Merck's Drug Failure, Chevron's Earnings Plunge Lead the Dow's Fall

Despite a strong jobs report, most stocks turn into the red as the Dow ends the week on a down note

May 2, 2014 at 2:30PM
Daily Fool

The market is on the way to closing out the week in the red despite strong numbers in the government's Apriil jobs report. The Dow Jones Industrial Average (DJINDICES:^DJI)was down 52 points as of 2:30 p.m. EDT, with most blue-chip stocks in the red and the other major stock indices falling. Big Pharma has been the big loser so far, with Merck (NYSE:MRK) trailing all Dow stocks in losing more than 2.4%. Chevron (NYSE:CVX) has shed around 0.2% after a disastrous earnings report. Let's catch up on what you need to know.

Jobs up, stocks down
The United States in April gained 288,000 jobs, according to the Department of Labor's release, with professional and business services jobs leading the way with a gain of about 75,000. That total was enough to knock the unemployment rate down a full 0.4 percentage points, the largest one-month decline in 31 years, to 6.3%. Still, one caveat: The labor force itself contracted by more than 800,000 people in April, helping to buoy that unemployment rate decline. While it's vital that more Americans searching for work find positions in order to sustain the recovery, propping up the labor force participation rate will be a big challenge given its freefall over the past few years. The overall labor participation rate now has met a 35 year-low, according to MarketWatch.

Merck's active week has kept up, as the stock tumbled following the recent report that the company is looking to sell off mature drug assets. The portfolio of older and mature drugs could earn the company up to $15 billion, according to sources cited by Reuters. Top Big Pharma drugmakers have looked to focus on higher-growth pharmaceuticals while spinning off or selling drugs holding back financial performance. That's especially needed at Merck, which still is struggling to jump-start sales despite a recent upbeat quarter for the company's leading duo of diabetes drugs Januvia and Janumet. The two drugs  collected more than $6 billion in sales last year and reported 3% revenue growth combined in the last quarter. Merck will need more of that in coming quarters while it tries to advance its highest-potential pipeline candidates to the market. A sale of older drugs that are holding back growth could be a quick way to inject much-needed cash while slashing costs and boosting profit.

However, Merck's real hit on the day came when developmental ovarian cancer drug vintafolide, which it co-developed alongside Endocyte (NASDAQ:ECYT), slammed into a brick wall of disappointing results in a phase 3 study. Endocyte's stock has fallen more than 60% so far on the day after the two companies halted the trial. Vintafolide failed to show significant efficacy in ovarian cancer patients, but it's not the end of the world for investors of either company. Vintafolide's most important trial for lung cancer goes on and is projected to release data later this year. While the failure to find success in ovarian cancer will hurt the drug's potential, peak sales estimates still stood at up to $900 million worldwide before the trial stoppage -- and there's still plenty of money at stake here for both companies.

Chevron Gas

Source: Wikimedia Commons

Around the Dow, Chevron's stock hasn't fallen as far as its earnings report might indicate. The Big Oil company saw revenue tumble by more than 6% year over year, while quarterly earnings per share plunged to $2.36 -- down from last year's $3.18 mark and missing analyst expectations badly. Production falls have hit oil companies hard this earnings season; Chevron was no exception, with gas production down 3% and oil down 4% despite the ongoing American energy boom. That same boom has negatively affected prices, a trend that looks to keep on holding back Big Oil powerhouses int the near future.

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Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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