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Who Fared Better in Q3 Earnings Season: Merck or Eli Lilly?
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Yesterday, two big names in the U.S. large-cap pharma sector – Merck & Co., Inc. (MRK - Free Report) and Eli Lilly and Company (LLY - Free Report) - reported third quarter results. While Merck surpassed expectations, Lilly’s results fell short of estimates.
Here is an in-depth look at the third quarter results of both companies and key takeaways from their conference calls.
Merck Beats on All Fronts
It was a win-win quarter for Merck – not only did the company report a “beat and raise” quarter, it scored an important FDA approval for its anti-PD-1 therapy, Keytruda.
A Look at Q3 Results: Merck’s third quarter earnings of $1.07 per share comfortably surpassed the Zacks Consensus Estimate of 98 cents per share. Revenues of $10.5 billion were also above the Zacks Consensus Estimate of $10.2 billion.
Performance of Key Products: Though revenues benefited from additional sales (about $150 million) in Japan reflecting the timing of shipments ahead of a resource planning system being implemented in the fourth quarter of 2016, higher-than-expected sales of Gardasil and the delayed entry of Cubicin generics in the reported quarter boosted sales as well. Gardasil growth was primarily driven by the timing of public sector purchases and increased pricing and demand in the U.S.
But the performance of the Januvia franchise was disappointing with sales declining sequentially as well as year-over-year. Pricing pressure in the U.S. continues to affect the franchise’s performance even though total prescription trends remain strong. Remicade also continues to be affected by biosimilar competition with biosimilars benefiting from increased new patient starts as well as patient switching.
Keytruda sales came in at $356 million, up 13.4% sequentially with U.S. sales being driven primarily by melanoma where Keytruda continues to be the leading immuno-oncology therapy, as well as from the ongoing launch in second-line lung cancer.
Narrows & Raises Outlook: Along with reporting better-than-expected results, Merck narrowed and raised its outlook for the year. The company expects to earn $3.71 - $3.78 per share in 2016 on revenues of $39.7 - $40.2 billion. Earlier on its second quarter call, the company had guided towards earnings of $3.67 - $3.77 per share on revenues of $39.1 - $40.1 billion.
Keytruda 1st Line Lung Cancer Approval a Major Boost: The key focus on Merck’s third quarter call was the earlier-than-expected FDA approval of Keytruda for the first-line non-small cell lung cancer (NSCLC) setting. This is a very important milestone for Merck as the company looks set to enjoy a head-start in this setting for the next 18 months or so.
Keytruda sales should improve sharply with the first-line NSCLC indication. Keytruda’s label was also updated to include KEYNOTE-010 data which means that patients expressing any level of PD-L1 are eligible for Keytruda in a second-line NSCLC setting.
Lilly’s Q3 Numbers Fall Short
Lilly’s results were disappointing with the company missing on both earnings and revenues. The company’s earnings of 88 cents per share were well below the Zacks Consensus Estimate of 96 cents per share while revenues of $5.19 billion were shy of the Zacks Consensus Estimate of $5.35 billion.
Results Hit by Humalog & Animal Health: Diabetes treatment Humalog sales declined 9% from the year-ago period. Despite higher demand, U.S. revenues fell 14% due to lower realized prices. On the call, the company said that it is seeing increased rebates across the board.
The animal health segment also recorded a year-over-year decline of 9% in revenues with U.S. sales declining 14%. U.S. sales were impacted by inventory destocking and market access pressures for food animal products. Meanwhile, macroeconomic conditions in Latin America impacted ex-U.S. revenues.
New Product Sales Cross $0.5 Billion: Lilly’s new products contributed more than $0.5 billion to sales this quarter with Trulicity and Cyramza doing well. Trulicity has captured almost 30% of new patient starts in the GLP-1 class in the U.S. while Cyramza continues to grow globally, driven by strong gastric cancer uptake in Japan. Psoriasis drug, Taltz, launched in the U.S. in April, is off to a strong start as well.
SGLT-2 inhibitor, Jardiance, sales should pick up if the EMPA-REG OUTCOME cardiovascular (CV) data is added to the label – a response from the FDA should be out by Dec 4, 2016.
Meanwhile, immuno-oncology agents continue to be a competitive threat for products like Cyramza and Portrazza.
Solanezumab & Pipeline in Focus: A key catalyst for Lilly could be top-line data on solanezumab from the EXPEDITION 3 study in patients with mild dementia due to Alzheimer's disease. Lilly said that it plans to issue a top-line press release before year end. Positive results on this high-risk, high-reward candidate would be a huge boost for the stock. The company has also moved solanezumab into a phase III study in prodromal Alzheimer's disease with study completion expected in mid-2021.
Other key pipeline candidates include baricitinib (rheumatoid arthritis – regulatory applications submitted with a response in the U.S. expected in early 2017), galcanezumab (phase III for migraine prevention with data readout expected in mid-2017 and cluster headache readout expected in 2018) and AZD3293 (Alzheimer’s disease).
Bottom Line
Currently, Merck looks well-positioned given the strong quarter as well as the Keytruda label expansion and 1st line approval which should lead to a sharp acceleration in Keytruda sales. While Lilly’s shares moved up marginally (0.23%) following the release of third quarter results, Merck recorded a gain of almost 2% following its earnings release.
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Who Fared Better in Q3 Earnings Season: Merck or Eli Lilly?
