Expect Keytruda & Gardasil To Drive Merck’s Q4 Earnings Growth

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Merck

Merck (NYSE:MRK) is set to report its Q4 2018 earnings on February 1, and we expect the company to post mid-single-digit top line growth and low double-digits earnings growth. This can be attributed to the continued growth in the company’s blockbuster drug, Keytruda, along with Gardasil. The Animal Health business should see steady growth, led by gains in both Companion Animals as well as Livestock, while other pharmaceuticals could see declines in Q4. We have created an interactive dashboard analysis ~ What To Expect From Merck’s Q4?  You can adjust various drivers to see the impact on the company’s earnings and price estimate.

Expect Revenues To Grow In Mid-Single-Digits

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We expect Merck’s overall revenue to grow in mid-single-digits in Q4, primarily led by a strong double digit growth in oncology and vaccines, which will likely see continued ramp up in sales of Keytruda, and Gardasil. Both the drugs combined will likely generate sales of close to $10 billion for the full year 2018. Keytruda has been on a strong run in the recent quarters, given its approvals for multiple indications. 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 has seen strong growth of around 40% for the nine month period ending September 2018. We expect the ramp up in sales of these two drugs to continue in Q4 as well.

The company’s anti-infectives drug – Zepatier – has seen a 75% decline in sales for the nine month period ending September 2018. This can be attributed to lower patient volume and increased competition. This trend is expected to continue in the near term. Among other segments, the company’s Animal Health business should see steady revenue gains, primarily led by Companion Animals, which has so far seen double-digit growth in 2018. Merck’s alliance revenues should also trend higher from oncology drugs – Lynparza and Lenvima. Note that Lenvima received the U.S. FDA, European Union, and China approval for hepatocellular carcinoma in 2018. Lynparza also secured the U.S. FDA approval for ovarian cancer in December 2018. This should aid the alliance revenues in the near term.

Overall, we expect the company to post adjusted earnings of $1.09 per share in Q4, reflecting a low double-digit y-o-y growth. We currently have a $75 price estimate for Merck, which we will update post the Q4 results announcement.

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