Merck’s Q1 Earnings Growth Will Likely Be Led By Higher Keytruda Sales

Merck (NYSE:MRK) is expected to publish its Q1 2019 results on April 30. This note details Trefis’ forecasts for Merck, as well as some of the key trends we will be watching when the company reports earnings. You can view our interactive dashboard analysis ~ How Is Merck Likely To Have Fared In Q1? for more details on the key drivers of the company’s expected performance in Q1. In addition, you can see more of our data for Healthcare companies here.

How have Merck’s revenues changed over recent quarters, and what’s the forecast for Q1 2019?

• Total Revenues for Merck have remained in the range of $10 billion to $11 billion in the recent quarters.
• Growth in some of the key drugs was partly offset by a decline in drugs that have lost marketing exclusivity in the recent years.
• We estimate the company’s revenues to be a little under $10.50 billion in Q1; a figure 5% higher than what it reported a year ago.

What are Merck’s key sources of revenue?

• Merck generates its revenues from sales of drugs for several indications in different therapeutic areas, including:
  • Oncology
  • Cardiovascular
  • Virology
  • Immunology
• The company also generates revenues from its Animal Health business.
• The company’s near term growth can largely be linked to its blockbuster oncology drug ~ Keytruda ~ which generated over $7 billion in sales in 2018.

What to expect from the Oncology segment?

• Oncology revenue has increased from $1.51 billion in Q4 2017 to $2.47 billion in Q4 2018. This can largely be attributed to strong sales growth of Keytruda. We expect this trend to continue in the near term, and forecast high twenties percent segment revenue growth in Q1.
• Keytruda is witnessing increased acceptance, and it is the leader in the immuno-oncology space.
• The drug has 15 approvals in the U.S. for 10 different types of tumors, and it has shown superior benefits in treatment over its peers.
• Apart from Keytruda, the segment includes Temodar and Emend, both of which will likely see decline in sales. Emend will lose its marketing exclusivity in EU, and Japan this year.

How much can the Animal Health segment grow?

• Animal Health segment revenues have grown from $981 million in Q4 2017 to $1.04 billion in Q4 2018.
• This can be attributed to higher demand for vaccines, as well as poultry products, which are aiding the segment revenue growth, and this trend will continue in the near term, in our view.
• We expect the segment sales to improve in low-single-digits to $1.09 billion in Q1.

What to watch for in other segments?

• Among other segments, Vaccines should see high single-digit growth, led by Gardasil.
• Gardasil is a vaccine used for prevention against HPV (human papillomavirus) virus, which has been linked to certain types of cancers.
• It has seen strong sales growth of 34% for the full year 2018, and will likely see double-digit gains in the near term.
• This can be attributed to increased immunization across various countries. Europe, as well as China, will likely drive the drug’s future sales growth.
• Apart from Vaccines, the company will likely see an uptick in alliance revenues from Lynparza and Lenvima, given they received the regulatory approvals last year.

What will be the impact of the above on Merck’s EPS?

• We expect the earnings to be $1.08 per share on an adjusted basis in Q1. This reflects 3% growth to the prior year quarter.
• The growth in earnings will likely be led by higher revenues, and lower share count.
• However, the margins could contract in the near term, as the company spends more on R&D for its phase 3 pipeline.

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