Can Merck's Blockbuster and New Drugs Keep It Profitable?
Animal health segment
Merck & Co.’s (MRK) animal health segment operates in more than 140 countries worldwide. Global revenues for 1Q16 were $829 million, which was no change compared to 1Q15. Revenues had a 9% growth, offset by a 9% negative impact of foreign exchange, resulting in constant revenues.
The above graph shows annual revenues for Merck’s animal health segment. In terms of percentage of total revenues, the contribution of the animal health segment has increased to 8.9% of total revenues in 1Q16, compared to 8.8% in 1Q15. Sales in US markets improved by 15% during 1Q16 to $233 million. Sales outside the US markets declined by 5% to $596 million due to the negative impact of foreign exchange.
Revenue drivers from animal health
Revenues for Merck’s animal health segment have improved due to increased sales in companion animal products. Companion animal products are used by small-animal veterinarians and pet owners to provide a healthier, longer life for their pets. Bravecto, one of the segment’s key products, is a chewable tablet that kills fleas and ticks in dogs for up to 12 weeks. Bravecto has shown strong growth over 2015. Other products include Activyl, eye and ear products, Nobivac, Panacur, Scalibor, and the veterinary insulin Vetsulin.
Other products that drive the performance of the animal health segment include aquaculture products and swine products. Aquaculture products maximize fish survival, growth, and production efficiency for the major types of farmed fishes. These include salmon, tilapia, trout, and other marine species. Some of the aquaculture products are Aquaflor, Norvax Minova 6, Slice, and AquaVac.
Merck’s swine products help pork producers improve the health of pigs so they can produce safer, high-quality pork. Some of the swine products include Circumvent PCV, Porcilis PRRS, Regumate, Respig, and Zuprevo.
Bravetco competes with Nexgard, a product of Merial, a Sanofi (SNY) company. Zoetis (ZTS), part of the Pfizer (PFE) group, is the largest animal health company with around 20% of market share. Elanco, an Eli Lilly (LLY) subsidiary, competes closely with Merck for its companion animal products as well as swine and aquaculture food animal products. Elanco acquired Novartis’s (NVS) animal health division in January 2015 to strengthen its position in animal health.
Investors can consider the Health Care Select Sector SPDR ETF (XLV), which holds 5.6% of its total assets in Merck. They can also consider the iShares Global Healthcare ETF (IXJ), which holds ~3.8% of its total assets in Merck.
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