A Ramp Up In Keytruda Sales Will Likely Drive Merck’s Q2 Earnings Growth
Merck (NYSE:MRK) is set to report its Q2 2018 earnings on July 27, and we expect the company to post steady growth, primarily led by its Oncology drug Keytruda. Among other segments, Anti-Infectives will likely remain sluggish, due to competitive pressure for Zepatier. Within Vaccines, Gardasil will likely do well, especially in the international markets, after its launch in China. The company’s Animal Health business has been doing well of late, and we expect this trend to continue in the near term. Overall, we believe the company’s near term performance can be linked to its Oncology segment, primarily Keytruda. We have created an interactive dashboard ~ What Is The Outlook For Merck ~ on the company’s expected performance in 2018. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate.
Expect Oncology To Drive Q2 Growth
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We expect Merck’s Oncology revenue to grow by more than 30% to north of $6.0 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. In fact, Keytruda sales more than doubled to nearly $1.5 billion in the previous quarter. Keytruda has a large addressable market of lung cancer, and its growth will likely continue not only in the near term, but also in the long run. The Keynote-189 results from earlier this year were encouraging for a combination of Keytruda with chemotherapy for nonsquamous first-line lung cancer. The drug’s peak sales are estimated to be as high as $10 billion, and it will likely continue to drive growth for Merck in the coming years.
Looking at other segments, we expect Vaccines to see strong growth led by Gardasil, which saw an impressive 24% growth in the previous quarter. Gardasil is a vaccine used for prevention against HPV (human papillomavirus) virus, which has been linked to certain types of cancers, which makes it an important vaccine. It should be noted that we show Vaccines under the Anti-Infective segment in our model. As such, we don’t expect any significant growth for the segment, given that the growth in Gardasil will likely be offset by a decline in Zepatier sales. Zepatier sales plunged by 65% in Q1, due to lower patient volume and increased competition. This trend is expected to continue in the near term. The company’s Mature Products & Other Segments will likely see growth led by the Animal Health business, which grew in double digits in Q1, led by gains both in livestock sales and companion animal sales.
Overall, we expect the company to post adjusted earnings of $4.20 in 2018. We forecast a price to earnings multiple (TTM) of 15x, which is lower than most of the estimates for the pharmaceuticals sector, reflecting the risk of generic and biosimilar competition to some of the drugs, including Zetia, Remicade, and Vytorin, to arrive at our price estimate of $64 for Merck, which is close to the current market price.
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