While drugmakers across the industry deal with their respective COVID-19 challenges, Merck faces a unique set of circumstances because of its reliance on physician-administered drugs. Several companies have reaffirmed their 2020 performance forecasts, but Merck’s management just laid out expectations for a multibillion-dollar hit to 2020 sales.
Along with its first-quarter earnings, Merck reduced its 2020 revenue guidance by $2.5 billion at the midpoint. The company expects a $2.1 billion hit to sales in human and animal health products from the pandemic, plus a $750 million hit from currency exchange rates as investors flock to safe holdings such as the U.S. dollar. Operational strength in its human pharmaceuticals business should partially offset those factors, an exec said.
Early into the Tuesday Q&A session, Wolfe Research analyst Tim Anderson pointed out that several other drugmakers have reported first-quarter earnings so far—and they haven’t chopped revenue guidance the way Merck did.
That’s a result of Merck’s portfolio mix and reduced patient access to healthcare, CFO Rob Davis responded. Two-thirds of the company’s human health products are administered by physicians, and with social distancing forcing fewer doctor visits and hospitals reprioritizing to care for COVID-19 patients, many of Merck's important products will suffer from the pandemic.
Most of the revenue hit will come in the second quarter, and most will come from the U.S., execs said. Vaccines will take a hit because routine wellness visits are down 70%. Elective surgeries are also down 70%, and that’s expected to drag on Bridion, a drug used to reverse the effects of muscle relaxants in surgery.
Sales for Implanon/Nexplanan, a physician-administered birth control option, will also suffer, execs warned. The company expects to see a hit for its star immuno-oncology blockbuster Keytruda as well.
In response to the pandemic, the company has paused its share repurchase program so it can continue to invest in R&D, capital expenses and dealmaking, execs said on the call.
The company's 2020 guidance assumes the pandemic will peak in the second quarter in the U.S. and Europe, plus that social distancing measures in those key markets will extend into June. Merck is also assuming a “gradual return” to normal operations will begin late in the second quarter, and that a “full return” will come in the fourth quarter. Of course, the company said the COVID-19 situation could vary from its expectations.
As for the first quarter, Merck turned in global sales of $12.1 billion, an 11% increase. Keytruda continued its impressive climb, growing sales 45% over the same period last year to $3.3 billion.
Merck also unveiled details of its COVID-19 vaccine work on Tuesday. The company is working with "proven platforms" and is discussing options with several groups, R&D chief Roger Perlmutter said on the call. As of now, it's focusing on three viral vaccine platforms.