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Merck (MRK) Beats on Q2 Earnings and Sales, Ups 2023 View
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Merck (MRK - Free Report) reported an adjusted loss of $2.06 per share in second-quarter 2023, beating the Zacks Consensus Estimate of a loss of $2.17. In the year-ago period, the company reported adjusted earnings of $1.87. The reported loss was due to a one-time charge incurred by the company to acquire Prometheus Biosciences, completed in June.
Including acquisition and divestiture-related costs, restructuring costs, income and losses from investments in equity securities and certain other items, loss per share was $2.35. In the year-ago period, Merck reported earnings of $1.55.
Revenues rose 3% year over year (7% on a constant currency basis) to $15.04 billion. Sales beat the Zacks Consensus Estimate of $14.39 billion.
Quarter in Detail
The Pharmaceutical segment generated revenues of $13.46 billion, up 6% (8% excluding Fx impact) year over year, as higher sales of oncology drugs and vaccines more than offset the lower sales of Merck’s COVID-19 drug, Lagevrio (molnupiravir) and diabetes medicines. Excluding Lagevrio, Pharmaceutical sales grew 14%.
Keytruda, the largest product in Merck’s portfolio, generated sales of $6.3 billion in the quarter, up 19% (21% 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 $5.87 billion and our estimate of $5.69 billion.
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 13% (15%, excluding Fx impact) year over year to $310 million in the quarter, driven by increased demand. Lenvima alliance revenues were $242 million, up 5% from the year-ago period’s levels.
In the hospital specialty portfolio, neuromuscular blockade medicine, Bridion injection generated sales of $502 million in the quarter, up 18% year over year, driven by increased demand and market share.
In vaccines, sales of HPV vaccines — Gardasil and Gardasil 9 — rose 47% year over year to $2.46 billion, driven by strong demand in ex-U.S. markets, particularly China. Gardasil sales beat the Zacks Consensus Estimate of $1.99 billion and our estimate of $1.71 billion.
Proquad, M-M-R II and Varivax vaccines recorded combined sales of $582 million, up 1% year over year. Sales of the rotavirus vaccine, Rotateq were down 25% to $131 million while Pneumovax 23 (pneumococcal vaccine polyvalent) vaccine sales declined 40% to $92 million. Sales of Vaxneuvance, Merck’s new pneumococcal 15-valent conjugate vaccine, were $168 million compared with $106 million in the previous quarter, driven by continued uptake in the pediatric group.
Januvia/Janumet (diabetes) franchise sales were down 30% year over year to $864 million. The drug sales were hurt by lower demand and pricing in the United States and generic competition in certain international markets. The drugs lost market exclusivity in China and the European Union last year.
The company’s COVID-19 drug, Lagevrio (molnupiravir) generated sales of $203 million during the second quarter, down 83% year over year. Lower sales in Japan and no sales in the United Kingdom hurt Lagevrio sales. Lagevrio sales were better than the Zacks Consensus Estimate of $155 million but missed our estimates of $221 million.
Merck’s Animal Health segment generated revenues of $1.46 billion, down 1% year over year (up 2% excluding Fx impact). Animal Health segment sales missed the Zacks Consensus Estimate of $1.55 billion.
Margin Discussion
Adjusted gross margin was 76.6%, up 190 basis points year over year, driven by the favorable impact of product mix and lower sales of Lagevrio, a low-margin product.
Adjusted selling, general and administrative (SG&A) expenses were $2.6 billion in the reported quarter, up 8% year over year due to higher administrative costs and higher promotional spending.
Adjusted research and development (R&D) spending was $13.3 billion, compared to $2.8 billion in the year-ago period, due to a one-time charge of $10.2 billion related to theacquisition of Prometheus Biosciences.
2023 Guidance Updated
Merck raised its sales outlook for 2023. The company expects revenues to be in the range of $58.6-$59.6 billion in 2023 compared with $57.7-$58.9 billion previously. The Zacks Consensus Estimate is pegged at $58.7 billion.
Lagevrio is expected to generate $1.0 billion in sales in 2023, a significant decline from $5.7 billion in 2022.
The adjusted gross margin is expected to be approximately 77% (maintained).
Following the completion of the $10.2 billion acquisition of Prometheus Biosciences in June, the company updated its operating expense and earnings per share (EPS) guidance for the full year.
Adjusted EPS is now expected to be between $2.95 and $3.05 after accounting for a charge of $4.02 per share incurred by Merck for the Prometheus acquisition. Prior to the acquisition completion, the company expected adjusted EPS to be between $6.88 and $7.00. The Zacks Consensus Estimate is pegged at $2.89 per share.
