By Sarah Toy
Merck & Co. is scheduled to report its first-quarter financial results on Tuesday ahead of the opening bell.
Here’s what investors should know before the cancer-therapy giant /zigman2/quotes/209956077/composite MRK +1.17% announces earnings.
Analysts polled by FactSet are predicting first-quarter earnings of $1.05 per share, matching EPS in the year-ago quarter. Revenue should come in at $10.468 billion, up from $10.037 billion a year ago, and profit should be $2.707 billion, down from $2.844 billion a year ago. The drugmaker’s biggest earner, cancer drug Keytruda, is expected to drive sales again this quarter, with analysts putting the drug’s sales at $2.333 billion, up 59% from $1.464 billion in the year-ago quarter.
Merck has bet heavily on Keytruda, pouring money into more than 900 clinical trials spanning more than 30 cancer types, according to a recent securities filing. For now, it seems to be paying off: Keytruda brought in $7.171 billion in revenue in 2018, making up approximately 17% of Merck’s overall sales that year.
The company has enjoyed substantial year-over-year growth in Keytruda sales, thanks to the ever-increasing number of approved indications for the drug globally. However, growth has slowed, with sales in 2018 increasing by 88% after shooting up by 172% in 2017. Some analysts have expressed worry about Merck’s heavy reliance on Keytruda, but a long line of recent approvals seems to have allayed some of those fears.
Merck is “well-positioned for Keytruda-driven upside over time,” analyst Chris Schott of J.P. Morgan wrote in a note to clients last week. The drug is “extremely well positioned” in the lung cancer space, he added. In March, Keytruda received approval from the European Commission as a first-line combination therapy for patients with metastatic squamous non-small cell lung cancer, and China’s Food and Drug Administration approved the drug later that month as a first-line combination therapy for metastatic nonsquamous non-small cell lung cancer. The drug is also approved in the U.S. for treatment of several lung cancer indications.
Keytruda, which is already approved in the U.S. to treat a long list of cancer types, won yet another approval by the Food and Drug Administration earlier in the first quarter — this time as an adjuvant treatment for patients with melanoma that has spread to the lymph nodes even after surgery. In February, the drug was accepted by the FDA for priority review as a combination treatment for patients with advanced renal cell carcinoma.
But the company’s impressive string of approvals doesn’t mean Merck doesn’t face some significant challenges. A recent Phase 3 trial looking at Keytruda as a second-line therapy for patients with advanced liver cancer didn’t meet its primary endpoints . And just last week, UBS analysts cut their price target on Merck’s stock to $87 from $89 after a Phase 3 trial of Keytruda as a first-line treatment for gastric cancer showed it wasn’t more effective than using chemotherapy alone.
“Gastric cancer remains a high hurdle” for Merck, UBS analyst Navin Jacob wrote in a note to clients on Friday.
Along with Merck, biopharma companies Eli Lilly & Co. /zigman2/quotes/200106384/composite LLY -2.12% , Pfizer Inc. /zigman2/quotes/202877789/composite PFE -0.03% , Amgen Inc. /zigman2/quotes/209157011/composite AMGN -1.78% , Vertex Pharmaceuticals /zigman2/quotes/202259802/composite VRTX -6.48% and Incyte Corp. /zigman2/quotes/204510994/composite INCY -0.69% will also be reporting earnings on Tuesday.
Shares of Merck have significantly underperformed the broader market so far this year, reflecting the less-than-stellar performance of the health sector as a whole. Merck’s stock has gained 0.75% so far this year, while the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.23% has gained 17.5%.