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Merck’s 1Q17 Estimates: Revenues Will Likely Decrease

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Merck’s revenue estimates  

For 1Q17, analysts expect Merck and Co.’s (MRK) revenues to be ~$9.25 billion—nearly a 0.7% decrease compared to revenues of $9.31 billion in 1Q16. The company’s revenues for 1Q17 are expected to have positive operational growth, which will be offset by the negative impact of currencies.

The above chart shows actual revenues and analysts’ estimate for 1Q17. Merck has its products classified in two business segments—Human Health (or Pharmaceuticals) and Animal Health. Since the company has operations in over 100 countries, and ~55% of its 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 led to negative growth in absolute figures in previous quarters.

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Human Health segment  

The Global Human Health segment (or pharmaceuticals) generates the most revenue. It contributes ~90% of Merck’s total revenues. The segment includes various franchise like oncology, vaccines, hospital acute care, diabetes, other primary care, and women’s health.

The segment has a few blockbuster drugs with a yearly contribution of over $1 billion each. The drugs include Januvia, Janumet, Zetia, Vytorin, Remicade, Isentress, Gardasil, Proquad/Varivax, and Cubicin. The revenue growth for 1Q17 is expected to be driven by blockbuster drugs including Januvia, Janumet, Gardasil vaccines, and the new drug Keytruda, which will be partially offset by lower revenues from Remicade, Zetia, and Vytorin.

Competitors for Januvia and its combination version Janumet include products like Onglyza—jointly made by Bristol-Myers Squibb (BMY) and AstraZeneca (AZN)—as well as Galvus from Novartis (NVS).

Animal Health segment

The Animal Health segment contributes nearly 8.5% of Merck’s total revenues. For 1Q17, the segment’s revenue growth is expected to be driven by increased revenues from companion animal products including Bravecto and new products.

To divest the risk, investors can consider ETFs like the iShares US Healthcare ETF (IYH). IYH holds 6.2% of its total assets in Merck.

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