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Merck & Co. Grows 5% in the Third Quarter

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Revenue trends

Merck & Co. (MRK) released its third quarter of 2018 results today, reporting net revenues of $10.8 billion, or a ~5% YoY (year-over-year) growth. Merck’s Pharmaceuticals segment generated revenues of $9.7 billion, reflecting a ~5% YoY growth.

Keytruda, Gardasil/Gardasil 9, and Bridion primarily boosted Merck’s revenue growth, which was partially offset by declining revenues for Zetia/Vytorin and Isentress. In the third quarter, Keytruda, Gardasil/Gardasil 9, and Bridion had revenues of $1.9 billion, $1 billion, and $217 million, respectively, which indicate ~80%, ~55%, and ~17% YoY growth, respectively.

Merck’s Animal Health segment had ~2% YoY growth with revenues of $1.02 billion. The companion animal part of the segment had ~5% YoY growth and revenues of $361 million.

Johnson & Johnson (JNJ) and Abbott Laboratories (ABT), Merck’s peers in the biopharmaceuticals market, reported revenues of $20.3 billion and $7.6 billion, respectively, in the third quarter, or YoY growth of ~3.5% and ~12.11%, respectively.

Revenue growth for Merck, Johnson & Johnson, and Abbott Laboratories could boost the Health Care Select Sector SPDR Fund (XLV). Those companies make up ~5.3%, ~10.74%, and ~3.45%, respectively, of XLV’s total portfolio holdings.

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Expense trends

In the third quarter, Merck reported GAAP M&P (material and production), M&A (marketing and administrative), and R&D (research and development) expenses of $3.6 billion, $2.4 billion, and $2.1 billion, respectively. That compares to $3.3 billion, $2.5 billion, and $4.4 billion, respectively, in Q3 2017, or a 9% YoY growth, a 1% YoY decline, and a 53% YoY decline, respectively.

Merck’s GAAP restructuring costs grew from $153 million in the third quarter of 2017 to $171 million in the third quarter of 2018, reflecting a ~12% YoY growth.

Earnings trends

In the third quarter, Merck reported GAAP net income and EPS of $1.95 billion and $0.73, respectively, compared to -$56 million and -$0.02, respectively, in the third quarter of 2017.

Merck reported a gross margin of 66.5% in the third quarter compared to $68% in the third quarter of 2017.

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