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Why Investors Can Expect Operational Growth from Merck in 2Q16

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Merck’s revenue estimates

Analysts expect Merck’s (MRK) revenues for 2Q16 to be around $9,791 million, which is nearly the same as revenues of $9,785 million reported for 2Q15. The revenues for 2Q16 are expected to show positive operational growth, which will be offset by the negative impact of currencies. On an annual basis, estimates show nearly flat revenues for 2016 as compared to a decline of 6.5% in 2015 revenues.

The above chart shows actual revenues and analysts’ estimates since 3Q14. Merck classifies its products into two business segments: Global Human Health (Pharmaceutical) and Animal Health.

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Global Human Health

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

The Pharmaceutical segment has a few blockbuster drugs with a yearly contribution of over $1 billion each. These drugs include Januvia, Janumet, Zetia, Vytorin, Remicade, Isentress, Gardasil, Proquad/Varivax, and Cubicin. Revenue growth for 2Q16 is expected to be driven by blockbuster drugs including Januvia, Janumet, the Gardasil vaccine, and new drug Keytruda, but this growth will likely be partially offset by lower revenues from Remicade, Zetia, and Vytorin.

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).

Animal Health

The Animal Health segment contributes nearly 8% of total revenues for Merck. For 2Q16, the revenue growth of this segment is expected to be driven by increased revenues 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 and Company (LLY). To diversify risk, you can consider the Fidelity MSCI Health Care Index ETF (FHLC), which holds 5.1% of its total assets in Merck.

In the next part of this series, we’ll discuss expected growth contributors for Merck in 2Q16.

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