Merck & Co., Inc.
MRK
reported first-quarter 2022 adjusted earnings of $2.14 per share, which beat the Zacks Consensus Estimate of $1.81. Earnings rose a whopping 84% year over year (89% excluding the impact of currency) due to higher revenues.
Including acquisition- and divestiture-related costs, restructuring costs, income and losses from investments in equity securities and certain other items, earnings per share were $1.70 per share against a loss per share of $1.03 in the year-ago quarter.
Revenues rose 50% year over year (52% on a constant currency basis) to $15.9 billion, driven by additional sales from its oral COVID drug, Lagevrio (molnupiravir), increased demand for its cancer drugs and human papillomavirus (“HPV”) vaccines and higher sales of Animal health products. Sales beat the Zacks Consensus Estimate of $15.00 billion.
Shares of Merck were up 1% in pre-market trading, following the robust first-quarter results. Merck’s stock has gained 10.1% so far this year compared with an increase of 3.8% for the
industry
.
Image Source: Zacks Investment Research
Quarter in Detail
The Pharmaceutical segment generated revenues of $14.12 billion, up 53% year over year, especially due to additional sales from its COVID-19 drug, Lagevrio. Higher sales of oncology drugs, HPV vaccines and neuromuscular blockade drug — Bridion — drove the top line. Excluding Lagevrio sales, the Pharmaceutical segment sales were up 19%, reflecting recovery from the unfavorable impact of the COVID-19 pandemic last year. The company reported that the pandemic hurt the top line by approximately $500 million in the first quarter of 2021.
Keytruda, the largest product in Merck’s portfolio, generated sales of $4.81 billion in the quarter, up 23% (27% excluding Fx impact) year over year. Keytruda sales have been gaining particularly from continued strong momentum in lung cancer indications and continued uptake in other indications.
Alliance revenues from Lynparza and Lenvima also boosted oncology sales in the quarter. Merck has a deal with British pharma giant
AstraZeneca
AZN
to co-develop and commercialize PARP inhibitor, Lynparza and a similar one with Japan’s Eisai for its tyrosine kinase inhibitor, Lenvima.
Alliance revenues from AstraZeneca-partnered Lynparza increased 17% year over year to $266 million in the quarter. Lenvima alliance revenues were $227 million, surging 75% from the year-ago period, fueled by higher demand in the United States and China.
In the hospital specialty portfolio, the Bridion injection generated sales of $395 million in the quarter, up 16% year over year, reflecting a recovery in surgical procedures.
The company’s COVID-19 drug, Lagevrio, generated sales of $3.25 billion during the first quarter, primarily from supply to the United States, the United Kingdom, Australia and Japan.
Merck’s vaccine portfolio witnessed continued recovery for the majority of its vaccines. However, lower sales of the pneumococcal vaccine, Pneumovax 23, partially offset gains in other vaccines.
Sales of HPV vaccines — Gardasil and Gardasil 9 — surged 59% year over year to $1.46 billion, primarily driven by strong demand, particularly in China. Proquad, M-M-R II and Varivax vaccines recorded combined sales of $470 million, up 5% year over year. Sales of the rotavirus vaccine, Rotateq rose 36% to $216 million. Sales of Pneumovax 23 gained 1% to $173 million.
Januvia/Janumet (diabetes) franchise sales were down 5% year over year to $1.23 billion. The drugs sales were hurt by lower demand in the U.S. market, partially offset by higher demand in certain international markets. However, the drugs are set to lose exclusivity in the European Union and China in the third quarter of 2022, which may lead to generic entry hurting sales significantly.
Merck’s Animal Health segment generated revenues of $1.48 billion, up 4% from the year-ago quarter, helped by growth across geographies and species.
Margin Discussion
Adjusted gross margin was 70.7%, down 590 basis points from the year-ago quarter, reflecting lower margins from Lagevrio due to the profit- sharing with Ridgeback.
Selling, general and administrative (SG&A) expenses were $2.3 billion in the reported quarter, up 4% year over year due to higher administrative costs. Research and development (R&D) spending rose 7% to $2.5 billion due to higher clinical costs and investments in technology.
2022 Guidance
Merck updated its earnings and sales guidance for 2022. Merck expects revenues to be in the range of $56.9 billion to $58.1 billion in 2022 compared with the previous guidance of $56.1 billion to $57.6 billion. The guidance range indicates growth in the range of 17% to 19%. The Zacks Consensus Estimate for 2022 revenues is pegged at $57.39 billion.
Adjusted earnings per share are expected to be between $7.24 and $7.36, up from the previously guided range of $7.12 to $7.27. The Zacks Consensus Estimate for 2022 earnings per share is pegged at $7.20.
Adjusted operating costs are expected to be in the range of $20.3 billion to $21.3 billion.
Our Take
Merck’s first-quarter results were better than expected as it beat estimates for both earnings and sales. An ongoing recovery from the pandemic and strong global underlying demand across its business led to improved sales in the quarter.
The vaccine sales reflect an ongoing recovery from the unfavorable impact of the COVID-19 pandemic. Merck’s view for 2022 also indicates a promising year ahead.
Merck also made meaningful progress in its pipeline in the quarter, including authorizations and supply agreements for its and partner Ridgeback Biotherapeutics’ oral antiviral medicine for treating mild-to-moderate COVID-19, Lagevrio, in several countries. The drug significantly boosted the top line during the first quarter and is likely to continue to do so in the rest of 2022.
Merck & Co., Inc. Price, Consensus and EPS Surprise
Merck & Co., Inc. price-consensus-eps-surprise-chart
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Merck & Co., Inc. Quote
Zacks Rank & Stocks to Consider
Merck currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the biotech sector are
Trevi Therapeutics
TRVI
and
Voyager Therapeutics
VYGR
, both carrying a Zacks Rank #2 (Buy) at present. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
The Zacks Consensus Estimate for Trevi’s 2022 and 2023 loss has narrowed 19.4% and 14.1%, respectively, over the past 60 days. TRVI has surged 281% so far this year.
Earnings of Trevi surpassed estimates in two of the trailing four quarters and missed twice, the average beat being 5.09%.
Estimates for Voyager’s 2022 and 2023 loss have narrowed 38.6% and 29%, respectively, over the past 60 days. VYGR has rallied 168.6% so far this year.
Earnings of Voyager surpassed estimates in three of the trailing four quarters and missed once, the average beat being 41.00%.
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