Expect Keytruda To Drive Merck’s Q1 Earnings Growth

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Trefis
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Merck

Merck (NYSE:MRK) is set to report its Q1 2018 earnings on May 1, and we expect the company to post steady growth, primarily led by its Oncology drug Keytruda. Looking at other segments, Anti-Infectives may face some headwinds due to competitive pressure for Zepatier while Gardasil will likely do well. Keytruda and Zepatier posted solid growth in 2017, with combined sales jumping 2.5x (y-o-y) to $5.5 billion. While we expect the growth to continue in 2018, albeit at a slower pace. We also expect some headwinds for the company’s diabetes portfolio, due to continued pricing pressure given the branded competition. Also, Remicade and Zetia will likely see continued pressure due to loss of patent exclusivity. Overall, we believe the company’s near term performance can be linked to its Oncology segment, primarily Keytruda. We have created an interactive dashboard of the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s performance.

Expect Oncology To Drive Q1 Growth

We expect Merck’s Oncology revenue to grow by 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. The drug saw 170% growth in 2017, and we expect 20% growth in 2018. Keytruda 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. Looking at other segments, we expect Anti-Infective segment to see high-single-digit growth in 2018. Zepatier and Gardasil have been trending well of late, especially Zepatier, which saw 36% growth in 2017. However, the drug lost market share and posted volume declines in the previous quarter. On the other hand, Gardasil continues to perform well, both in the U.S. and international markets. The drug was approved in China last year, and it should aid the overall sales in the near term. It should be noted that cervical cancer is the second most common cancer among Chinese women, after breast cancer.

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Most of the company’s other segments will continue to face competitive pressure, especially Cardiovascular, as Zetia lost its patent exclusivity last year. 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. Having said that, the company’s Animal Health business has been doing well, with a double digit growth in 2017, and we expect this trend to continue in the near term.

Our price estimate of $65 for Merck is slightly above the current market price.

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