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Will Merck & Co.’s Revenue Recover Growth in 1Q16?

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Updated

Merck’s revenue estimates  

Analysts expect Merck and Co.’s (MRK) revenue for 1Q16 to be around $9.44 billion, nearly 0.2% higher than the $9.42 billion in revenue MRK reported in 1Q15.

MRK’s revenue in 1Q16 is expected to reflect positive operational growth offset by negative currency impact. Analysts estimate year-over-year growth of 0.1% for MRK’s 2Q16 revenue. On an annual basis, the estimates show a rise of 0.7% in 2016 revenue compared to a fall of 6.5% in 2015 revenue.

The above chart shows MRK’s actual revenue and analysts’ estimates since 3Q13. Various factors affect these expectations for future revenue. We’ll discuss them later in the series.

Merck & Co. has its products classified into two business segments: Pharmaceuticals and Animal Health.

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Pharmaceuticals  

The Global Human Health (or Pharmaceuticals) segment, the highest-revenue-generating segment, contributes nearly 90% of Merck’s total revenue. This segment includes various franchises such as oncology, vaccines, hospital acute care, diabetes, other primary care, and women’s health.

The Pharmaceuticals segment has a few blockbuster drugs with yearly contributions of over $1 billion each. These drugs include Januvia, Janumet, Zetia, Vytorin, Remicade, Isentress, Gardasil, Proquad/Varivax, and Cubicin.

MRK’s revenue growth in 1Q16 is expected to be driven by blockbuster drugs including Januvia, Janumet, Gardasil vaccine, and Keytruda. These products’ revenues will be partially offset by lower revenues from Remicade, Zetia, and Vytorin.

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

Animal Health  

The Animal Health segment contributes nearly 8% of total revenue for Merck. For 1Q16, the revenue growth of this segment is expected to be driven by increased revenue from companion animal products including Bravecto and new aqua and swine products.

Merck’s Animal Health segment competes with companies including Zoetis (ZTS) and Eli Lilly (LLY). Investors can consider ETFs such as the VanEck Vectors Pharmaceutical ETF (PPH), which holds ~5.4% of its total assets in Merck, or the iShares US Healthcare ETF (IYH), which holds 5.3% of its total assets in Merck.

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