Johnson & Johnson (JNJ), Merck & Co., Inc. (MRK) & What To Watch

A lot hinging on this one..

Another highlight in Merck & Co., Inc. (NYSE:MRK)’s previous quarter was its agreement with Bristol Myers Squibb Co. (NYSE:BMY) involving a Phase II clinical trial to study the efficiency of a combination regimen of drugs to treat hepatitis C virus (HCV). The regimen includes Bristol Myers Squibb Co. (NYSE:BMY)’ daclatasvir and Merck’s MK-5172. Bristol Myers Squibb Co. (NYSE:BMY) has been in the race for developing an efficient HCV therapy for some time now. Earlier this year, the company had to pay over $1.8 billion after clinical trial of its inhibitor 094 proved that it was dangerous.

If the clinical trial with Merck & Co., Inc. (NYSE:MRK) proves successful, Bristol Myers Squibb Co. (NYSE:BMY) will be able to undo the damage caused earlier. The company sure has a lot riding on this deal. For 2013, Bristol Myers Squibb Co. (NYSE:BMY) expects its earnings per share to be in the range of $1.54-$1.64 per share. At the lower end of the range, this will mean a 33% jump from last year’s earnings of $1.16 per share.

What to expect

While Merck may have a lot of deals, agreements, and expansion plans for the next few quarters, the company’s prospects for growth do not look very strong at the moment. For the full year ahead, Merck & Co., Inc. (NYSE:MRK) expects its earnings to be between $1.92 and $2.16 per share. At the lower end, this will be an 11% fall from last year’s earnings per share of $2.16.

The company’s sales growth has been negligible over the last three years. Plus, the company’s pharmaceutical sales have been falling, mainly owing to expiring patents. Merck’s bestseller asthma drug, SINGULAIR, lost its patent in 2012, affecting sales dramatically in the previous quarter. If the downward trend in pharma sales continues, Merck & Co., Inc. (NYSE:MRK) will have little else to fall back on. Moreover, Merck’s investment into R&D has been falling, a red flag for the times to come. Until the company comes up with a breakthrough drug or its sales pick up, I would want to stay away from this pharma giant.

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