Merck MRK reported third-quarter 2024 adjusted earnings of $1.57 per share, which beat the Zacks Consensus Estimate of $1.50. Earnings declined 26% year over year on a reported basis and 23% excluding foreign exchange (Fx) impact due to one-time charges incurred by the company related to business development.
Revenues rose 4% year over year (7% excluding Fx) to $16.66 billion. Sales also beat the Zacks Consensus Estimate of $16.55 billion.
All sales growth numbers discussed below are on a year-over-year basis and exclude Fx impact.
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Keytruda and Other Oncology Drugs Drive MRK Stock
Keytruda, the biggest product in Merck’s portfolio, generated sales of $7.43 billion in the quarter, up 21%. Sales of the drug benefited from rapid uptake across earlier-stage indications in triple-negative breast cancer (TNBC), renal cell carcinoma (RCC) and non-small cell lung cancer (NSCLC). Continued strong momentum in metastatic indications also boosted sales growth. Keytruda sales beat the Zacks Consensus Estimate of $7.38 billion and our estimate of $7.31 billion.
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 13% to $337 million in the quarter, driven by higher global demand for the drug. Lenvima alliance revenues totaled $251 million, down 4%.
Welireg recorded sales of $139 million, up 157%. Sales of the drug benefited from encouraging uptake of the drug in the RCC indication, which was approved by the FDA last December.
Sales Numbers of Other Key MRK Products
In vaccines, sales of HPV vaccines — Gardasil and Gardasil 9 — fell 10% to $2.31 billion due to lower demand in China, partially offset by higher sales in the United States and certain ex-U.S. markets. The reported sales figure missed the Zacks Consensus Estimate of $2.60 billion and our estimate of $2.66 billion.
Proquad, M-M-R II and Varivax vaccines recorded combined sales of $703 million, down 1%. Sales of the rotavirus vaccine, Rotateq, rose 25% to $193 million, while Pneumovax 23 (pneumococcal vaccine polyvalent) vaccine sales declined 51% to $68 million. Sales of Vaxneuvance, Merck’s pneumococcal 15-valent conjugate vaccine, were $239 million, up 13%, driven by continued uptake in Europe and Japan.
In the hospital specialty portfolio, neuromuscular blockade medicine, Bridion injection generated sales of $420 million in the quarter, flat year over year. While the drug’s sales benefited from higher demand and pricing in the United States, it was largely offset by the generic competition in certain ex-U.S. markets (mainly Europe and Japan).
In Diabetes, Januvia/Janumet (diabetes) franchise sales declined 38% year over year to $482 million. Lower pricing in the United States and generic competition in certain international markets hurt the drug's sales.
New PAH drug Winrevair, which received FDA approval in March, generated sales of $149 million compared with $70 million in the previous quarter. The reported figure beat our model estimate of $100 million.
Lagevrio (molnupiravir) generated sales of $383 million in the third quarter, down 36% year over year.
MRK’s Animal Health Segment
The segment generated revenues of $1.49 billion, up 6% year over year (11% excluding Fx impact). This growth was driven by higher demand and pricing for both Companion Animal and Livestock product portfolios. Though the Animal Health segment’s sales beat our model estimate of $1.43 billion, the figure missed the Zacks Consensus Estimate of $1.50 billion.
MRK’s Cost and Margin Discussion
Adjusted gross margin was 80.5%, up 350 basis points year over year, driven by a favorable product mix (including the benefit from reduced royalties paid on Keytruda and Gardasil).
Adjusted selling, general, and administrative expenses were $2.7 billion in the reported quarter, up 8% year over year, as higher administrative and selling costs were partially offset by the favorable impact of foreign exchange.
Adjusted research and development (R&D) spending was $5.8 billion compared with $3.3 billion in the year-ago period due to higher costs related to M&A activity in the quarter.
MRK Updates 2024 Guidance
Merck narrowed its sales guidance for the year. The company now expects revenues to be in the range of $63.6-$64.1 billion in 2024 compared with its previous expectation of $63.4-$64.4 billion. The revised guidance maintains a negative impact from foreign exchange of nearly 3% on sales. The Zacks Consensus Estimate is pegged at $64.15 billion.
Management also adjusted its adjusted operating expense and adjusted earnings per share (EPS) guidance for the full year to account for two business development transactions during the quarter. These include the completion of the acquisition of Curon’s bispecific antibody drug and the receipt of a milestone payment from Daiichi Sankyo.
Adjusted EPS is expected to be between $7.72 and $7.77versus the prior estimated range of $7.94-$8.04. This guidance includes a one-time net charge of 24 cents per share related to the above transactions. The guidance includes a negative impact from foreign exchange of nearly 30 cents on EPS. The Zacks Consensus Estimate is pegged at $7.76 per share.
The adjusted gross margin is expected to be approximately 81% (maintained).
Adjusted operating costs are expected to be in the range of $27.8-$28.3 billion (previously 26.8-$27.6 billion), which includes the one-time charges for the above transactions. The adjusted tax rate projection is expected to be in the range of 16.0-17.0% (previously 15.5-16.5%).
Our Take on MRK’s Results
Merck exited the third quarter with better-than-expected results as its earnings and sales beat their respective estimates. Higher sales of oncology drugs like Keytruda, higher demand for products in the company’s Animal Health segment as well as additional sales from recently launched products like Winrevair drove the company’s top line.
Despite the encouraging results, Merck’s shares were down 3% in pre-market trading today. This was likely because of the lowered revenue guidance following the soft sales performance of the company’s Gardasil vaccines and diabetes drugs, which fell below our expectations.
Year to date, the stock has lost 3.9% against the industry’s 16.9% growth.
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Merck has some key new products lined up for launch. Between 2025 and 2030, it expects eight new product approvals. We believe that among these, Winrevair and the recently approved 21-valent pneumococcal conjugate vaccine Capvaxive have the potential to generate significant revenues for Merck over the long term. Though management did not provide sales figures for Capvaxive, it did list the vaccine as one of the products responsible for the growth in sales during the quarter. These new products and line extensions should bring in additional sales in 2024 and beyond.
MRK’s Zacks Rank
Merck currently has a Zacks Rank #3 (Hold).
Merck & Co., Inc. Price
Merck & Co., Inc. price | Merck & Co., Inc. Quote
Key Picks Among Biotech Stocks
Some better-ranked stocks from the sector are Castle Biosciences CSTL and Elevation Oncology ELEV, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 90 days, estimates for Castle Biosciences’ 2024 loss per share have narrowed from $1.28 to 58 cents. Year to date, shares of Castle Biosciences have surged 60.0%.
CSTL’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 132.32%.
In the past 60 days, estimates for Elevation Oncology’s 2024 loss per share have narrowed from 86 to 82 cents. Loss per share estimates for 2025 have narrowed from 90 to 86 cents during the same time. Year to date, shares of ELEV have rallied 11.7%.
ELEV’s earnings beat estimates in three of the trailing four quarters and missed the same in one, the average surprise being 12.05%.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
AstraZeneca PLC (AZN) : Free Stock Analysis Report
Merck & Co., Inc. (MRK) : Free Stock Analysis Report
Castle Biosciences, Inc. (CSTL) : Free Stock Analysis Report
Elevation Oncology, Inc. (ELEV) : Free Stock Analysis Report
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