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Understanding Merck’s Business Segments and Their Revenue Trends

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Sep. 30 2016, Updated 6:04 p.m. ET

Merck’s business segments

Merck & Co. (MRK) has separated its business operations into two business segments: the Global Human Health business—also referred to as the Pharmaceuticals business—and the Animal Health business.

The company reported a 0.6% revenue rise to $9.8 billion during 2Q16, consisting of an operational rise of 3% offset by a 2% negative foreign exchange impact.

The graph above shows Merck’s revenues in recent quarters. Because the company has operations in over 100 countries and ~55% of its total revenue comes from outside US markets, it’s largely exposed to currency risk. The impact of foreign exchange on the company’s revenue has led to negative growth in its absolute figures.

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Global Human Health 

Merck’s Global Human Health segment, its highest revenue generating segment, contributed nearly 88.4% of its total revenue in 2Q16, compared to 87.5% of its total revenue in 2Q15. This segment includes various franchises such as oncology, vaccines, hospital acute care, diabetes, other primary care, and women’s health.

The segment has few blockbuster drugs, which make yearly revenue contributions of over $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, jointly made by Bristol-Myers Squibb (BMY) and AstraZeneca (AZN), and Galvus from Novartis (NVS). Competitors for Zetia include Niaspan from AbbVie (ABBV) and Lipitor from Pfizer (PFE).

Animal health  

The Animal Health segment contributed nearly 9.1% to Merck’s total revenue in 2Q16, compared to 8.6% of its total revenue in 2Q15. Growth in this segment was driven by increased revenues from companion animal products such as Bravecto and new aqua and swine products.

Merck’s Animal Health segment competes with companies such as Zoetis (ZTS) and Eli Lilly (LLY). Investors may want to consider ETFs such as the PowerShares Dynamic Pharmaceuticals ETF (PJP), which holds ~5.1% of its total assets in Merck, in order to divest their risk.

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