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.


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.


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.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers