What To Expect From Merck’s Q3 Earnings?

by Trefis Team
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Merck (NYSE: MRK) is set to report its Q3’16 earnings on October 25th. The company reported 3% revenue growth on constant currency basis for the second quarter and we believe revenue growth for Q3 continued at this rate. on top of this, in Q2 this year the company reported an increase in R&D expense of $200 million on account of upfront payment to Moderna for collaboration to develop cancer vaccines. As a result R&D expense is expected to be lower in Q3 on quarter-over-quarter basis. In Q2’16 the company reported a jump in its GAAP EPS by over 79% on year-over-year basis. This was because in Q2’15 the company had to recognize a loss due to the devaluation of its monetary assets in Venezuela. Overall, we expect Merck to post low single digit growth in its revenue led by strong growth in immuno-therapy and diabetes segment.

Our price estimate of $63 per share for Merck is close to its current market price

Immuno-therapy And Diabetes Segment Hold The Key To Growth

We expect Merck to report growth mainly from Keytruda, Januvia and Janumet franchise. Of these Keytruda, an immuno-therapy drug, is expected to be a blockbuster. The drug posted growth of over 100% in Q2 of this fiscal year on year-over-year basis because of increasing market penetration. We estimate it will add about $4 billion per year in revenue by 2020. Moreover, Opdivo, a competing product from Bristol-Myers posted adverse results in phase III trials for sertain applications recently and this gives Keytruda a significant tailwind. Januvia already adds close to $4 billion in annual revenue. For Q3’16 we expect revenue from Januvia franchise to continue at this level. But going forward we expect it to keep adding incrementally to revenue with increase in diabetes patients globally.

On the flip side we expect the company to report slowdown in Remicade and Isentress,  on account of competitive pressure. Going forward Remicade’s sales are expected to drop significantly as the company would face increased competition from bio-similar Inflectra.

Have more questions about Merck? See the links below.

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