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Merck & Co., Inc. (MRK - Free Report) reported third-quarter 2022 adjusted earnings of $1.85 per share, beating the Zacks Consensus Estimate of $1.67 as well as our estimate of $1.65. Earnings rose 4% year over year (7% excluding the impact of currency) on 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 $1.28, down 29% year over year.
Revenues rose 14% year over year (18% on a constant currency basis) to $14.96 billion, driven by higher sales of cancer drugs and most vaccines. Sales comfortably beat the Zacks Consensus Estimate of $14.06 billion and our estimate of $14.12 billion. Excluding Lagevrio sales and currency headwinds, total revenues rose 14%
Quarter in Detail
The Pharmaceutical segment generated revenues of $12.96 billion, up 13% year over year. Excluding Lagevrio sales and currency headwinds, Pharmaceutical segment sales were up 9%, driven by higher sales of Keytruda, Gardasil and Bridion. Sales also benefited from easy comparison to the year-ago quarter when sales were hurt by approximately $350 million due to COVID-related business disruptions.
Keytruda, the largest product in Merck’s portfolio, generated sales of $5.42 billion in the quarter, up 20% (26% excluding Fx impact) year over year. Keytruda sales gained from continued strong momentum in metastatic indications, including in some types of NSCLC renal cell carcinoma, head and neck squamous cell carcinoma, TNBC and MSI-H cancers, and rapid uptake across recent earlier-stage launches. Keytruda sales beat the Zacks Consensus Estimate of $5.24 billion.
The company’s COVID-19 drug, Lagevrio generated sales of $436 million during the third quarter, compared to $1.77 billion in the second quarter. The Zacks Consensus Estimate as well as our estimate for Lagevrio was $300 million.
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.
Alliance revenues from AstraZeneca-partnered Lynparza increased 16% year over year to $284 million in the quarter. Lenvima alliance revenues were $202 million, up 7% from the year-ago period.
In the hospital specialty portfolio, neuromuscular blockade medicine — Bridion injection generated sales of $423 million in the quarter, up 15% year over year, reflecting a recovery in surgical procedures and an increase in market share.
Merck’s vaccine portfolio witnessed continued recovery. Sales of HPV vaccines — Gardasil and Gardasil 9 — rose 15% year over year to $2.29 billion due to strong demand in ex-U.S. markets, particularly China, as well as increased supply. U.S. sales increased in the quarter due to the favorable timing of CDC purchasing. Gardasil sales were better than the Zacks Consensus Estimate of $2.09 billion, while our estimate is $2.0 billion.
Proquad, M-M-R II and Varivax vaccines recorded combined sales of $668 million, up 1% year over year. Sales of the rotavirus vaccine, Rotateq rose 12% to $256 million. Sales of Pneumovax 23 declined 53% to $151 million due to a decline in demand in the United States.
Januvia/Janumet (diabetes) franchise sales were down 15% year over year to $1.13 billion. The drug sales were hurt by lower demand and pricing in certain international markets due to generic competition. The drugs lost market exclusivity in China in July and in the European Union in September.
Merck’s Animal Health segment generated revenues of $1.37 billion, down 3% year over year due to currency headwinds. Excluding Fx impact, sales rose 4% in the quarter, driven by higher pricing. Animal Health segment sales were less than the Zacks Consensus Estimate of $1.47 billion and our estimate of $1.46 billion.
Margin Discussion
Adjusted gross margin was 77.0%, up 20 basis points year over year, driven by the favorable impact of currency and product mix, which offset the impact of lower margins from Lagevrio due to profit-sharing with Ridgeback and higher revenues from third-party manufacturing arrangements.
Selling, general and administrative (SG&A) expenses were $2.5 billion in the reported quarter, up 9% year over year due to higher administrative costs and higher promotional spending. Research and development (R&D) spending was $3.5 billion, reflecting an increase of 45% year over year. The higher R&D costs were due to upfront and other payments made to Moderna (MRNA - Free Report) , Orna and Orion in the quarter related to Merck’s collaboration deals with them.
In October, Merck exercised its option to jointly develop and commercialize Moderna’s personalized cancer vaccine (PCV) mRNA-4157/V940, per terms of the companies’ existing collaboration agreement. Merck will make an option payment of $250 million to Moderna to exercise this option.
2022 Guidance
Merck raised its earnings and sales outlook for the year.
