Continued Uptick In Keytruda Sales Aided Merck’s Q4
Merck’s (NYSE:MRK) recently released Q4 numbers reflect the continued uptick in the Oncology segment led by Keytruda. However, the company’s Cardiovascular segment continues to face competitive pressure. Overall revenues grew 3% while earnings grew 10% to $0.98 per share. Looking at its drug portfolio, Keytruda continued to shine, with sales of $1.3 billion during the quarter, representing 169% growth over the prior year period. Merck’s best selling drug – Januvia/Janumet – posted 1% growth in Q4, which was better than expected. It should be noted that these drugs are facing competitive pressure and the sales have seen recent declines. On the flip side, Merck’s cardiovascular segment continues to slide with the loss of exclusivity of its key drug – Zetia – which now faces biosimilar competition. Zetia saw a 42% drop in sales during the fourth quarter.
Looking forward, the company expects revenues to be in the range of $41.2 billion to $42.7 billion in 2018. The company’s management also stated that the gross margins in 2018 will be lower than 2017, as it invests more into R&D. On taxes, the company expects it to be in range of 18% to 20%, given the recent tax reform. Overall, we continue to believe that Keytruda remains critical to Merck, and also a key growth driver in the near term. The drug was on a strong run in 2017 with a series of FDA approvals, which will accelerate the drug’s growth in the coming quarters. Beyond Keytruda, Zepatier is another success story, with sales potentially reaching north of $2 billion in 2018, per our estimates. However, Merck’s diabetes drugs, Januvia/Janumet, will likely continue to face pricing pressure, which may even intensify going forward.
We estimate that the value of Merck’s phase 3 drug pipeline (not counting the enhancement of currently marketed products) could be as much as $37 billion, or nearly 25% of its current market value. Merck has traditionally been strong in anti-infective drugs and vaccines, and these therapeutic areas continue to be a significant part of its phase 3 pipeline. Take a look at our interactive dashboard of Merck’s phase 3 drug pipeline which shows key factors determining the pipeline’s value such as expected peak sales, expected growth trajectory and probability of market approval. You can modify the assumptions to see how it impacts the company’s drug pipeline’s revenue forecast and valuation.
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Our price estimate of $65 for Merck is over 10% above the current market price.
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