Merck's Q2 results were above the street estimates. Its revenue of $15.0 billion was up 3% y-o-y, primarily due to higher sales of Keytruda and Gardasil, partly offset by a sharp 83% decline in sales of its Covid-19 antiviral - Lagevrio. Excluding Lagevrio, sales were up 11%, driven by continued market share gains for Keytruda, which saw another 19% y-o-y jump in sales to $6.3 billion.
Merck reported a loss of $2.06 on a per-share and adjusted basis, primarily due to a $10 billion charge associated with the Prometheus acquisition.
Merck raised its full-year outlook, and it now expects full-year 2023 revenue to be in the range of $58.6 billion to $59.6 billion and earnings to be in the range of $2.05 to $3.05 per share.
Merck lost more than 28% of its value – dropping from $92 at the beginning of 2020 to around $66 in late March 2020 – then surged 1.8x to around $105 now (as of Aug 1, 2023). That means it is now above the pre-pandemic levels.
Why? While the Covid-19 outbreak and associated lockdowns resulted in an uncertain outlook for the broader markets, the multi-billion-dollar Fed stimulus announced in late March 2020 helped the markets stage a strong recovery. Investors expected a quicker economic rebound with economies opening up gradually, boding well for pharmaceutical companies, such as Merck.
Merck, in late September 2021, announced that it will acquire Acceleron Pharma – a biopharmaceutical company focused on rare diseases – for $11.5 billion, funded in cash and debt. Acceleron has multiple potentially blockbuster drugs in its pipeline. To name a few, Sotatercept – is in late-stage clinical trials for the treatment of pulmonary arterial hypertension (PAH), with peak sales estimated to be north of $2 billion. Another drug – Reblozyl (in partnership with Bristol Myers Squibb) – which is used to treat anemia in myelodysplastic syndromes (MDS) – is estimated to garner over $2 billion in peak sales.
The Acceleron acquisition is seen as a positive for Merck, as it will strengthen its cardiovascular portfolio and it gives the company multiple potentially blockbuster drugs. The price of $180 a share paid by Merck is also not out of the line with a 34% premium over the levels of around $134 Acceleron’s stock was trading at a couple of weeks before the deal was announced.
Merck in January 2020 announced that it will spin off its Women's Health business, along with legacy brands and biosimilars into a new company. The spin-off was completed in June 2021.
Key drivers of Merck's value that present opportunities for upside or downside to the current Trefis price estimate for Merck:
Merck ranks among the world's largest pharmaceutical companies in terms of revenues. The company delivers innovative health care solutions through its prescription medicines, vaccines, biologic therapies and animal health products which it markets directly and through its joint ventures. The firm's operations are managed through the company's three main divisions, namely Pharmaceutical, Animal Health, and the Alliances division. Merck sold its consumer care business to Bayer in 2014.
Merck has a strong portfolio of oncology drugs, led by Keytruda. The segment sales have increased from less than $1.0 billion in 2014 to over $23 billion in 2022, and we forecast it to grow north of $32 billion by the end of our forecast period in 2029. Most of this growth can be attributed to Keytruda. Merck's other drugs in the oncology portfolio include Emed, Temodar, and alliance revenue from Lynparaza and Lenvima. Additionally, the division is unlikely to see any decline in revenues because Keytruda's patent is protected till 2026.
Like other major pharmaceutical companies, Merck is also battling against the impact of patent expiry of its several major drugs including Singulair, Remicade, Propecia, Clarinex, Maxalt, Cozaar, and Hyzaar. Out of these, asthma drug Singulair has had the biggest impact and has continually weighed on Merck’s growth for the past few years.
The fast-growing pharma market in emerging economies, referred to as the 'Pharmerging' economies, has the capability and technical prowess to manufacture generic versions of blockbuster drugs. These generic drugs are often sold at prices that are substantially cheaper than their branded counterparts, thereby severely affecting big pharma's ability to generate profits in the long run. Merck's drugs could face potential threats from biosimilars in the future, which are generic versions of biologics.
Governments around the world are trying to rein in fiscal spending in order to manage their budget deficits. Since healthcare costs are one of the biggest components of any national budget, it is expected that an increase in healthcare legislation and reforms around the world will hurt revenues for the entire pharmaceutical sector.