Here's Why Merck Stock Is Down In 2017 Despite A Rising Industry

After a weak performance in 2016 due to drug pricing issues, the pharma industry has bounced back this year except for a minor correction recently. While Merck & Co., Inc. (NYSE:MRK) was one of the very few companies whose shares were up last year notwithstanding the industry’s decline, it’s the other way round this year.

Shares of Merck have declined 7.6% this year against a 14.8% increase for the Large-Cap Pharma industry. Let us discuss why.

Merck has suffered some notable pipeline setbacks this year. In October, Merck decided not to seek approval for its CETP inhibitor anacetrapib for cholesterol management as its clinical profile was not strong enough to support regulatory filings.

Last month, the company also announced a delay in the readout from an important lung cancer study. It said that since it was including overall survival as a co-primary endpoint in the KEYNOTE-189 phase III study of Keytruda in first-line lung cancer, it will delay the readout from the study to 2019. This raised investor concern, as the delay in the readout can give competitors a chance to gain strength in the lung cancer market.

In October, Merck also withdrew a regulatory application in Europe, which was looking to get Keytruda approved as first-line combination therapy for lung cancer. Please note that since October, shares of Merck are down 15.1% -- the result of these back-to-back pipeline setbacks.

In September, Merck discontinued the development of two of its HCV combination programs — MK-3682B and MK-3682C — saying that the HCV market is becoming extremely crowded. Also, three combination studies of Keytruda for multiple myeloma were placed on clinical hold following reports of death in Keytruda groups in July. Keytruda is seen as a key long-term growth driver at Merck and such setbacks do not bode well for the company.

It remains to be seen if the strong performance of its new drugs, particularly Keytruda, its strong vaccines and animal health business and cost saving efforts can help Merck pick up from here.

Merck carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Most other large-cap pharma stocks including AstraZeneca (NYSE:AZN) , J&J (NYSE:JNJ) , Eli Lilly (NYSE:LLY) , and Bristol Myers are up this year.

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