Yesterday, two big names in the U.S. large-cap pharma sector – Merck & Co., Inc. (MRK - Free Report) and Eli Lilly and Company (LLY - Free Report) - reported third quarter results. While Merck surpassed expectations, Lilly’s results fell short of estimates.
Here is an in-depth look at the third quarter results of both companies and key takeaways from their conference calls.
Merck Beats on All Fronts
It was a win-win quarter for Merck – not only did the company report a “beat and raise” quarter, it scored an important FDA approval for its anti-PD-1 therapy, Keytruda.
A Look at Q3 Results: Merck’s third quarter earnings of $1.07 per share comfortably surpassed the Zacks Consensus Estimate of 98 cents per share. Revenues of $10.5 billion were also above the Zacks Consensus Estimate of $10.2 billion.
MERCK & CO INC Price, Consensus and EPS Surprise
MERCK & CO INC Price, Consensus and EPS Surprise | MERCK & CO INC Quote
Performance of Key Products: Though revenues benefited from additional sales (about $150 million) in Japan reflecting the timing of shipments ahead of a resource planning system being implemented in the fourth quarter of 2016, higher-than-expected sales of Gardasil and the delayed entry of Cubicin generics in the reported quarter boosted sales as well. Gardasil growth was primarily driven by the timing of public sector purchases and increased pricing and demand in the U.S.
But the performance of the Januvia franchise was disappointing with sales declining sequentially as well as year-over-year. Pricing pressure in the U.S. continues to affect the franchise’s performance even though total prescription trends remain strong. Remicade also continues to be affected by biosimilar competition with biosimilars benefiting from increased new patient starts as well as patient switching.
Keytruda sales came in at $356 million, up 13.4% sequentially with U.S. sales being driven primarily by melanoma where Keytruda continues to be the leading immuno-oncology therapy, as well as from the ongoing launch in second-line lung cancer.
Narrows & Raises Outlook: Along with reporting better-than-expected results, Merck narrowed and raised its outlook for the year. The company expects to earn $3.71 - $3.78 per share in 2016 on revenues of $39.7 - $40.2 billion. Earlier on its second quarter call, the company had guided towards earnings of $3.67 - $3.77 per share on revenues of $39.1 - $40.1 billion.
Keytruda 1st Line Lung Cancer Approval a Major Boost: The key focus on Merck’s third quarter call was the earlier-than-expected FDA approval of Keytruda for the first-line non-small cell lung cancer (NSCLC) setting. This is a very important milestone for Merck as the company looks set to enjoy a head-start in this setting for the next 18 months or so.
Keytruda sales should improve sharply with the first-line NSCLC indication. Keytruda’s label was also updated to include KEYNOTE-010 data which means that patients expressing any level of PD-L1 are eligible for Keytruda in a second-line NSCLC setting.
Lilly’s Q3 Numbers Fall Short
Lilly’s results were disappointing with the company missing on both earnings and revenues. The company’s earnings of 88 cents per share were well below the Zacks Consensus Estimate of 96 cents per share while revenues of $5.19 billion were shy of the Zacks Consensus Estimate of $5.35 billion.
LILLY ELI & CO Price, Consensus and EPS Surprise
LILLY ELI & CO Price, Consensus and EPS Surprise | LILLY ELI & CO Quote
Results Hit by Humalog & Animal Health: Diabetes treatment Humalog sales declined 9% from the year-ago period. Despite higher demand, U.S. revenues fell 14% due to lower realized prices. On the call, the company said that it is seeing increased rebates across the board.
The animal health segment also recorded a year-over-year decline of 9% in revenues with U.S. sales declining 14%. U.S. sales were impacted by inventory destocking and market access pressures for food animal products. Meanwhile, macroeconomic conditions in Latin America impacted ex-U.S. revenues.
New Product Sales Cross $0.5 Billion: Lilly’s new products contributed more than $0.5 billion to sales this quarter with Trulicity and Cyramza doing well. Trulicity has captured almost 30% of new patient starts in the GLP-1 class in the U.S. while Cyramza continues to grow globally, driven by strong gastric cancer uptake in Japan. Psoriasis drug, Taltz, launched in the U.S. in April, is off to a strong start as well.
SGLT-2 inhibitor, Jardiance, sales should pick up if the EMPA-REG OUTCOME cardiovascular (CV) data is added to the label – a response from the FDA should be out by Dec 4, 2016.
Meanwhile, immuno-oncology agents continue to be a competitive threat for products like Cyramza and Portrazza.
Solanezumab & Pipeline in Focus: A key catalyst for Lilly could be top-line data on solanezumab from the EXPEDITION 3 study in patients with mild dementia due to Alzheimer's disease. Lilly said that it plans to issue a top-line press release before year end. Positive results on this high-risk, high-reward candidate would be a huge boost for the stock. The company has also moved solanezumab into a phase III study in prodromal Alzheimer's disease with study completion expected in mid-2021.
Other key pipeline candidates include baricitinib (rheumatoid arthritis – regulatory applications submitted with a response in the U.S. expected in early 2017), galcanezumab (phase III for migraine prevention with data readout expected in mid-2017 and cluster headache readout expected in 2018) and AZD3293 (Alzheimer’s disease).
Bottom Line
Currently, Merck looks well-positioned given the strong quarter as well as the Keytruda label expansion and 1st line approval which should lead to a sharp acceleration in Keytruda sales. While Lilly’s shares moved up marginally (0.23%) following the release of third quarter results, Merck recorded a gain of almost 2% following its earnings release.
Lilly is a Zacks Rank #3 (Hold) stock, while Merck is a Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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