pfizer shareholders should hope a deal can be completed seamlessly. It would add important drugs to Pfizer's fading pipeline and save the company money on taxes. Only time will tell how this one plays out.

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