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What’s Contributing to Merck’s Growth?

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Merck’s 2Q16 revenue  

Merck (MRK) reported 0.6% revenue growth to $9.8 billion during 2Q16. The company reported operational growth of 3% during 2Q16, which was offset by a 2% negative impact of foreign exchange. Furthermore, the company estimates the full year 2016 sales between $39.1 billion and $40.1 billion including a ~2% negative impact of foreign exchange.

The above graph shows the segment-wise revenues of Merck in each quarter. As the company has operations in over 100 countries, and ~55% of total revenues are from sales outside US markets, the company is largely exposed to currency risk. The impact of foreign exchange on the company’s revenues has led to negative growth in absolute figures.

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Pharmaceuticals  

The global human health segment (or pharmaceuticals), the segment that generates the highest revenues, contributed nearly 88.4% of total revenues for 2Q16 as compared to 87.5% of total revenues for 2Q15. This segment includes various franchises like oncology, vaccines, hospital acute care, diabetes, and women’s health.

The pharmaceuticals 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.

The competitors for Januvia and its combination version, Janumet, include 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 contributed nearly 9.1% of total revenues for 2Q16, as compared to 8.6% of total revenues for 2Q15. The growth of this segment was 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 and Eli Lilly and Co. Investors can consider ETFs like the Fidelity MSCI Healthcare ETF (FHLC), which holds ~5.1% of its total assets in Merck, in order to divest the risk.

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