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As we wrote in a previous piece, big pharma had two setbacks in recent years: The first setback came from the prospect of the expiration of blockbuster stocks, and competition from generic makers like Mylan Labs (MYL) and Teva Pharmaceuticals (TEVA). The second setback came from proposed budgetary cuts for Medicaid and Medicare.

These setbacks have made many investors skeptical about the future of the industry, choosing to stay on the sidelines, especially during the recent market correction.

Last week’s earning reports from Bristol-Myers Squibb (BMY) and Merck (MRK) suggests that investor concerns over these setbacks have been overblown, and that big pharma may be on the rebound thanks to a strategy of diversification and partnerships with start-ups that help them bring new products to the market.

The two companies, together with their major peers, including Pfizer (PFE), which reports on Tuesday morning, Abbott Laboratories (ABT), Eli Lily (LLY) and Merck (MRK), enjoy strong financials which could help them overcome any further setback from budgetary cuts and generics competition.

click to enlarge images

Big Pharma Financials in 2011:

Company

BMY

PFE

LLY

MRK

ABT

SPY

Dividend

4.60%

4.4%

5.5%

4.80%

3.80%

1.88%

Operating Margin

32.49

21.17

28.21

21.25

19.88

--

Quarterly Earnings Growth

32.7

9.70

-11.2

169

50

--

Quarterly Revenue Growth

4.20

-0.40

8.80

7.10

9

--

Source: Yahoo Finance

The bottom line: With most of the bad news behind, big pharma is on the rebound. And with the Fed deciding to keep interest rates at record low levels, they offer an attractive alternative to money markets and CDs.

Source: Bristol-Myers Squibb, Merck Lead Big Pharma Rebound