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Merck Warned Of Q2 Slump, But How Far Did Revenue Fall?

Merck Warned Of Q2 Slump, But How Far Did Revenue Fall?

Source : 'Scrip Intelligence'

Merck & Co., Inc. was the first big pharma company during the first quarter earnings season in late April/early May to admit that the COVID-19 pandemic was going to have an impact on product sales and revenue, so a big question for the company’s second quarter earnings report will be how big a hit Merck & Co. took due to coronavirus-related concerns. 

The company lowered its full-year 2020 guidance to a range of $46.1bn-$48.1bn from prior guidance of $48.8bn-$50.3bn, which translates to about a $2.5bn cut to the company’s forecast across its pharmaceutical and animal health portfolios, including a $1.7bn reduction in pharma product sales guidance. The second quarter was expected to feel the biggest impact from reduced prescribing as patients delayed doctor visits to avoid SARS-CoV-2 infection. 

However, analysts at Morningstar said in a 10 July report that they view Merck as being one of the most resilient of the big pharma companies, in large part due to the dominance of its checkpoint inhibitor Keytruda (pembrolizumab) among anti-PD-1/L1 drugs as well as the company’s generally thriving vaccines and animal health businesses.

First quarter sales of Keytruda jumped 45% year-over-year to $3.28bn, while sales of the human papillomavirus (HPV) vaccine Gardasil rose 31% to $1.1bn and the pneumococcal vaccine Pneumovax spiked 39% to $256m as physicians stockpiled the latter products out of concern that production could be impacted by COVID-19 concerns.

As a cancer drug Keytruda may be less likely than other drugs to see sales slide, but Merck & Co. noted that vaccine sales could slide significantly in the second quarter as healthier patients delayed routine check-ups.

Given the company’s dependence on its top-seller Keytruda and its second best-selling franchise – the diabetes drugs Januvia (sitagliptin) and Janumet (sitagliptin and metformin), which saw sales decrease 6% to a combined $1.28bn in the first quarter – another big question for Merck & Co. executives during the 31 July second quarter call will continue to be the company’s diversification strategy.

CEO Kenneth Frazier emphasized earlier this year that the company has a solid research and development pipeline, including new indications in new markets for Keytruda and other approved products as well as new drugs across oncology and other key therapeutic areas. ("Merck Its Not Just Keytruda Driving Future Growth" "Scrip" ) For instance, Merck & Co. expects a US Food and Drug Administration approval decision for the oral soluble guanylate cyclase (sGC) stimulator vericiguat for symptomatic chronic heart failure patients with reduced ejection fraction (HFrEF) by 21 January; the new drug application (NDA) was granted priority review. ("Keeping Track Kites Tecartus Is Third CART With US FDA Approval Submissions RoundUp" "Pink Sheet" )

In another potential positive for its pipeline, on 27 July Merck & Co. bought out the priority review voucher (PRV) from Lumos Pharma, Inc. that was earned from the development of the companies’ Ebola vaccine Ervebo. Lumos held onto 60% of the value of the PRV under the original license agreement between Merck & Co. and NewLink Genetics, which later merged with Lumos. The agreed valuation for the PRV was $100m, so Merck gained the PRV outright with a $60m payment to Lumos. It can be used to shorten the review for a filing of Merck’s choosing.

As for business development, Frazier continues to note that Merck & Co. is interested in smaller licensing deals and bolt-on acquisitions to pad its pipeline and the company followed through on that commitment in the second and third quarters, including partnerships with Yumanity Therapeutics Inc. and Foghorn Therapeutics Inc. in June and July. ("10 Non-COVID News Updates To Listen For In Second Quarter Reporting" "Scrip"

Management is also likely to get pushed for details on its COVID-19 vaccine strategy. While it was not in the frontline of companies developing vaccines and treatments for the pandemic, although it is a leading vaccine maker, Merck is exploring how it may contribute to the development of vaccines and treatments for COVID-19, including through acquisitions, such as its purchase in May of the vaccines firm Themis Bioscience GmbH. ("Latecomer Merck Enters Coronavirus Vaccine Field With Themis Acquisition" "Scrip"

Frazier is likely to be asked about his recent comments on the prospects for a COVID-19 vaccine. He has offered a more cautious counterpoint to most industry claims, citing the inherent difficulties of vaccine development and the unprecedented manufacturing and distribution hurdles for a global pandemic product. ("Coronavirus Update Hardest Hit US States Will Test Modernas Vaccine" "Scrip" )

Investors may also want to hear more from the outspoken CEO on his views of diversity issues across the industry, where, as the only African-American big pharma CEO, Frazier has been a leading voice calling for change. ("Mercks Frazier Urges Businesses To Use Every Instrument At Their Disposal To Reduce Racial Inequi" "Scrip" )

By Mandy Jackson