- Merck & Co. has lowered its 2020 revenue expectations by about $2.5 billion as the company prepares for the coronavirus pandemic to negatively affect its vaccines, cancer drugs and animal health products.
- During an earnings call Tuesday, the pharma giant said revenue should fall within the range of $46.1 billion to $48.1 billion this year, down from the $48.8 billion to $50.3 billion it forecasted a couple months ago. Merck envisions the virus having a more noticeable impact on sales during the second and third quarters but predicts a return to normalcy at the tail end of the year
- Merck recorded $12 billion worth of sales during the first quarter, an 11% year-over-year increase that was made possible by growth from the company's cancer therapy Keytruda and HPV vaccine Gardasil, as well as its animal health division. Yet, with the novel coronavirus discouraging patients from going to hospitals or taking their pets to the veterinarian, Merck executives cautioned growth may be dampened in the near-term.
Most of Merck's top-selling drugs are administered at doctors offices or hospitals, which puts the company in a difficult position given that coronavirus concerns are keeping patients away from these places. Merck anticipates, for example, that sales of its anesthesia reversal drug Bridion will be hurt in the coming months, as patients forgo medical visits and hospitals cancel elective surgeries to devote more resources to virus-infected patients.
"Two-thirds of our products are physician-administered, and that is probably somewhat unique and is causing the impact," said Rob Davis, the company's chief financial officer, on the earnings call.
In contrast to some of its peers — including Novartis and Pfizer, which reaffirmed sales forecasts during their respective first quarter earnings presentations on Tuesday — Merck is now the second big pharma to lower 2020 revenue expectations after Johnson & Johnson. Investors, apparently unnerved by the update, sent shares down more than 3% Tuesday morning.
Merck expects this year's revenue to clock in around $2.5 billion lower than its last estimate, with the conoronavirus pandemic bringing a $1.7 billion hit to its human health business and a $400 million hit to animal health.
The company also expects foreign exchange rates, which have changed due to the strong position of the U.S. dollar, will have a negative impact of 2.5% on Merck's revenue. This impact will account for nearly a third, or around $750 million, of the revenue reduction.
However, Umer Raffat, an analyst at Evercore ISI, noted the long-term outlook on Merck remains intact, in large part because of the ever-present need for vaccines and cancer drugs.
"From my perspective, it's hard to ignore that delays in initiation of a life-saving drug like Keytruda would inevitably not be a sustainable practice for oncology patients at large," Raffat wrote.
Frank Clyburn, Merck's chief commercial officer, said Tuesday that the company expects the second quarter to be more challenging for its vaccine business, whereas cancer drugs are "pretty resilient." Still, he said the company feels "very confident" that both its cancer products and larger portfolio will perform well coming out of the third quarter and into the end of the year.
Davis went on to explain that Merck expects the vaccine business will first start returning to normal in the third quarter as infants and young children who missed getting vaccinations during the pandemic are prioritized to get them. After that, Merck predicts its pneumococcal vaccine will "come back strongly," according to Davis, as adults seek it out going into the flu season.
Adolescents and young adults, meanwhile, will "probably come back a little bit slower" to getting vaccinations, Davis said.
Of the $12 billion in sales Merck saw during the first quarter, $3.3 billion came from Keytruda. Other big sellers were the Gardasil franchise at $1.1 billion, the diabetes medication Januvia at $1.3 billion, and animal health drugs, which together raked in $1.2 billion.