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Merck Witnessed 5% Growth in Q2 2018

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Revenue and earnings trends

Merck (MRK) reported its second-quarter earnings on July 27. Merck generated revenues of $10.5 billion in the second quarter, reflecting ~5.0% year-over-year (or YoY) growth. In the second quarter, Merck’s Pharmaceuticals segment generated revenues of $9.3 billion compared to $8.8 billion in the second quarter of 2017, reflecting ~6.0% YoY growth. Merck’s Animal Health segment generated revenues of $1.1 billion in the second quarter, reflecting ~14.0% YoY growth.

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Keytruda and Gardasil/Gardasil 9 primarily pushed the revenue growth for Merck in the second quarter. Merck’s Keytruda and Gardasil/Gardasil 9 generated second-quarter revenues of $1.7 billion and $608.0 million, respectively, reflecting ~89.0% and ~30.0% YoY growth. Merck’s hospital acute care unit also pushed this revenue growth. However, the decline in its sales of virology products created a negative impact on Merck’s growth.

In the second quarter, Merck reported GAAP net income and EPS of $1.7 billion and $0.63, respectively, compared to $1.9 billion and $0.71 during the second quarter of 2017.

Expense trends

In the second quarter, Merck reported M&P (materials and production), M&A (marketing and administrative), and R&D (research and development) expenses of $3.4 billion, $2.5 billion, and $2.3 billion, respectively. These respective metrics reached $3.1 billion, $2.5 billion, and $1.8 billion in the second quarter of 2017.

Updated financial guidance for 2018

After its second-quarter results, Merck updated its financial guidance for fiscal 2018 and raised its earnings estimates. Merck expects its net revenues for fiscal 2018 to be $42.0 billion–$42.8 billion. Merck expects its GAAP EPS to be $2.51–$2.59, and it expects its non-GAAP EPS to be $4.22–$4.30.

Among Merck’s peers in the biopharmaceuticals market, Eli Lilly (LLY), Celgene (CELG), and Amgen (AMGN) generated second-quarter revenues of $6.4 billion, $3.8 billion, and $6.1 billion, respectively.

Merck’s revenue growth could boost the VanEck Vectors Pharmaceutical ETF (PPH). Merck and Eli Lilly comprise ~4.99% and ~4.89%, respectively, of PPH’s total portfolio holdings.

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