Easy Choices in the Pharma Patch

 | Oct 28, 2013 | 12:29 PM EDT
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The gradations are pretty stark in the pharmaceutical business. There's no-growth, and that most certainly characterizes Merck (MRK), which no one wants. There's high-growth, and that's Biogen Idec (BIIB), liked by all. Then there's low-growth-going-to-high-growth. That's Bristol-Myers Squibb (BMY), and that's the holy grail.

We're seeing Merck's true colors today. We're seeing a company that has lost its way, and that doesn't seem to have any real growth prospects, amid a pretty dramatic deceleration in core drugs like Januvia. We see a company for which we can say: A-ha, they laid off those 8,500 people earlier this month, and totally switched directions in moving its headquarters to Summit, N.J., after spending a ton to make it the locus of the entire worldwide operations.

It seems like panic at this time. The idea of a break-up is still the best way to approach things. However, we've got a company that's in total denial.

Meanwhile Biogen Idec -- one of the four horsemen of biotech, along with Gilead (GILD), Celgene (CELG) and Regeneron (REGN) -- has delivered again with some spectacular results. The company has shown accelerating revenue growth, based in part on its revolutionary new multiple sclerosis drug, Tecfidera, which was approved by the Food and Drug Administration back in March. When you see revenue-growth guidance going from 22% to 23% to 25%, you are dealing with very robust situation.

But nothing's like an entire re-rating of an old-line pharma, from a plodder to a fast-growing company, and that's what Bristol-Myers finds itself doing. Here's a company with an expanding anti-cancer franchise, as well as rheumatoid arthritis medicine that, when used with a generic drug, methotrexate, reduced symptoms by 20%. That level of relief is great news to sufferers from this painful disease.

The company has also released come good survival data for its anti-lung-cancer drug. All of this good news caused both Credit Suisse and Morgan Stanley to upgrade the stock, which had been kept down for years by patent expirations.

It's tough for Bristol-Myers stock to go up much more for the moment, and for Merck to go down that much more. These slower companies, even when being re-rated, don't usually put on big second-day moves. But Merck has become a go-to name to sell on strength and Bristol-Myers has become a go-to name to buy on weakness.

And Biogen?

Just own it.

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