Merck expects revenues to be in the range of $58.5-$59.0 billion in 2022 compared with the previous guidance of $57.5-$58.5 billion. The guidance range indicates growth in the range of 20-21% (previously 18-20%).
Lagevrio is expected to generate between $5.2 billion and $5.4 billion in sales, compared with the previous expectation of $5 billion to $5.5 billion in 2022.
Adjusted earnings per share are expected to be between $7.32 and $7.37 compared with the previously guided range of $7.25 and $7.35
The guidance includes a negative impact from foreign exchange of approximately 4% (previously approximately 3%) on sales as well as earnings.
Adjusted operating costs are expected to be in the range of $21.3 to $21.7 billion, higher than the earlier expectation of $20.5 to $21.5 billion due to incremental R&D costs. The adjusted tax rate is expected to be approximately 14% (previously between 13.5% and 14.5%).
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 disruptions related to the pandemic and strong global underlying demand across its business, particularly for Keytruda and Gardasil, led to improved sales in the quarter.
Merck also slightly upped its sales and earnings expectations for the year. Merck expects better operational growth to be offset by greater than previously expected currency headwinds and incremental R&D expenses recorded in the third quarter, following M&A deals with Moderna, Orna and Orion.
Shares of Merck were up 1.6% in pre-market trading, owing to the better-than-expected results and the guidance increase. The stock has rallied 28.4% so far this year compared with the industry’s increase of 0.5%.
Image Source: Zacks Investment Research
Merck also made meaningful progress in its pipeline in the quarter.
Zacks Rank & Stock to Consider
Merck currently carries a Zacks Rank #3 (Hold).
Merck & Co., Inc. Price, Consensus and EPS Surprise
In the past 60 days, estimates for Castle Biosciences’ 2022 loss per share have narrowed from $3.07 to $2.81, while that for 2023 have narrowed from $3.08 to $2.93. Shares of Castle Biosciences have declined 48.2% in the year-to-date period.
Earnings of Castle Biosciences beat estimates in two of the last four quarters and missed the mark twice, witnessing an earnings surprise of 19.46%, on average.
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Merck (MRK) Beats on Q3 Earnings & Revenues, Ups 2022 View
Merck & Co., Inc. (MRK - Free Report) reported third-quarter 2022 adjusted earnings of $1.85 per share, beating the Zacks Consensus Estimate of $1.67 as well as our estimate of $1.65. Earnings rose 4% year over year (7% excluding the impact of currency) on 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 $1.28, down 29% year over year.
Revenues rose 14% year over year (18% on a constant currency basis) to $14.96 billion, driven by higher sales of cancer drugs and most vaccines. Sales comfortably beat the Zacks Consensus Estimate of $14.06 billion and our estimate of $14.12 billion. Excluding Lagevrio sales and currency headwinds, total revenues rose 14%
Quarter in Detail
The Pharmaceutical segment generated revenues of $12.96 billion, up 13% year over year. Excluding Lagevrio sales and currency headwinds, Pharmaceutical segment sales were up 9%, driven by higher sales of Keytruda, Gardasil and Bridion. Sales also benefited from easy comparison to the year-ago quarter when sales were hurt by approximately $350 million due to COVID-related business disruptions.
Keytruda, the largest product in Merck’s portfolio, generated sales of $5.42 billion in the quarter, up 20% (26% excluding Fx impact) year over year. Keytruda sales gained from continued strong momentum in metastatic indications, including in some types of NSCLC renal cell carcinoma, head and neck squamous cell carcinoma, TNBC and MSI-H cancers, and rapid uptake across recent earlier-stage launches. Keytruda sales beat the Zacks Consensus Estimate of $5.24 billion.
The company’s COVID-19 drug, Lagevrio generated sales of $436 million during the third quarter, compared to $1.77 billion in the second quarter. The Zacks Consensus Estimate as well as our estimate for Lagevrio was $300 million.
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.
Alliance revenues from AstraZeneca-partnered Lynparza increased 16% year over year to $284 million in the quarter. Lenvima alliance revenues were $202 million, up 7% from the year-ago period.
In the hospital specialty portfolio, neuromuscular blockade medicine — Bridion injection generated sales of $423 million in the quarter, up 15% year over year, reflecting a recovery in surgical procedures and an increase in market share.
