What Will Drive Merck’s Near Term Growth
Merck (NYSE:MRK) has seen strong growth in its Oncology drug Keytruda, along with Vaccine Gardasil in the recent quarters. The company’s Q2 results topped street estimates, led by a strong growth in these two drugs. We continue to believe that Merck’s near term growth can largely be linked to the ramp up in Keytruda sales, while the drug’s label expansion could drive the company’s overall growth in the long run. 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 Near Term Growth
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We forecast Merck’s overall revenues to grow in mid-single digits to $42 billion in 2018, which is at the lower end of the company’s revenue guidance. The growth will primarily be led by the Oncology segment, which will likely see a strong double digit growth with revenues close to $7 billion for the full year, according to our estimates. Within Oncology, Keytruda continues to see strong demand and a ramp up in sales. In fact, Keytruda garnered over $3 billion in H1 2018, and was the leading immunotherapy in patient starts in the U.S. in Q2, according to the company’s management. This can be attributed to its wide scope with approvals for 12 indications. Keytruda has a large addressable market because of its approval for lung cancer. The commercial opportunity is huge due to the larger population of potential patients. Lung cancer is one of the most prevalent cancer types in the world, both in terms of incidence and mortality. The company is currently working on 9 programs in different therapeutic areas, such as Head & Neck, Liver, and Gastric, in its phase 3 trials for Keytruda. Some of these will likely see regulatory approvals, and aid the sales growth in the coming years. Note that the drug’s peak sales are touted to be as high as $16 billion while we estimate it to be around $8 billion over the next few years.
Apart from Oncology, Mature Products & Others is the only segment where we expect revenue growth in the near term. The company’s other segments will likely see revenues decline amid biosimilar and generic competition. Mature Drugs & Other Segments will benefit from the growth in the Animal Health business, and partly from alliance revenues for Lynparza, and Lenvima. The Animal Health business has been doing well of late, with a double digit revenue growth in H1 2018. Lenvima will likely receive the approval for hepatocellular carcinoma this month. The company will also promote the drug outside the U.S., and these factors will boost the alliance revenues.
Looking at other segments, we expect Vaccines to see strong growth led by Gardasil, which saw an impressive 27% growth H1 2018. 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 forecast a high single digit decline in segment revenues, as growth in Gardasil will be offset by a decline in Zepatier sales, which plunged by over 70% in H1 2018, due to lower patient volume and increased competition. This trend is expected to continue in the near term.
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