Adjusted operating costs are expected to be in the range of $34.0 to $34.6 billion versus the prior expectation of $23.3 to $24.1 billion. The adjusted tax rate is now expected to be approximately 30.5% to 31.5% (previously: 17% to 18%).
Our Take
Merck’s second-quarter results were better than expected as it beat estimates for earnings as well as sales. Strong sales of key products cancer drug, Keytruda and Gardasil vaccine drove the top line in the quarter. Merck also raised its full-year sales profit outlook, citing strong global underlying demand for its key products.
Merck also expects that charges related to the Prometheus acquisition and the slightly higher impact of currency should be partially offset by a better operational performance. In this regard, management also raised the EPS guidance by 24 cents, attributable to additional business growth.
Shares of Merck were up 1.4% in pre-market trading, supported by the better-than-expected earnings results and the guidance increase.
In the year so far, the stock has lost 3.9% against the industry’s 2.6% rise.
Image Source: Zacks Investment Research
Merck has also made meaningful progress in its pipeline in the past year. Alongside partner Moderna (MRNA - Free Report) , Merck initiated a phase III study last month evaluating its personalized cancer vaccine mRNA-4157/V940in melanoma indication. The initiation of this study was based on positive data from a phase IIb study, which previously achieved its primary endpoint of recurrence-free survival. This June, Moderna/Merck reported that additional data from this study which showed that treatment with mRNA-4157 led to a statistically significant and clinical improvement in distant metastasis-free survival, a key secondary endpoint of the study.
Following the Prometheus acquisition, Merck added PRA023, a humanized monoclonal antibody, to its pipeline. PRA023 is currently being developed in mid-stage studies for the treatment of immune-mediated diseases, including ulcerative colitis, Crohn’s disease and other autoimmune conditions.
In the past 30 days, estimates for J&J’s 2023 earnings per share have increased from $10.66 to $10.73. During the same period, the earnings estimates per share for 2024 have risen from $11.01 to $11.28. Shares of J&J are down 5.2% in the year-to-date period.
Earnings of J&J beat estimates in each of the last four quarters, witnessing an average earnings surprise of 5.58%. In the last reported quarter, J&J’s earnings beat estimates by 7.28%.
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Merck (MRK) Beats on Q2 Earnings and Sales, Ups 2023 View
Merck (MRK - Free Report) reported an adjusted loss of $2.06 per share in second-quarter 2023, beating the Zacks Consensus Estimate of a loss of $2.17. In the year-ago period, the company reported adjusted earnings of $1.87. The reported loss was due to a one-time charge incurred by the company to acquire Prometheus Biosciences, completed in June.
Including acquisition and divestiture-related costs, restructuring costs, income and losses from investments in equity securities and certain other items, loss per share was $2.35. In the year-ago period, Merck reported earnings of $1.55.
Revenues rose 3% year over year (7% on a constant currency basis) to $15.04 billion. Sales beat the Zacks Consensus Estimate of $14.39 billion.
Quarter in Detail
The Pharmaceutical segment generated revenues of $13.46 billion, up 6% (8% excluding Fx impact) year over year, as higher sales of oncology drugs and vaccines more than offset the lower sales of Merck’s COVID-19 drug, Lagevrio (molnupiravir) and diabetes medicines. Excluding Lagevrio, Pharmaceutical sales grew 14%.
Keytruda, the largest product in Merck’s portfolio, generated sales of $6.3 billion in the quarter, up 19% (21% 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 $5.87 billion and our estimate of $5.69 billion.
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 13% (15%, excluding Fx impact) year over year to $310 million in the quarter, driven by increased demand. Lenvima alliance revenues were $242 million, up 5% from the year-ago period’s levels.
In the hospital specialty portfolio, neuromuscular blockade medicine, Bridion injection generated sales of $502 million in the quarter, up 18% year over year, driven by increased demand and market share.
In vaccines, sales of HPV vaccines — Gardasil and Gardasil 9 — rose 47% year over year to $2.46 billion, driven by strong demand in ex-U.S. markets, particularly China. Gardasil sales beat the Zacks Consensus Estimate of $1.99 billion and our estimate of $1.71 billion.
Proquad, M-M-R II and Varivax vaccines recorded combined sales of $582 million, up 1% year over year. Sales of the rotavirus vaccine, Rotateq were down 25% to $131 million while Pneumovax 23 (pneumococcal vaccine polyvalent) vaccine sales declined 40% to $92 million. Sales of Vaxneuvance, Merck’s new pneumococcal 15-valent conjugate vaccine, were $168 million compared with $106 million in the previous quarter, driven by continued uptake in the pediatric group.