Merck’s vaccine portfolio witnessed continued recovery. Sales of HPV vaccines — Gardasil and Gardasil 9 — rose 15% year over year to $2.29 billion due to strong demand in ex-U.S. markets, particularly China, as well as increased supply. U.S. sales increased in the quarter due to the favorable timing of CDC purchasing. Gardasil sales were better than the Zacks Consensus Estimate of $2.09 billion, while our estimate is $2.0 billion.
Proquad, M-M-R II and Varivax vaccines recorded combined sales of $668 million, up 1% year over year. Sales of the rotavirus vaccine, Rotateq rose 12% to $256 million. Sales of Pneumovax 23 declined 53% to $151 million due to a decline in demand in the United States.
Januvia/Janumet (diabetes) franchise sales were down 15% year over year to $1.13 billion. The drug sales were hurt by lower demand and pricing in certain international markets due to generic competition. The drugs lost market exclusivity in China in July and in the European Union in September.
Merck’s Animal Health segment generated revenues of $1.37 billion, down 3% year over year due to currency headwinds. Excluding Fx impact, sales rose 4% in the quarter, driven by higher pricing. Animal Health segment sales were less than the Zacks Consensus Estimate of $1.47 billion and our estimate of $1.46 billion.
Margin Discussion
Adjusted gross margin was 77.0%, up 20 basis points year over year, driven by the favorable impact of currency and product mix, which offset the impact of lower margins from Lagevrio due to profit-sharing with Ridgeback and higher revenues from third-party manufacturing arrangements.
Selling, general and administrative (SG&A) expenses were $2.5 billion in the reported quarter, up 9% year over year due to higher administrative costs and higher promotional spending. Research and development (R&D) spending was $3.5 billion, reflecting an increase of 45% year over year. The higher R&D costs were due to upfront and other payments made to Moderna (MRNA - Free Report) , Orna and Orion in the quarter related to Merck’s collaboration deals with them.
In October, Merck exercised its option to jointly develop and commercialize Moderna’s personalized cancer vaccine (PCV) mRNA-4157/V940, per terms of the companies’ existing collaboration agreement. Merck will make an option payment of $250 million to Moderna to exercise this option.
2022 Guidance
Merck raised its earnings and sales outlook for the year.
Merck expects revenues to be in the range of $58.5-$59.0 billion in 2022 compared with the previous guidance of $57.5-$58.5 billion. The guidance range indicates growth in the range of 20-21% (previously 18-20%).
Lagevrio is expected to generate between $5.2 billion and $5.4 billion in sales, compared with the previous expectation of $5 billion to $5.5 billion in 2022.
Adjusted earnings per share are expected to be between $7.32 and $7.37 compared with the previously guided range of $7.25 and $7.35
The guidance includes a negative impact from foreign exchange of approximately 4% (previously approximately 3%) on sales as well as earnings.
Adjusted operating costs are expected to be in the range of $21.3 to $21.7 billion, higher than the earlier expectation of $20.5 to $21.5 billion due to incremental R&D costs. The adjusted tax rate is expected to be approximately 14% (previously between 13.5% and 14.5%).
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 disruptions related to the pandemic and strong global underlying demand across its business, particularly for Keytruda and Gardasil, led to improved sales in the quarter.
Merck also slightly upped its sales and earnings expectations for the year. Merck expects better operational growth to be offset by greater than previously expected currency headwinds and incremental R&D expenses recorded in the third quarter, following M&A deals with Moderna, Orna and Orion.
Shares of Merck were up 1.6% in pre-market trading, owing to the better-than-expected results and the guidance increase. The stock has rallied 28.4% so far this year compared with the industry’s increase of 0.5%.
Image Source: Zacks Investment Research
Merck also made meaningful progress in its pipeline in the quarter.
Zacks Rank & Stock to Consider
Merck currently carries a Zacks Rank #3 (Hold).
Merck & Co., Inc. Price, Consensus and EPS Surprise
Merck & Co., Inc. price-consensus-eps-surprise-chart | Merck & Co., Inc. Quote
A top-ranked stock in the biotech sector is Castle Biosciences (CSTL - Free Report) , with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, estimates for Castle Biosciences’ 2022 loss per share have narrowed from $3.07 to $2.81, while that for 2023 have narrowed from $3.08 to $2.93. Shares of Castle Biosciences have declined 48.2% in the year-to-date period.
Earnings of Castle Biosciences beat estimates in two of the last four quarters and missed the mark twice, witnessing an earnings surprise of 19.46%, on average.