Keytruda, Januvia And Vytorin Will Govern Merck’s Second Quarter Earnings

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Merck (NYSE:MRK) will report its Q2 2015 earnings on July 28th. [1] We expect some positive signals as new drug sales ramp up and existing big franchises remain resilient to competition (except Remicade). Adverse currency movement is likely to be a dampener, but that’s a transient phenomenon and is widely expected and priced into the stock. The key will be to see how Keytruda sales are shaping up, and progress in FDA filings for additional indications. This is likely to influence the stock market more than any other single factor. Our price estimate for Merck stands at $63.30, implying a premium of about 10% to the market price.

See our complete analysis for Merck

Which Drugs To Watch Out For? 

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Some of the key drugs to watch out for include Januvia, Zetia/Vytorin, Keytruda, Belsomra and Zerbaxa. In Q1 2015, Merck’s cardiovascular division’s sales fell even after excluding the impact of exchange rates due to 2% decline in Zetia/Vytorin’s revenues. However, the year-over-year decline reduced as compared to what we saw in Q4 2014, which could be potentially linked to the trials related to combination of Zetia with a statin drug. We’ll have to wait for the second quarter results to confirm that the decline is indeed abating. Additionally, we expect  Januvia to show healthy growth due to strong adoption in international markets. The first quarter saw some growth in prescription share in the U.S. which suggests that the initial competition from Invokana is wearing off. Merck’s revenue decline was less than expected last quarter which prompted the company to lift its outlook.

We Continue To Remain Bullish On Merck

We remain bullish on Merck due to its recent progress in two critical growth areas — Hepatitis C and Immuno-Oncology. A combination therapy for Hepatitis C (grazoprevir and elbasvir) filed by Merck is up for FDA review. The treatment has demonstrated impressive cure rates for genotypes 1, 4 and 6 of the disease. This puts it in direct competition with Harvoni, which is an oral interferon and ribavarin free drug developed by Gilead Sciences.  Additionally, Merck’s immuno-oncology drug Keytruda has received priority review from the FDA for non-small cell lung cancer (NSCLC). If approved, the drug can significantly expand its target market over the course of next year. The commercial opportunity can increase significantly due to larger population of potential patients. Lung cancer is one of the most prevalent cancer types in the world, both in terms of incidence and mortality.

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Notes:
  1. Merck to Hold Second-Quarter 2015 Sales and Earnings Conference Call on July 28, Merck Press Release, Jun 26 2015 []