Januvia/Janumet (diabetes) franchise sales were down 30% year over year to $864 million. The drug sales were hurt by lower demand and pricing in the United States and generic competition in certain international markets. The drugs lost market exclusivity in China and the European Union last year.
The company’s COVID-19 drug, Lagevrio (molnupiravir) generated sales of $203 million during the second quarter, down 83% year over year. Lower sales in Japan and no sales in the United Kingdom hurt Lagevrio sales. Lagevrio sales were better than the Zacks Consensus Estimate of $155 million but missed our estimates of $221 million.
Merck’s Animal Health segment generated revenues of $1.46 billion, down 1% year over year (up 2% excluding Fx impact). Animal Health segment sales missed the Zacks Consensus Estimate of $1.55 billion.
Margin Discussion
Adjusted gross margin was 76.6%, up 190 basis points year over year, driven by the favorable impact of product mix and lower sales of Lagevrio, a low-margin product.
Adjusted selling, general and administrative (SG&A) expenses were $2.6 billion in the reported quarter, up 8% year over year due to higher administrative costs and higher promotional spending.
Adjusted research and development (R&D) spending was $13.3 billion, compared to $2.8 billion in the year-ago period, due to a one-time charge of $10.2 billion related to theacquisition of Prometheus Biosciences.
2023 Guidance Updated
Merck raised its sales outlook for 2023. The company expects revenues to be in the range of $58.6-$59.6 billion in 2023 compared with $57.7-$58.9 billion previously. The Zacks Consensus Estimate is pegged at $58.7 billion.
Lagevrio is expected to generate $1.0 billion in sales in 2023, a significant decline from $5.7 billion in 2022.
The adjusted gross margin is expected to be approximately 77% (maintained).
Following the completion of the $10.2 billion acquisition of Prometheus Biosciences in June, the company updated its operating expense and earnings per share (EPS) guidance for the full year.
Adjusted EPS is now expected to be between $2.95 and $3.05 after accounting for a charge of $4.02 per share incurred by Merck for the Prometheus acquisition. Prior to the acquisition completion, the company expected adjusted EPS to be between $6.88 and $7.00. The Zacks Consensus Estimate is pegged at $2.89 per share.
Adjusted operating costs are expected to be in the range of $34.0 to $34.6 billion versus the prior expectation of $23.3 to $24.1 billion. The adjusted tax rate is now expected to be approximately 30.5% to 31.5% (previously: 17% to 18%).
Our Take
Merck’s second-quarter results were better than expected as it beat estimates for earnings as well as sales. Strong sales of key products cancer drug, Keytruda and Gardasil vaccine drove the top line in the quarter. Merck also raised its full-year sales profit outlook, citing strong global underlying demand for its key products.
Merck also expects that charges related to the Prometheus acquisition and the slightly higher impact of currency should be partially offset by a better operational performance. In this regard, management also raised the EPS guidance by 24 cents, attributable to additional business growth.
Shares of Merck were up 1.4% in pre-market trading, supported by the better-than-expected earnings results and the guidance increase.
In the year so far, the stock has lost 3.9% against the industry’s 2.6% rise.
Image Source: Zacks Investment Research
Merck has also made meaningful progress in its pipeline in the past year. Alongside partner Moderna (MRNA - Free Report) , Merck initiated a phase III study last month evaluating its personalized cancer vaccine mRNA-4157/V940in melanoma indication. The initiation of this study was based on positive data from a phase IIb study, which previously achieved its primary endpoint of recurrence-free survival. This June, Moderna/Merck reported that additional data from this study which showed that treatment with mRNA-4157 led to a statistically significant and clinical improvement in distant metastasis-free survival, a key secondary endpoint of the study.
Following the Prometheus acquisition, Merck added PRA023, a humanized monoclonal antibody, to its pipeline. PRA023 is currently being developed in mid-stage studies for the treatment of immune-mediated diseases, including ulcerative colitis, Crohn’s disease and other autoimmune conditions.
Merck & Co., Inc. Price and EPS Surprise
Merck & Co., Inc. price-eps-surprise | Merck & Co., Inc. Quote
Zacks Rank & Stock to Consider
Merck currently carries a Zacks Rank #3 (Hold). A better-ranked large drug stock is Johnson & Johnson (JNJ - Free Report) , which has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 30 days, estimates for J&J’s 2023 earnings per share have increased from $10.66 to $10.73. During the same period, the earnings estimates per share for 2024 have risen from $11.01 to $11.28. Shares of J&J are down 5.2% in the year-to-date period.
Earnings of J&J beat estimates in each of the last four quarters, witnessing an average earnings surprise of 5.58%. In the last reported quarter, J&J’s earnings beat estimates by 7.28%.