3 Dividend Stocks Fighting for Growth

Johnson & Johnson (JNJ), Merck (MRK), and Pfizer (PFE) are spending billions developing new drugs. Here's what you need to know about therapies closest to winning market approval.

Jun 14, 2014 at 3:07PM

The holy grail of drug development is blockbuster status, the unofficial stamp of commercial success awarded to therapies when their sales eclipse $1 billion annually. Developing blockbuster drugs, however, is anything but easy.

It costs hundreds of millions of dollars to successfully usher a new drug compound through pre-clinical research, clinical trials, and regulators, and roughly nine out of 10 drugs that do make it into human trials will end up on the cutting-room floor.

Given that the odds are stacked against them, drugmakers Johnson & Johnson (NYSE:JNJ), Merck (NYSE:MRK), and Pfizer (NYSE:PFE) spent a combined $22 billion on research and development last year.

JNJ Research and Development Expense (Annual) Chart

JNJ Research and Development Expense (Annual) data by YCharts

That said, let's see which of these three companies offers the deepest bench of late-stage drugs that may end up making it to market.

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Source: author's calculations.

1. Johnson & Johnson
Johnson & Johnson has been one of the most successful drugmakers. The company has launched a slate of winners over the past three years that includes anticoagulant Xarelto, diabetes drug Invokana, and prostate drug Zytiga.

J&J hopes to add to that success with a host of promising new compounds, including Imbruvica, a drug co-developed by Pharmacyclics and recently approved to treat mantle cell lymphoma and previously treated chronic lymphocytic leukemia.

Further down the pipeline, J&J plans to file for FDA approval of sirukumab, a potential Remicade successor for rheumatoid arthritis; guselkumab, a treatment for psoriasis; esketamine, a treatment for treatment-resistant depression; daratumumab, for use in refractory multiple myeloma; and ARN-509, a potential Zytiga successor, all by 2017.

2. Merck
The patent cliff hasn't been kind to Merck. Expiration on key drugs such as the $5 billion-a-year Singulair cut sales by 7% last year, but that could be yesterday's news.

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Source: Merck & Co.

The company's patent calendar looks much better for the remainder of the decade, with the biggest challenge facing its $2.8 billion cholesterol-fighting drug Zetia, which loses protection in 2017.

That means products in Merck's pipeline may have a chance to kick-start top-line growth again.

Merck has already notched FDA approval this year for two new allergy drugs: Grastek and Ragwitek, and an FDA decision could come this year for potential blockbuster cancer drug pembrolizumab, which has been submitted for approval as a treatment for melanoma. Overall, Merck is awaiting decisions from either U.S. or EU regulators on eight therapies, including one for thrombosis.

Merck's late-stage pipeline appears solid, too. The company has 14 programs in phase 3 trials, including a promising therapy for hepatitis C, ertugliflozin for diabetes, MK-8931 for Alzheimer's, MK-8237 for dust mite allergy, and MK-3222 for psoriasis.

3. Pfizer
The patent cliff has challenged Merck, but it's walloped Pfizer. The company lost protection on its cholesterol drug Lipitor (once the globe's best-selling drug) in 2011, and Lipitor sales have since shrunk from $13 billion in 2006 to $2 billion last year.

Overall, Pfizer's sales have dropped from $67 billion in 2010 to $50 billion last year, and Pfizer faces another loss this year, when its $3 billion-a-year osteoarthritis and rheumatoid arthritis drug Celebrex loses exclusivity in the U.S., putting $1.6 billion in U.S. sales in jeopardy.

Those losses more than offset solid results for new drugs, including Xalkori and Inlyta, two cancer compounds that are growing sales quickly. Xalkori's sales jumped 66% to $88 million in the first quarter, while Inlyta's sales were up 40% to $88 million, too.

However, if Pfizer is going to return to growth, it will need its pipeline to produce blockbusters. One of the most promising of its late-stage drugs is palbociclib, a drug for breast cancer. Palbociclib significantly helped patients with ER+ and HER2- advanced breast cancer during midstage trials, clearing the way for a potential early approval. Pfizer plans to file for that approval by year's end.

Pfizer may have another winner in RN316, too. RN316 is a PCSK9 inhibitor drug designed to lower bad cholesterol. In trials, results for PCSK9 inhibitors, including Amgen's competing drug AMG-145, have investors thinking that PCSK9 could become a standard of care in treating heart disease and stroke patients some day.

Pfizer is also the partner on Merck's diabetes drug ertugliflozin, so an approval for that drug would benefit it, too.

Fool-worthy final thoughts
Drug development is far from smooth sailing, and these companies have a tough row to hoe in terms of continuously developing new drugs that can replace sales lost to patent expiration.

Of the three companies, Johnson & Johnson has arguably been the best at ushering new blockbuster therapies to market and offsetting risk tied to the patent cliff. Merck has the largest number of new compounds in late-stage studies of the three, so it may have a better shot than the other two at notching FDA wins for new drugs. Meanwhile, Pfizer's hopes are pretty tightly pinned on two high-profile drugs: palbociclib and RN316. That means investors should hope there won't be any late-stage surprises for these two therapies.

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Todd Campbell has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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