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Merck KGaA (MKGAF) Q1 Earnings Fall Y/Y, Revenues Increase

Zacks

Merck KGaA MKGAF reported first-quarter 2017 earnings of $1.28 per American Depositary Share, 14.7% lower than the year-ago figure of $1.50.

Net sales in the reported quarter came in at $4.1 billion (€3.86 billion), up 5.3%. Organic sales growth of 3.1% was driven by the Healthcare and Life Science segment. Moreover, favorable foreign exchange impacted sales by 2.6% while portfolio changes had a slight negative impact.

Shares of the company have outperformed the Zacks Classified Medical – Drugs industry so far this year. The company rose 14.5% while the industry increased 7% in the same period.


Segment Sales in Detail

The company reports results under three segments – Healthcare, Life Science and Performance Materials.

The Healthcare division recorded sales of €1.7 billion, up 5.4% year over year due to a positive impact of 2% of foreign exchange rate, partially offset by a negative 1% impact of portfolio changes. However, organically, sales at the segment were up 4.4%. The company received €37 million as milestone payment from Pfizer on receiving approval for Bavencio in the U.S.

As part of the strategy to focus on the discovery and development of innovative pharmaceuticals, the company divested its Biosimilars business in Apr 2017 to Fresenius.

Erbitux’s sales were up 5.3% from the year-ago period to €218 million while Rebif sales came in at €415 million, down 1.6% due to negative currency impact. Gonal-f sales were down almost 8.5% to €171 million due to continued competitive pressure and unfavorable year-over-year comparisons. Organically, Erbitux grew 4.3%, Rebif and Gonal-f posted a decline of 4.0% and 9.6%, respectively.

Sales at the Life Science segment amounted to €1.5 billion, up 7.1% primarily due to growth in all regions and business segments and a favourable foreign exchange effect of 2.4%. Moreover, it witnessed a positive portfolio effect of 0.4% `due to the acquisition of BioControl. On an organic basis too, the segment witnessed sales growth (up 3.3%). The Process Solutions business recorded organic sales growth of 4.8%, while organic sales at Applied Solutions improved 4.4%. The Research Solutions business registered organic growth of 1%.

Performance Materials sales were up 3.6% to €645 million. However, organically, the segment witnessed a 0.9% decline in sales.

Bavencio Update

Merck KGaA is evaluating lead immuno-oncology candidate, avelumab, in a number of phase III studies for several cancer indications under its partnership with Pfizer Inc. PFE. In Mar 2017, the candidate received approval for the treatment of metastatic Merkel cell carcinoma (mMCC) followed by approval for advanced bladder cancer in May 2017 in the U.S. under the tradename Bavencio.

The drug is under review in Europe for the treatment of mMCC.

Bristol-Myers Squibb Company’s BMY Opdivo and Roche Holding AG’s RHHBY Tecentriq are available in the market for the treatment of bladder cancer.

Outlook

Merck KGaA has updated its guidance for 2017. The company updated net sales expectations in the range of €15.5 – €16.0 billion. On an organic basis, sales are anticipated to grow moderately from the previous year with positive 1%–2% impact of currency fluctuations on net sales. The Healthcare segment is expected to witness slight organic sales growth, while organic sales at Life Science are projected to see solid growth. Performance Materials will, however, witness a moderate decline in 2017.

Our Take

Merck KGaA’s first-quarter earnings registered a decline on a year-over-year basis while sales increased. With the approval of Bavencio for two indications in the U.S., the company received a major boost.

Going ahead, we believe that the approval of Bavencio may boost sales. However, we remain concerned about the challenges it will face from the marketed drugs.

Merck KGaA Price, Consensus and EPS Surprise

Merck KGaA Price, Consensus and EPS Surprise | Merck KGaA Quote

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