Merck’s 1Q21 results, strengthened sequentially from 2Q20 amid improving end-market conditions. As physician offices reopened, the company saw an increase in prescription volumes related to wellness visits. Sales of drugs associated with surgical procedures also rose sequentially. 

Worldwide sales rose to $12.6 billion (+1% reported; +2% currency neutral or operational). Growth improved from 2Q20 (-8% reported; -5% operational).

The pandemic had a negative impact of approximately $475 million in 3Q, primarily in the non-COVID-19 vaccine portfolio. While wellness visits have picked up, volume has fallen also for the best stocks in the market in comparison with the prior year, . (Revenue growth, excluding the impact of the pandemic, would have been 5%-6% on an operational basis.)

Growth drivers in the quarter were Keytruda ($3.715 billion, +21%); Pneumovax ($375 billion, +58%); Lynparza ($196 million, +58%); and Lenvima ($142 million; +29%). Keytruda, Lynparza and Lenvima – all part of the oncology portfolio – are benefitting from strong demand and expanded indications. As elective procedures resumed, sales of Bridion also rose ($320 million; +13%), rebounding from a decline in 2Q20.

In the vaccines portfolio, sales of Gardasil ($1.327 billion) declined 10%. Gardasil demand was affected by delayed public-sector purchasing and the reduced vaccination of adolescents during a disrupted back-to-school season. Partly offsetting the decline in Gardasil was strong demand for Pneumovax, which protects against pneumococcal disease during flu season.

In all, sales of Human Health products rose 12% to $1.2 billion.

Within Animal Health, sales of companion animal products grew 18% to $462 million, driven by the Bravecto line and companion animal vaccines. Sales of livestock products rose 8%.

Product mix was a positive factor.

Merck provided updates on its COVID-19 vaccine program as well as on other pipeline products. These developments are summarized below.

– Merck is advancing two vaccine candidates. One is V591, which uses a measles virus vector platform. Two Phase 1 studies of the vaccine, involving nearly 300 healthy volunteers, have begun. V591, which is being developed in partnership with the Institut Pasteur in Paris, employs a modified measles virus vaccine that has been engineered to express the major surface protein SARS-CoV-2. Immunogenicity data is expected by the end of the year. The second vaccine candidate is V590, which uses the same recombinant vesicular stomatitis virus (rVSV) platform used for Merck’s approved Ebola Zaire virus vaccine. V590 will enter Phase 1 trials shortly. Both V590 and V591 are single-dose vaccines, which could have convenience and compliance advantages over double-dose vaccines, such as those being developed by Pfizer, Moderna and AstraZeneca.

– In collaboration with Ridgeback Bio, Merck is developing Molnupiravir, formerly known as MK-4482, an oral-administered antiviral against COVID-19. Molnupiravir has entered two pivotal Phase 2/3 trials that will enroll nearly 2,800 patients, both nonhospitalized and hospitalized.

– Keytruda has received FDA approval for an expanded indication, as a monotherapy for relapsed or refractory classical Hodgkins lymphoma (cHL). It has also received FDA approval for an updated pediatric indication for treating refractory cHL or cHL that has relapsed after two or more lines of therapy. Keytruda also received two approvals for solid tumor indications in Japan.

– Lynparza, an oncology drug, has received approval in the EU for an additional indication, as a first-line maintenance treatment (with bevacizumab) for a form of ovarian cancer. Lynparza has also received approval in the EU as monotherapy treatment of BRCA 1/2 metastatic castration-resistant prostate cancer. Merck shares development efforts for and global revenue from Lynparza with AstraZeneca.

On the 3Q20 call, Merck noted the pending retirement of Roger Perlmutter as president of Merck Research Laboratories and overall head of R&D, as of December 31. Under his watch, the oncology blockbuster Keytruda saw approvals to treat newly diagnosed forms of advanced lung cancer. ‘Since rejoining the company in 2013, Dr. Perlmutter has had a profound impact on Merck and the patients we exist to serve,’ CEO Kenneth Frazier said in a statement. ‘During his tenure as its president, Merck Research Laboratories have made historical breakthroughs in immuno-oncology and in other fields of medicine that have both transformed clinical practice and vastly improved patient outcomes.’

Under Dr. Perlmutter’s leadership, Merck strengthened a pipeline that had been sputtering. He will be succeeded by Dean Li.

Perhaps as a coda to Dr. Perlmutter’s tenure, Merck announced the acquisition of VelosBio for $2.75 billion in cash, subject to  certain customary adjustments. VelosBio is a privately held clinical-stage biopharmaceutical company that is developing cancer therapies targeting receptor tyrosine kinase-like orphan receptor 1 (ROR1). 

On the corporate development side, the spinoff of the company’s women’s health and legacy brands remains on track for the second quarter of 2021. The new company will be called Organon & Co.

EARNINGS & GROWTH ANALYSIS 

Merck has updated its guidance for 2020. It now expects revenue of $47.6-$48.6 billion, compared to a prior range of $47.2-$48.7 billion. The update raises the midpoint of the range by $250 million and includes a slightly less unfavorable impact from foreign exchange. Overall, the guidance implies 3%-5% revenue growth in 2020, excluding currency effects. Excluding revenue headwinds from the pandemic, the guidance implies year-over-year growth of 8%-10%, reflecting continued strong underlying demand for Merck products.

RISKS 

Remicade faces competition from biosimilars in Europe and in the U.S. Merck holds the commercial rights to Remicade in Europe, Russia and Turkey. The company also faces risks from the development of new drugs, a process that may take more than 10 years and include multiple stages of clinical studies.

VALUATION 

Despite near-term headwinds from COVID-19, Merck is seeing sequentially stronger end-market demand for its products as physician offices reopen, elective surgeries resume, and pet owners return to veterinary offices. The company continues to see strong sales of Keytruda, Lenvima, and Lynparza. These products anchor Merck’s formidable oncology portfolio.