Merck falls short in Q4 sales but sees EPS growth ahead

Merck building
Merck is expecting sales of $38.6 billion to $40.1 billion in 2017, according to new guidance issued Thursday.

Merck slipped in the fourth quarter and posted paltry 2016 growth in earnings results released Thursday, but the drug giant rolled out 2017 guidance that worked to allay some analyst concerns.

Merck’s Q4 sales came in at $10.11 billion, just short of consensus estimates of $10.16 billion. Providing a boost during the period were HPV vaccine Gardasil, cholesterol med Vytorin and animal health revenues, which each beat estimates, according to a note from Jefferies analyst Jeffrey Holford.

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For its part, checkpoint inhibitor Keytruda initially appeared to record a beat with fourth-quarter sales of $483 million. However, that performance was the result of $40 million in “deferred revenues,” Evercore ISI analyst Mark Schoenebaum wrote in a note. Merck left that information out of the earnings release and the drug fell short of consensus estimates—$470 million—without the one-time bump.

Nonetheless, the med continues to be a key pillar for the company moving forward, execs said on the company’s conference call. Merck believes the drug is positioned to be “foundational” in future cancer treatments as “more and more” regimens become personalized, according to R&D head Roger Perlmutter.

Keytruda turned in total 2016 sales of $1.4 billion, a 148% leap from 2015’s total of $566 million.

Falling short of consensus estimates were diabetes med Januvia/Janumet, anti-inflammatory med Singulair, HIV drug Isentress, shingles vaccine Zostavax, antibiotic Cubicin and hep C entrant Zepatier.

In reporting its results, the New Jersey drugmaker said its revenues took a hit in Japan, where $150 million in sales were recorded in the third quarter rather than the fourth “due to the implementation of a resource planning system.”

All told in 2016, Merck grew revenues 1% to $39.8 billion and turned in GAAP EPS of $2.04.

Now, for 2017, Merck is expecting sales of $38.6 billion to $40.1 billion and GAAP EPS of $2.47 to $2.62. Analysts at Credit Suisse wrote Thursday that despite the challenges the company faces, the guidance should be “well received.”

Asked about potential M&A on the call, Merck CEO Ken Frazier said price has been an issue in recent deal scouting. But he said Merck has the “firepower” now to make a move and continues to look for the “right deal at the right valuation.”

Gardasil's strong fourth-quarter performance—$542 million in sales compared to a $452 million consensus—may have been the result of GlaxoSmithKline's move to pull out of the U.S. with rival Cervarix. That decision, stemming from "very low market demand," handed Merck the entire market.

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