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Why Pfizer and Merck Stock Both Slumped After Their Earnings Reports

May 1, 2018, 3:37 PM UTC
A Pfizer sign hangs on the outside of their headquarters in New York City.
Photograph by Mario Tama—Getty Images

Pfizer stock fell 4% in early Tuesday trading while Merck stock slipped about 1% after the two drug giants issued their quarterly earnings reports—both of which were somewhat mixed bags despite stronger-than-expected Merck (MRK) profits and a solid financial performance by Pfizer’s (PFE) flagship pneumonia vaccine Prevnar.

Pfizer missed earnings estimates with first quarter 2018 revenues of $12.9 billion, just 1% growth year-over-year. That was despite $1.38 billion in quarterly sales of Prevnar. CEO Ian Read described the results as “solid”—but one issue that may be giving investors pause is the company’s inability to strike a major new deal.

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The Viagra maker has been attempting to pull off a major M&A for some time now, but has been largely unsuccessful in recent years. First, there was the scuttled mega-merger planned with Botox maker Allergan in 2016. More recently, it’s struggled to strike a deal for its consumer healthcare business, with major potential bidders like GlaxoSmithKline pulling out and Procter & Gamble deciding to buy German pharmaceutical company Merck KGaA’s consumer unit instead. Read said Tuesday that the company is still looking for potential deals involving its consumer arm.

Merck’s situation is a bit more complicated. The company actually beat Wall Street profit estimates largely thanks to its superstar cancer immunotherapy drug Keytruda, which has been shown to best chemotherapy in helping lung cancer patients live longer and given Merck a leg up over rivals like Bristol-Myers Squibb’s immune therapy Opdivo. Keytruda rang in $1.46 billion in sales for the quarter—a 150% rise from the same quarter last year, thanks to an ever-expanding drug label to treat various cancers.

However, that very success may also have given some investors pause considering the drug’s outsize role in Merck’s revenue stream. Keytruda now accounts for about 15% of Merck sales. Net income actually fell more than 52% in the quarter (though that’s also largely because of a one-time charge related to a collaboration with Eisai). Furthermore, a piece of unfortunate clinical news may also be hitting Merck stock: Its collaboration with the biotech Incyte to combine Keytruda with another experimental therapy has been scuttled.