Both Pfizer and Merck are expected to report double-digit declines in top- and bottom-line growth when they announce earnings Tuesday. But lack of growth doesn't seem to bother Wall Street. The stocks are trading near multiyear highs and have gained roughly 18 percent this year.
Why is Wall Street supporting firms that are seeing slower growth? First, according to analysts, because the wave of patent expirations that hit big drugmakers was widely anticipated, the sales slowdown is already priced in. Second, investors like the big dividends.
A high-growth sector in the early 2000s, pharmaceuticals has been under pressure over the past few years as drug patents expired, allowing makers of lower-priced generics to move in on the market.
In response, big pharma companies have been working relentlessly on building out pipelines by developing drugs in-house or simply acquiring early- to mid-stage biotech firms that are working on promising drugs.