GlaxoSmithKline plc (ADR) (GSK), Pfizer Inc. (PFE), Merck & Co., Inc. (MRK): These Biotech Companies Are Facing Setbacks, but Investors Shouldn’t Worry

Merck and Pfizer are taking action

As sales are rapidly declining, Merck & Co., Inc. (NYSE:MRK) and Pfizer Inc. (NYSE:PFE) have decided to undertake huge buyback programs, reinvesting their huge cash piles and free cash flows, returning the cash to shareholders, which should, to some extent, offset the decline in sales by reducing the number of shares in issue and boosting EPS.

Although this is only an aesthetic change and the companies’ underlying sales are still under pressure, these buybacks should hold up stock prices while both Merck & Co., Inc. (NYSE:MRK) and Pfizer develop their drug pipelines, bring new products to market, and streamline operations.

In addition, these buybacks put both Pfizer and Merck in the top ten for the best shareholder returns in the S&P 500. Indeed, Merck is set to return around $8.20 per share, an indicative yield of 17%! Including dividends, Pfizer is set to return $21 billion to shareholders this year, around $2.80 per share, a yield of 10%.

Foolish summary

All in all, the biotechnology sector is not the risk-free profit machine it once was. Having said that, these companies are some of the biggest (Pfizer is the biggest) drug manufacturers in the world, a position that is hard to achieve and any setback is only likely to be short-lived.

Still, Pfizer Inc. (NYSE:PFE) and Merck & Co., Inc. (NYSE:MRK) are set to return huge amounts of cash to shareholders this year and any setback for GlaxoSmithKline plc (ADR) (NYSE:GSK) in China should only be temporary.

The article These Biotech Companies Are Facing Setbacks, but Investors Shouldn’t Worry originally appeared on Fool.com and is written by Rupert Hargreaves.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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