What Factors Impact Merck & Co.’s Revenues?



Merck’s 2015 revenue

Merck & Co. (MRK) reported a decline of ~6% in total revenues to $39.5 billion in 2015. The company reported no operational growth during 2015, but the negative impact of foreign exchange caused total revenues to decline 6%. The company estimates full year 2016 sales of $38.7–$40.2 billion, including a ~3% negative impact of foreign exchange.

The above graph shows Merck’s revenues over the quarters. Since the company has operations in more than 140 countries and ~55% of total revenues are from sales outside US markets, the company has a large exposure to currency risk. The impact of foreign exchange on the company’s revenues has led to a negative growth in absolute figures.

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The global human health segment, or Pharmaceuticals, is Merck’s highest revenue-generating segment. It contributed nearly 88% of total revenues for 2015 compared to 85% in 2014. This segment includes oncology, vaccines, hospital acute care, diabetes, and other primary care and women’s health.

The Pharmaceuticals segment has several blockbuster drugs with a yearly contribution of more than $1 billion each. These drugs include Januvia, Janumet, Zetia, Vytorin, Remicade, Isentress, Gardasil, ProQuad/Varivax, and Cubicin.

Competitors for Januvia and its combination version Janumet are Onglyza, produced jointly made by Bristol-Myers Squibb (BMY) and AstraZeneca (AZN), and Galvus manufactured by Novartis (NVS). Competitors for Zetia include Niaspan from AbbVie (ABBV) and Lipitor from Pfizer (PFE).

Animal Health

The Animal Health segment contributed nearly 8.4% of total revenues for 2015 compared to 8% of total revenues for 2014. The growth of this segment is driven by increased revenues from companion animal products, including Bravecto and new aqua and swine products.

Merck’s Animal Health segment competes with companies such as Zoetis (ZTS) and Merial, a Sanofi company. In order to divest risks, investors can consider ETFs such as the VanEck Vectors Pharmaceutical ETF (PPH), which holds ~5.1% of its total assets in Merck.


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