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Will Merck & Co.’s Revenue Recover in 4Q15?

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Merck’s revenue estimates  

Analysts’ expect Merck & Co.’s (MRK) revenue for 4Q15 to be ~$10.3 billion. It’s nearly 1.6% lower than $10.5 billion in revenue reported for 4Q14. Analysts expect the revenue for 4Q15 to have positive operational growth. This will be offset by the negative impact of currencies. Also, analysts estimate YoY (year-over-year) growth of 1.4% and 2.1%, respectively, for 1Q16 and 2Q16. On an annual basis, the estimates show a fall of ~6.1% in revenue for 2015, but a growth of ~2.2% in the total revenue for 2016.

The above chart shows the actual revenue and analysts’ estimates since 3Q13. There are various factors that impact the expectations for future revenue. We’ll discuss the factors later in this series.

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Merck’s revenue drivers  

Merck has its products classified in two business segments—pharmaceuticals and animal health. The pharmaceuticals segment contributes ~90% of the total revenue for Merck. It focuses on various therapeutic areas including oncology, vaccines, hospital acute care, diabetes, other primary care, and women’s health. The animal health segment contributes ~8% of the total revenue. It focuses on medicines and vaccines for animals. Alliances also contribute to part of Merck’s revenue.

The growth is expected to be driven by blockbuster drugs including Januvia, Janumet, the Gardasil vaccine, and Keytruda—a new drug. It will be partially offset by lower revenue from Remicade, Zetia, and Vytorin. For the animal health segment, the growth drivers will be companion animal products like Bravetco as well as new aquatic and swine products.

The competitors for Januvia and its combination version Janumet are Onglyza—jointly made by Bristol-Myers Squibb (BMY) and AstraZeneca (AZN)—and Galvus from Novartis (NVS). The competitors for Zetia include Niaspan from AbbVie (ABBV) and Lipitor from Pfizer (PFE). Merck’s animal health segment competes with companies including Zoetis (ZTS) and Eli Lilly and Co. (LLY). Investors can consider ETFs like the iShares Core S&P 500 ETF (IVV) or the VanEck Vectors Pharmaceutical ETF (PPH) in order to divest the risk.

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