Merck Earnings Preview

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Upside
121
Market
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Trefis
MRK: Merck logo
MRK
Merck

As Merck (NYSE:MRK) reports its Q1 2015 earnings on April 28th, we expect the decline it its legacy products to continue due to competitive pressure from generics. Furthermore, we expect the cardiovascular division to remain under pressure due to intense competition and lack of new groundbreaking therapies. This was evident in Q4 2014 when sales of Zetia and Vytorin fell 8% and 15%, respectively. However, a recent study (the IMPROVE-IT trial) specific to Vytorin, which combines Zetia with a statin drug, has shown its advantage over other drugs in terms of reduced cardiovascular events. The the impact will be more clear in the first quarter results. However, currency effects will continue to be a dampener and pull down the growth of Merck’s key franchises, including diabetes and immunology. We believe the key catalysts for the stock are Merck launching a successful hepatitis C drug and its cancer drug Keytruda getting more approvals, and we look forward to any updates on these. (read These Two Catalysts Can Move Merck’s Stock Up)

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Merck’s diabetes drug Januvia saw a growth of 4% in 2014 and 6% in the fourth quarter of the year, excluding the impact of currency movements. However, accounting for unfavorable exchange rate effects, the drug’s sales grew by just 2% in Q4 2014. This suggests that Januvia’s international exposure is increasing which makes it more vulnerable to currency effects, and we know that the competition in the U.S. is only going to intensify. The longer term outlook is not as rosy, however, as the franchise will likely face strong competition from J&J and Eli-Lilly. The latter is making efforts to comprehensively cover multiple diabetes drug classes. The year 2015 may be challenging one.

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In the Immunology segment, Remicade and Simponi are doing very well, as evident from the growth observed in Merck’s total immunology revenues during 2014. However, the revenues from Remicade haven’t grown much sequentially in 2014, which may be a cause of concern. Also, the drug lost its exclusivity in Europe in 2015, which will again put pressure on Merck’s growth unless its new launches can make up for it.

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