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Merck Stock Slides As Q4 Revenue, Guidance Miss Expectations

Big pharma Merck ( MRK ) delivered mixed quarterly results and guidance Wednesday, sending its stock lower. Merck’s Q4 earnings excluding one-time items rose 7% over the year-earlier quarter to 93 cents a share, beating analysts’ consensus by 2 cents, according to Thomson Reuters. However, sales declined 2.5% to $10.22 billion, $135 million below Wall Street’s average estimate. For the year, revenue fell 6.5% to $39.45 billion, while earnings increased 3% to $3.59 a share. Merck guided 2016 EPS at $3.60 to $3.75, on the low side of analysts’ consensus of $3.72. The company said this includes a 3% negative impact from foreign-exchange rates, a tax rate of 21.5% to 22.5%, R&D spending slightly above 2015 levels, and sales, general and administrative spending slightly below 2015 levels. Sales guidance was also soft, at $38.7 billion to $40.2 billion. Merck also announced separately that its new hepatitis C drug Zepatier had been approved in Canada with a somewhat broader label than that granted by the FDA last week , as it includes patients with genotype 3 of the virus as well as genotypes 1 and 4. Diabetes drug Januvia and sister drug Janumet were largely responsible for the Q4 revenue miss, selling $1.45 billion in the quarter where analysts had expected $1.64 billion. The franchise has recently been under threat from Eli Lilly ‘s ( LLY ) Jardiance, as that drug substantially reduced death from heart failure in a giant clinical trial late last year, while Januvia had failed to do so in a similar trial. In its own Q4 earnings report last week, however, Lilly said this probably wouldn’t result in a change to Jardiance’s label until late this year, and Merck executives said on the conference call with analysts that they hadn’t seen any real impact yet. Evercore ISI analyst Mark Schoenebaum wrote in an email that Januvia “experienced a quarterly uptick due to stocking in Q3, followed by an expected drawdown in Q4.” Recently launched cancer drug Keytruda racked up $214 million in sales, missing analyst consensus by about $7 million. HPV vaccine Gardasil handily outperformed, however, growing 10% to $497 million vs. a consensus estimate of $383 million. “Overall, our initial read of the earnings and guidance reaffirms our neutral stance on the stock, as pressure on key products such as Januvia and Remicade will likely limit near-term growth opportunities and offset potential areas of upside,” Credit Suisse analyst Vamil Divan wrote in a research note. Merck stock Wednesday fell as much as 3.6%, to a four-month low of 48.58, before recovering to close at 50.05, down just a fraction on the stock market today .

Gilead Q4 Earnings Beat Estimates; Guidance In Line With Street

Big biotech Gilead Sciences ( GILD ) beat analysts’ Q4 estimates Tuesday but its guidance was soft, sending the stock up more than 1% in after-hours trading, in a day when several large drugmakers reported. Gilead’s earnings rose 37% over the year-earlier quarter to $3.32 per share, topping analysts’ EPS consensus by 32 cents, according to Thomson Reuters. Revenue increased 16% to $8.51 billion, vs. analysts’ expectation of $8.13 billion. For the full year, EPS rose 56% to $12.61 while revenue gained 31% to $32.64 billion. Gilead guided 2016 product sales, which covers nearly all revenue, at $30 billion to $31 billion. Analysts had expected $30.68 billion in product sales and total revenue of $31.68 billion. Gilead does not provide total revenue or EPS guidance, but it did provide guidance on expenses, which were slightly above expectations on the R&D and sales, general and administrative lines. Evercore ISI analyst Mark Schoenebaum calculated that the implied EPS guidance for 2016 is $10.48 to $11.92, which would miss consensus of $12.23. In Q4, the hepatitis C drugs Sovaldi and Harvoni both beat estimates, though entirely due to sales outside the U.S., where analysts have less visibility. Next year’s expected revenue decline is due to an anticipated decline in U.S. HCV market, which had an enormous lift-off when the two drugs were approved but has flattened as ever-larger numbers of patients have been cured of the disease. On the conference call with analysts, commercial-operations chief Paul Carter said that they could expect the HCV market in 2016 to behave similarly to how it did in the second half of 2015, essentially flat in the U.S. while growing in foreign markets where it is still being launched. He said that it might see some growth as payers seem to be loosening their restrictions on the drugs, which initially strained their finances due to their high prices and the enormous volume of patients. However, he acknowledged that revenue per patient was likely to fall as less-sick patients came aboard, requiring shorter treatments. Carter also sounded confident about Gilead’s ability to fend off competition, which got a new entrant last week when Merck ‘s ( MRK ) Zepatier was approved last week and priced well below both Gilead’s and AbbVie ‘s ( ABBV ) HCV drugs. “We’re confident our label is very strong, and we’re very much supported by the real-world data we’ve seen since the launch of Harvoni,” Carter said. Earlier in the day, big pharma Pfizer ( PFE ) said Q4 revenue rose 7% over the year-earlier quarter to $14.05 billion, beating analysts’ consensus by about $45 million. Earnings, excluding one-time items, slipped 2% to 53 cents a share, beating estimates by a penny. For the year, EPS declined 3% to $2.20, while sales slid 2% to $48.85 billion. However, Pfizer’s 2016 profit guidance missed Wall Street’s expectations of $2.20 to $2.30 a share. Analyst Schoenebaum blamed foreign-exchange headwinds. “Excluding a roughly negative $2.3 billion top line ($0.8 billion of top line FX impact due to Venezuela currency impact alone) and $0.16 bottom line impact due to FX, both 2016 top and bottom line guidance would have bracketed the Street,” Schoenebaum wrote in an email. “We spoke with Pfizer, and they believe that the Street underestimated the FX impact in 2016.” S&P Capital IQ analyst Jeffrey Loo raised his rating on Pfizer to buy from hold, saying the valuation has become attractive after it, like almost every other drug stock around, has sold off in recent months. “We view growth within its Global Innovative Products unit positively, driven by Prevnar 13 and Ibrance,” Loo wrote in a research note. “We expect its pending acquisition of Allergan ( AGN ) to be completed in the second half of 2016.” Pfizer stock closed down 0.1% at 30.14. Mallinckrodt ( MNK ) rose 5.7% to close at 65.71, after the specialty drugmaker reported fiscal-first-quarter earnings of $2.09 a share, up 17% from the year-earlier quarter and topping consensus by 31 cents. Sales climbed 19% to $914.8 million, some $25 million above the Street’s average estimate. Mallinckrodt raised its full-year EPS guidance to $7.85 to $8.30, up from $7.70 to $8.20. Baxter International ( BAX ), a leader in dialysis products, also beat expectations in the most recent quarter, pulling off a sharp increase in earnings despite a decline in sales. Fourth quarter profit from continuing operations jumped 54% to 43 cents a share, 11 cents past Wall Street’s consensus. Revenue dropped 7% to $2.6 billion. Baxter stock rose 1.8% Tuesday to close at 37.95. Baxter said it expects EPS this year of $1.46 to $1.54, beating consensus of $1.42. Its forecast for the current quarter was below the Street, however, at 28 to 30 cents.

3 Potential Blockbuster Drugs Launching in 2016

The past few years have brought some groundbreaking drug launches, such as the record-breaking Gilead Sciences rollout of its hepatitis C medicines and the first PD-1 cancer fighters from Merck and Bristol-Myers Squibb (BMY). This year, though, looks to be somewhat slower on that front. Drug firms will aim most of their new launches at smaller markets or will build on existing franchises. Still, Merck (MRK), Gilead Sciences (GILD) and Eli Lilly