After climbing to potential new-record levels at the open, the Dow Jones Industrials (DJINDICES:^DJI) closed down almost 46 points on Friday, with trouble in Ukraine heating up and prompting an emergency meeting of the U.N. Security Council in response to violence in Black Sea port city Odessa. Even with news that the U.S. economy produced 288,000 new nonfarm jobs in April, the Dow couldn't overcome negative sentiment and fear of future trouble. Moreover, the Dow's full contingent of pharmaceutical stocks led the average downward, as Pfizer (NYSE:PFE), Merck (NYSE:MRK), and Johnson & Johnson (NYSE:JNJ) were the worst performers in the Dow Jones Industrials today.
A combination of factors helped hold the Dow's pharma stocks down Friday. For Pfizer, which fell 1.3%, the most likely culprit was news that the company's second attempt to buy out AstraZeneca had, once again, failed to gain acceptance, as the British drugmaker said that Pfizer's upped bid was still insufficient. With Pfizer offering about $106 billion for the company, investors have to be concerned that any further concessions to raise the price will start to erode the potential cost savings, and other advantages from a combination. In many ways, AstraZeneca is in the strongest negotiating position, as its domicile gives Pfizer a chance to take advantage of favorable foreign tax treatment, creating a huge opportunity for long-term savings. Shareholders might well have to accept paying even more in order to get the longer-term benefits of a merger deal.
Meanwhile, Merck fell 2.4% after suffering a minor defeat on the clinical front, as a drug that Merck and a partner were hoping would become a viable treatment for ovarian cancer got a negative recommendation from the monitoring board overseeing the phase 3 trial. The results were somewhat shocking given positive results in other arenas, even for the same drug. But while it was a huge deal for the smaller partner company, the impact of stopping the trial isn't significant for Merck. News after the bell that an FDA panel voted against allowing Merck to sell its asthma treatment Singulair as an over-the-counter allergy medication could also hurt the drugmaker, although many saw the last-ditch effort to try to renew the now off-patent medication's ability to generate profits for Merck as unlikely to succeed.
Johnson & Johnson dropped 1.2%, seemingly in concert with its peers. Johnson & Johnson only gets about 40% of its revenue from pharmaceuticals, although that proportion has increased lately as the company emphasizes drug development over other segments like medical devices and over-the-counter products. Unlike Merck and Pfizer, Johnson & Johnson hasn't suffered from falling sales in recent years, as its diversified health-care exposure and different timeline of patent expirations has sheltered it from the full brunt of the patent cliff that Merck and Pfizer faced. Still, with Johnson & Johnson increasingly relying on pharmaceuticals as its main growth prospect, investors are right to link J&J's fortunes with those of Pfizer and Merck.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. 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.