Merck Pushes the Dow Jones Further Into Record Territory

Merck (MRK 0.44%) led the Dow Jones Industrial Average (^DJI 0.56%) up slightly today to a new intraday high of 16,735 following some mixed reports on the U.S. economy. As of 1:15 p.m. EDT, the Dow was up a meager 15 points to 16,710, while the S&P 500 (^GSPC -0.88%) was up less than a point.

There were three U.S. economic releases today.

The one to pay attention is the retail sales report. Retail sales struggled through the winter as the U.S. experienced one of its harshest winters in years. As spring arrived in March retail sales rebounded and economists were expecting 0.4% growth in April.

Source: TradingEconomics.com.

While retail sales only grew 0.1% in April, and likely were flat or declined in inflation adjusted terms, the report is not as bad as it looks. The Department of Commerce revised upwards March's growth from 1.1% to 1.5%, the highest jump in four years. So April's retail sales level is right near March's much higher-than-expected level.

The Dow Jones is taking the news in stride with 19 of 30 Dow stocks up for the day. Leading the Dow Jones today is Merck, up 1.1%. Merck has been trying to refocus its business on cancer drugs, cholesterol drugs, diabetes drugs, and vaccines. As part of this, the company is selling off divisions where it doesn't have the scale to be a global leader. Earlier this month the company announced it was selling its consumer health business to Bayer for $14.2 billion.

Merck is higher today after the company agreed to sell some of its eye care businesses in Asia and Europe to Santen Pharmaceutical. Jay Galeota, president of Merck's hospital and specialty care unit, said, "The decision to divest our ophthalmics business is part of our ongoing strategy to sharpen our commercial focus and improve our operational effectiveness." Santen is paying Merck $600 million up front, with follow-up payments to come based on sales milestones.

As part of this strategy to refocus, last year Merck sold its U.S. eyecare business to Akorn Pharmaceuticals. Merck plans on selling off the rest of its ophthalmology products in Latin America, Canada, Australia, the Middle East, and Africa.

While Merck did not say what it plans to do with the cash from this sale specifically, after the consumer health business sale Merck said it would return half the cash to shareholders while investing the rest in "areas within its business that represent the highest potential growth opportunities, such as MK-3475, to augment the company's pipeline with external assets that can create value and to continue to provide an industry-leading return of capital to shareholders." One of these areas of growth will be Merck's animal health business, which the company has decided not to divest. If Merck's drug trials go well and the company is able to replenish its pipeline, Merck could continue to crush the Dow for years more.