Pharmaceuticals giants Pfizer (PFE) and Merck (MRK) both topped Wall Street’s profit forecasts Tuesday, but slumping revenue remains the real story, as MRK and PFE struggle with the loss of patent protection on blockbuster drugs.
Merck stock and Pfizer stock have charted different courses this year, partly because MRK has had success in dealmaking, while PFE famously flopped. Merck stock is up 16% for the year-to-date, beating the broader market by 9 percentage points. Pfizer stock is off nearly 2% on the year.
Pharmaceuticals companies are scrambling to make up for the loss of exclusivity on key drugs. In response, MRK sold its over-the-counter business for more than $14 billion earlier this year. That gives the company ample cash for acquisitions — and perhaps a dividend hike on Merck stock or a share repurchase program to keep restive shareholders happy.
As for Pfizer stock, it hasn’t been able to generate any momentum all year long, hurt by its failed bid for AstraZeneca (AZN). Had the $117 billion deal not been rejected by the U.K.-based drug maker, it would have been the largest in pharmaceuticals history. Anyone holding Pfizer stock also would have benefited from PFE moving its legal headquarters overseas to take advantage of a lower corporate tax rate (a so-called inversion deal).
But it didn’t happen, and now Pfizer stock is in limbo as the company actively seeks another transformative deal.
Against this backdrop, quarterly earnings for PFE and MRK mostly come down to managing slowly eroding revenue.
Pfizer Stock Rises on Earnings Beat
Pfizer stock rose more than 1% at the opening bell despite cutting its revenue forecast for the rest of the year. For the most recent quarter, PFE earnings came to 58 cents a share, which exceeded analysts’ average projection by a penny.
Revenue, however, continued to soften on lower sales of Viagra. Revenue declined 2% to $12.8 billion, led by a 28% drop in Viagra sales overseas, where it has largely lost patent protection.
Adding to the top-line pain, PFE expects full-year revenue to fall to $48.7 billion to $50.7 billion from the $51.6 billion it booked last year, hurt by the loss of exclusivity on Celebrex.
Merck Stock Adds to Gains
Merck stock rose less than 1% in early trading, even as the company delivered a beat-and-raise quarter. Earnings rose to $2 billion, or 68 cents a share, from $906 million, or 30 cents a share, a year ago. On an adjusted basis, earnings per share came to 85 cents vs. a Street forecast for 81 cents.
Like PFE, Merck revenue fell, but still beat analysts’ average estimate. The top line contracted by 0.7% to $10.9 billion, against a forecast for $10.6 billion.
As for guidance, MRK maintained its revenue outlook, and raised to lower end of its earnings forecast. Merck sees earnings per share at anywhere from $3.43 to $3.53 this year.
Decent quarterly numbers shouldn’t do anything to hurt Pfizer or Merck stock, and the old story of sliding revenue is fully baked in.
That said, Pfizer stock probably offers more upside at this point. A strong year for MRK has it looking pricey.
Look for beaten-down Pfizer stock to rebound once it lands the whale of a deal it has made no secret of pursuing.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.