The health care reform overhang is ending, making 2010 a safer time for investors to look at health care names. But is it already too late to find attractive pricing among the sector's large-cap players?
Many health care experts argue that if an investor wants to get healthy gains with big pharma in 2010, Merck ( MRK ) is the more potent story. Merck is also in the middle of merger integration, with Schering-Plough. The deal has received much more praise from the market than the Pfizer-Wyeth marriage. Still, how much better is Merck's positioning that Pfizer? When it comes down to the all-important future pipeline question, Merck's research and development is considered meaningfully greater than the pipeline at Pfizer. "You expect 90% of R&D efforts to fail, not 100%," said Les Funtleyder, an analyst with Miller Tabak, when comparing Merck to Pfizer. Merck and Schering also have a far better history than Pfizer of developing new compounds. And Funtleyder noted that patent-expiring Lipitor papered over a lot of R&D failures for Pfizer. Merck bought time to develop its pipeline with the deal, and in the most bullish scenario for its drug pipeline, Merck will be the big pharma stock that could switch from a defensive play to a growth company. If you're still a bear on economic recovery, healthcare stocks like the big pharmaceuticals often make good defensive bets. Still, analysts caution investors who are looking for big growth stories from pharmaceuticals in 2010 to steer clear of the Superbowl-advertising drug stocks, and look to the biotechnology sector.