Morningstar | Led by Keytruda and Gardasil, Merck Posts Strong Fourth Quarter, Supporting FVE Increase
Merck reported strong fourth-quarter results ahead of both our expectations and those of consensus, and we plan to slightly raise our fair value estimate based on the strong results. In particular, sales for cancer drug Keytruda and HPV vaccine Gardasil ran ahead of our projections, and we expect these products to post continued gains driven by expanding indications as well as further entrenchment in international markets. Overall, the strong growth in Merck's portfolio along with the growing pipeline reaffirm the company's wide moat.In the quarter, Keytruda and Gardasil grew 69% and 34%, respectively, helping offset competitive pressures to older drugs and supporting overall sales growth of 8%, a rate that is slightly higher than the annualized rate we expect Merck will post over the next three years. Keytruda's label expansion into first-line non-small cell lung cancer (NSCLC) is driving the drug's growth, and we expect further growth with this indication internationally, where the drug's use in combination with chemotherapy is just starting and should more than double the addressable patient group in this area. Also, Gardasil's recent launch into China adds more than 100 million women eligible to receive the vaccination. Additionally, while generic competition to cardiovascular drugs Zetia and Vytorin along with branded competition to hepatitis C drug Zepatier hurt growth in the quarter, we expect the headwinds from these pressures to decline in 2019.
On the pipeline front, Merck is making strong progress. We believe the most important advancements in the year ahead include detailed data of Keytruda in first-line renal cell cancer (KN426 study) and small cell lung cancer (KN604) as well as phase 2 data of HIV drug MK-8591 and phase 2 and 3 data of pneumococcal vaccine V114. Additionally, the recent breakthrough designation by the FDA for V114 suggests the vaccine may have a significantly stronger clinical profile over Pfizer's entrenched Prevnar 13.
For a complete review of Merck's pipeline and currently marketed portfolio, please see our Healthcare Observer, "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating."
Merck & Co. is a global health care company that delivers health solutions through its prescription medicines, vaccines, biologic therapies and animal health products. The company's segments are: Pharmaceutical, which includes human health pharmaceutical products that consist of therapeutic and preventive agents for the treatment of human disorders, and human health vaccine products that consist of preventive pediatric, adolescent and adult vaccines; and Animal Health, which discovers, develops, manufactures and markets veterinary pharmaceuticals, vaccines and health management solutions and services, as well as a suite of digitally connected identification, traceability and monitoring products.
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