Upgrades, Downgrades, and Poor Sales: Healthcare Update

Guiding the fortunes of many pharmaceutical manufacturers is the quality of their new drug pipelines; a limited research and development program can often be a heavy or oppressive burden on the company’s fortunes, and therefore, pipeline development is an important metric for analysts to consider when assessing the viability of a drug maker.

Merck (NYSE:MRK): Current Price $ 43.21

Like its competitors Eli Lilly (NYSE:LLY) and AstraZeneca (NYSE:AZN), Merck’s fourth quarter was marred by the expiration of patents. The company experienced a 5 percent decline in sales during the three-month period to $11.74 billion, as revenue from its asthma drug Singulair, which lost patent protection last year, fell 67 percent.

But despite challenges across the industry, Merck’s future looked particularly bleak compared to its rivals. AstraZeneca has plans to boost revenue by acquiring small- or mid-sized companies and Eli Lilly has a well-populated new drug pipeline, according to its chief executive John Lechleiter, while Merck has had problems developing new products.

After the earnings report was released at the beginning of February, analysts at Morgan Stanley downgraded shares of the healthcare company to Underweight over concerns for its pipeline. The company’s results showed that patient studies had not been favorable, jeopardizing the future of its two upcoming key drugs and its profits.