How Much Will Coronavirus Hurt Merck's (MRK) Q2 Earnings?
Merck MRK will report second-quarter 2020 results on Jul 31, before market open. In the last reported quarter, the company delivered earnings surprise of 7.91%.
The large drugmaker’s performance has been pretty impressive, with the company exceeding earnings expectations in each of the trailing four quarters. The company delivered a four-quarter earnings surprise of 10.63%, on average.
Merck Co., Inc. Price and EPS Surprise
Merck Co., Inc. price-eps-surprise | Merck Co., Inc. Quote
Merck’s stock has declined 13.2% this year so far compared with a decrease of 0.1% for the industry
Factors to Consider
Merck’s physician-administered products bring almost two-third of the company’s pharmaceutical revenues. Though the impact on COVID-19 on sales of these products was minimal in the first quarter, in the second quarter, sales of these products are expected to have been hurt due to social distancing measures, fewer patient visits and delays in elective surgeries due to COVID-19. As a result, the company is expected to have witnessed lower administration trends of several of its medicines (including Keytruda) and vaccines.
In oncology drugs, Keytruda sales might have been driven by continued strong momentum in first-line lung cancer indication and launch in newer indications, namely renal cell carcinoma and adjuvant melanoma. The Zacks Consensus Estimate for Keytruda’s sales is $3.41 billion. Alliance revenues from Lynparza and Lenvima may have contributed to higher oncology sales. Please note that Merck markets Lynparza in partnership with AstraZeneca AZN. However, decline in new patient visits may have impacted sales and alliance revenues from oncology drugs in the second quarter.
In the hospital specialty portfolio, sales of Bridion (sugammadex) Injection is likely to have declined in the second quarter due to the widespread reduction in elective surgeries amid coronavirus-related lockdowns. The Zacks Consensus Estimate for Bridion is $60 million.
Meanwhile, the top line is expected to reflect the impact of loss of U.S. market exclusivity for Remicade, Noxafil, Emend, Cubicin, Nuvaring and Vytorinand competitive pressure for the diabetes franchise (Januvia/Janumet). Merck markets Remicade in partnership with J&J JNJ.
Merck’s vaccines portfolio is likely to reflect the impact of COVID-19 related business disruption, including Gardasil, Pneumovax and pediatric vaccines. The Zacks Consensus Estimate for Gardasil is $805 million while the same for total vaccines is $1.7 billion.
In the Animal health franchise, demand for Merck’s animal health products could have been hurt by reduced veterinary visits, decreased protein and milk consumption due to restaurant and school closures and lowered incomes, which may have hurt spending on pets.
Importantly, investors will also focus on whether Merck provides an updated business outlook for 2020 to update on the impact of coronavirus.
Key Recent Developments
In late May, Merck announced three deals to find new medicines and vaccines to help combat COVID-19. First, Merck announced a deal to acquire Austrian private biotech, Themis, which has a vaccine candidate in preclinical development. Themis developed the candidate using its measles virus vector platform. The acquisition was completed in June. Second, Merck bought exclusive worldwide rights to develop and commercialize private biotech Ridgeback Biotherapeutics’ oral antiviral candidate, EIDD-2801, which is being evaluated in early clinical studies. The deal closed in July. Merck will take care of clinical development and regulatory filings of the candidate. Third, Merck signed a collaboration with a non-profit research organization, IAVI to co-develop a vaccine to prevent COVID-19.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Merck this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here.
Earnings ESP: Its Earnings ESP is -2.92%. The Zacks Consensus Estimate is pegged at $1.14 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Merck has a Zacks Rank #3.
Stocks to Consider
A large drug/biotech stock that has the right combination of elements to beat on earnings this time around is Incyte INCY with an Earnings ESP of +4.62% and a Zacks Rank #3.
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