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What's in Store for Merck KGaA (MKGAF) in Q3 Earnings?

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Merck KGaA is scheduled to report third-quarter 2016 earnings results on Nov 15. Let’s see how things are shaping up for this quarter.

The company reports results under three business sectors – Healthcare, Life Science and Performance Materials. Strong performance at Life Science, which was the catalyst behind sales growth in the last few quarters, should continue the growth trend in the to-be-reported quarter as well.

Sales at the Healthcare division are expected to be driven by products such as Erbitux, Gonal-f, and Euthyrox. However, the segment will see a decline in Rebrif sales, which are being hit by negative foreign exchange fluctuations in Latin America.

The Life Science division has witnessed solid organic sales growth last quarter driven by strong organic growth and synergies, and the integration of the Sigma-Aldrich business. This trend should continue in the third quarter as well.

Sales at Performance Materials are expected to be impacted by persisting destocking in the liquid crystals display industry. Moreover, we expect to see a dip in organic sales. However, the segment will benefit from the acquisition of Sigma-Aldrich Hitech business.

In its last earnings release, the company had raised its guidance for 2016 backed by a strong performance in the first half of the year. Sales are now expected in the range of €14.9–€15.1 billion (previous projection: €14.8–€15 billion). Sales are, however, expected to be hurt by foreign exchange impact of 3–5% due to continued devaluation of the Latin American currencies.

Moreover, at its 2016 Capital Market Day, the company provided an update on its objectives up to 2018.  Beginning 2017, the company aims to gain approval of one medicine or new indication every year. Merck KGaA expects to generate sales of €4 billion from products that are currently in its pipeline by 2022.

Merck KGaA, in collaboration with Pfizer Inc. (PFE - Free Report) , is evaluating avelumab in several phase III studies for indications such as gastric cancer, platinum-resistant/refractory ovarian cancer, bladder cancer and advanced renal cell carcinoma. In Oct 2016, the company’s Marketing Authorization Application (MAA) for avelumab for the treatment of metastatic Merkel cell carcinoma (MCC) has been validated by the European Medicines Agency (EMA). Investor focus should be on further updates from the company on the regulatory front.

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