BMO Downgrades Merck and Biogen: Lack of Near-Term Catalysts

Bank of Montreal (BMO) has downgraded its ratings for pharmaceutical giants Merck & Co. (MRK) and Biogen Inc. (BIIB), citing a lack of near-term catalysts that could drive stock performance. This move reflects a broader trend among analysts who have become increasingly cautious about the pharmaceutical sector. In this article, we will explore the reasons behind BMO's downgrades, the potential long-term catalysts for Merck and Biogen, and the overall investment sentiment for these companies.

BMO's downgrades come as Merck and Biogen have faced challenges in their recent financial performances. Merck's earnings per share (EPS) fell by 14% year-over-year in Q2 2022, while Biogen's EPS dropped by 35% in the same period. In comparison, the pharmaceutical industry as a whole saw a 5% increase in EPS during this time. This underperformance can be attributed to several factors, including patent expirations, increased competition, and regulatory hurdles.

For Merck, key drugs like Keytruda face competition from other cancer treatments, while Biogen's multiple sclerosis drug, Tecfidera, has seen its market share erode due to generic competition. Additionally, both companies have struggled with pipeline setbacks, with Merck's experimental COVID-19 vaccine failing to meet expectations and Biogen's Alzheimer's drug, Aduhelm, facing criticism and reimbursement issues.



Despite these challenges, potential long-term catalysts could still impact Merck and Biogen's stock performance. For Merck, Keytruda's potential in new indications and Lynparza's growth in the PARP inhibitor market could drive long-term growth. Biogen's Aduhelm, despite initial setbacks, could still gain traction with new data and market acceptance. Additionally, both companies' R&D efforts in neuroscience and oncology may yield promising results in the future.

BMO's decision to cut its rating on Merck and Biogen aligns with a broader trend among analysts, who have been increasingly cautious about the pharmaceutical sector. In the past year, analysts' average price targets for Merck and Biogen have decreased by 12% and 18% respectively, indicating a shift in sentiment. Additionally, the number of analysts with 'buy' or 'trong buy' ratings for Merck and Biogen has fallen by 15% and 20% respectively, further supporting BMO's more conservative stance.



The absence of near-term catalysts, such as new drug approvals or significant clinical trial results, can impact the short-term growth prospects of Merck and Biogen. BMO's downgrade reflects this concern, as these catalysts often drive stock price movements. In the short term, without these positive developments, investors may be less inclined to buy shares, leading to potential stagnation or decline in stock prices. However, in the long term, the absence of near-term catalysts does not necessarily mean these companies will not grow. Both Merck and Biogen have strong pipelines and established products, which could still drive growth over time. Investors should consider the companies' long-term strategies and pipelines when evaluating their growth prospects.

In conclusion, BMO's downgrades of Merck and Biogen highlight the need for investors to consider alternative catalysts for these pharmaceutical giants. While Merck's Keytruda and Biogen's Spinraza face patent expirations, new drugs like Merck's Lenvima and Biogen's Aduhelm offer potential growth. Additionally, both companies are exploring gene therapies, with Merck's Tepmetko and Biogen's Roche collaboration on hemophilia treatments. These innovations, along with strategic partnerships and acquisitions, could drive near-term growth, making these stocks attractive for investors seeking alternative catalysts.