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Merck (MRK) Beats on Q3 Earnings & Sales, Ups 2021 View

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Merck & Co., Inc. (MRK - Free Report) reported third-quarter 2021 adjusted earnings of $1.75 per share, which beat the Zacks Consensus Estimate of $1.54. Earnings rose 28% year over year (26% excluding the impact of currency) due to higher revenues.

Including acquisition- and divestiture-related costs, restructuring costs, income and losses from investments in equity securities and certain other items, earnings per share were $1.80 per share, up 96% on a reported basis (93% on a constant currency basis).

Revenues rose 20% year over year (19% on a constant currency basis) to $13.2 billion driven by increased demand for its cancer drugs and vaccines and higher sales of Animal health products. Sales beat the Zacks Consensus Estimate of $12.421 billion.

Quarter in Detail

The Pharmaceutical segment generated revenues of $11.5 billion, up 18% year over year. Excluding Fx impact, sales rose 17% on higher sales of oncology drugs and vaccines.

Keytruda, the largest product in Merck’s portfolio, generated sales of $4.53 billion in the quarter, up 21% (excluding Fx impact) year over year. Keytruda sales have been gaining particularly from continued strong momentum in lung cancer indications and continued uptake in newer indications.

Alliance revenues from Lynparza and Lenvima also boosted oncology sales in the quarter. Merck has a deal with British pharma giant, AstraZeneca (AZN - Free Report) to co-develop and commercialize PARP inhibitor, Lynparza and a similar one with Japan’s Eisai for its tyrosine kinase inhibitor, Lenvima.

Lynparza alliance revenues increased 25% year over year to $246 million in the quarter. Lenvima alliance revenues were $188 million, up 30% from the year-ago period.

In the hospital specialty portfolio, the Bridion injection generated sales of $369 million in the quarter, up 15% year over year, reflecting the ongoing recovery from the pandemic.

Merck witnessed continued recovery in its vaccines portfolio due to the return to a more normal level of wellness visits.

Sales of the HPV vaccine, Gardasil/Gardasil 9, rose 63% year over year to $1.99 billion. Sales rose due to strong underlying demand in the United States (due to favorable timing of public sector purchases) and China (increased supply).

Proquad, M-M-R II and Varivax vaccines recorded combined sales of $661 million, up 14% year over year. Sales of the rotavirus vaccine, Rotateq rose 7% to $227 million. Sales of its pneumococcal vaccine, Pneumovax 23 vaccine declined 26% year over year to $277 million in the third quarter due to lower demand in the United States, following prioritization of COVID-19 vaccination. Merck gained FDA approval for its 15-valent pneumococcal conjugate vaccine, Vaxneuvance, in July.

Januvia/Janumet (diabetes) franchise sales were flat year over year at $1.34 billion.

Merck’s Animal Health segment generated revenues of $1.42 billion, up 16% from the year-ago quarter. Excluding the impact of currency, sales rose 14%, helped by growth across geographies and species.

Margin Discussion

Adjusted gross margin was 76.8%, up 30 basis points from the year-ago quarter due to the favorable impact of product mix, which offset higher manufacturing costs.

Selling, general and administrative (SG&A) expenses were $2.3 billion in the reported quarter, up 12% year over year due to higher promotion and administrative costs. Research and development (R&D) spending rose 11% to $2.5 billion due to higher clinical development costs for cancer and COVID candidates and increased investment in discovery research and early drug development.

2021 Guidance

Merck raised its previously issued earnings and sales guidance for 2021. Merck expects revenues to be in the range of $47.4 billion to $47.9 billion in 2021 compared with $46.4 billion to $47.4 billion expected previously. The guidance range indicates growth in the range of 14% to 15% (previously 12% to 14%) and includes a positive impact from foreign exchange of 1.5%.

Adjusted earnings per share are expected to be between $5.65 and $5.70, up from the previous expectation of $5.47 and $5.57. The earnings guidance includes a positive impact from foreign exchange of approximately 2%.

Adjusted operating costs are expected to be higher than 2020 by a high-single-digit rate.

Our Take

Merck’s third-quarter results were better than expected as it beat estimates for both earnings and sales. An ongoing recovery from the pandemic and strong global underlying demand across its business led to improved sales in the quarter.

Though Merck expects some negative effects from the pandemic on its business performance to persist, the demand trends are overall improving as the company believes that global health systems and people have largely adapted to the effects of the pandemic. Merck continues to expect COVID-related business disruptions to hurt sales by less than 3%.

In response to the better-than-expected results and the guidance increase, shares were up around 2.1% in pre-market trading. Merck’s stock has declined 0.3% this year so far against an increase of 12.7% for the industry.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

Merck also made meaningful progress in its pipeline in the quarter, including positive phase III results for its and partner Ridgeback Biotherapeutics’ oral antiviral medicine for treating mild-to-moderate COVID-19, molnupiravir. The companies have applied for Emergency Use Authorization (“EUA”) from the FDA for molnupiravir.

Merck, last month, announced the proposed acquisition of Acceleron Pharma for $180 per share in cash or an approximate total equity value of $11.5 billion. The deal, if successful, will add Acceleron’s promising phase III pipeline candidate, sotatercept, which is being evaluated for the treatment of pulmonary arterial hypertension, thereby strengthening Merck’s cardiovascular portfolio 

Merck currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Merck & Co., Inc. Price, Consensus and EPS Surprise

Merck & Co., Inc. Price, Consensus and EPS Surprise

Merck & Co., Inc. price-consensus-eps-surprise-chart | Merck & Co., Inc. Quote

A better-ranked drugmaker is Vertex Pharmaceuticals (VRTX - Free Report) , which carries a Zacks Rank of 2 (Buy). Its earnings estimate for 2021 has gone up from $12.37 to $12.43 over the past 60 days while that for 2022 has increased from $13.13 to $13.16 per share.


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