How Will Merck Perform In 2018?
We forecast Merck (NYSE:MRK) to post modest revenue growth and adjusted EPS of just above $4 in 2018. We expect the growth to be primarily led by the Oncology and Anti-Infective segments. We forecast Oncology to grow in double digits, led by a continued ramp up in Keytruda sales, while Anti-Infective will likely see high single-digit growth.
We have created an interactive dashboard on Merck’s expected performance for 2018. You can adjust the revenue and margin drivers to see the impact on the company’s performance. Below we discuss our expectations and forecasts for the company.
Expect Oncology And Anti-Infective Drugs Sales To Drive Growth In 2018
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We expect Oncology sales to grow by over 15% to $5.4 billion in 2018, primarily led by a ramp up in Keytruda sales. 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. It should be noted that the drug has a large addressable market because of its approval for lung cancer, which is one of the most prevalent cancer types in the world, both in terms of incidence and mortality. We estimate the drug’s peak sales to be north of $6 billion. We believe this estimate is reasonable given that Keytruda is being tested in 8 different programs in phase 3 trials, including breast cancer, head and neck cancer, and gastric cancer, among others. Accordingly, over the next few years, the drug could receive more FDA approvals, which will further aid its sales.
Beyond Oncology, we also expect the Anti-Infective segment to do well in 2018. We expect 2018 sales to be over $12 billion, primarily led by growth in Gardasil, and Zepatier. Both drugs have seen solid sales growth in recent quarters. Meanwhile, most of the company’s other segments will continue to face competitive pressure, especially Cardiovascular, as Zetia recently lost its patent exclusivity. In fact, Zetia sales declined by almost 50% in 2017, and we expect it to further drop by 20% in 2018, as the drug now faces biosimilar competition.
Low Single-Digit Forecast Earnings Growth
Merck’s Non-GAAP Net Income Margin has been around 27% on average over the past few years, and we expect it to be more or less around that level in 2018 as well, with a dip of a few basis points. Given our low-single-digit revenue growth forecast, we forecast around 1% growth in earnings in 2018.
We estimate a price-earnings multiple of around 16 for Merck, which is below many pharma industry multiples, reflecting the risk of biosimilars impacting the company’s future growth. This translates into a price estimate of $65 for Merck’s stock, which is more than 15% above the current market price.
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