Merck KGaA (MKGAF) Q1 Earnings And Revenues Decline Y/Y

Merck (NYSE:MRK) KGaA MKGAF reported first-quarter 2018 earnings of $1.73 per American Depositary Share. Earnings per share declined 21.7% in local currency.

Net sales in the reported quarter came in at €3.7 billion ($4.5 billion), down 4.4%, including unfavorable foreign exchange which hurt sales by 7.9%. However, organic sales growth of 3.5% was driven by the Healthcare and Life Science segment.

Shares of the company have underperformed the industry so far this year. The company declined 7.1% while the industry increased 0.8% 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 €1.6 billion, down 5.5% year over year due to a negative impact of 7.2% of foreign exchange rate. However, organically, sales at the segment were up 1.8%.

Erbitux’s sales were down 8.3% from the year-ago period to €200 million due to negative currency movement of 5.4%. Moreover, organically sales were down 2.9% due to increased competition and pricing pressure. Rebif sales came in at €348 million, down 16.1% due to organic decline of 6.7% and negative currency impact of 9.4%. Gonal-f sales were down 2.9% to €166 million. Organic sales were up 5.7% due to higher sales in North America, offset by unfavorable currency impact of 8.6%.

Newly launched Bavencio and Mavenclad registered sales of €12 million and €13 million, respectively.

Sales at the Life Science segment amounted to €1.5 billion, up a mere 0.4% driven by growth in all business segments, partially offset by an unfavorable foreign exchange effect of 8.4%. On an organic basis, the segment witnessed sales growth of 8.8%. Process Solutions and Applied Solutions business recorded organic sales growth of 14.1% and 7.3%, respectively. The Research Solutions business registered organic growth of 4.3%. All the segments were impacted unfavorably due to currency movement.

Sales in the Performance Materials segment were down 12.5% to €564 million. Organically, the segment witnessed a 4% decline in sales and an unfavorable currency impact of 8.5%

Other Update

In April 2018, the company entered into an agreement with Procter & Gamble (NYSE:PG) to divest its Consumer Health business. The sale will be an all-cash deal worth €3.4 billion. The transaction is expected to close by the end of this year.

In January, Bavencio received approval in Australia for the treatment of metastatic merkel cell carcinoma (mMCC). With this approval, the drug is approved in six countries for mMCC including EU and the United States. The drug is also approved for urothelial carcinoma in the United States.

Merck KGaA is evaluating its immuno-oncology drug, Bavencio (avelumab), in a number of phase III studies for several cancer indications under its partnership with Pfizer Inc. (NYSE:PFE) .

In March, the company received €50 million in milestone payment from BioMarin, Inc. (NASDAQ:BMRN) as the latter announced the acceptance of a marketing authorization application for Peg-Pal for the treatment of phenylketonuria by the EMA.

The company expects to submit regulatory application seeking approval of Cladribine tablets for the treatment of relapsing multiple sclerosis (“RMS”) in the United States in the second quarter of 2018. The drug is already approved in EU.

During the quarter, the company faced anti-trust review in Europe related to the acquisition of Sigma-Aldrich in 2015. Merck is estimated to pay fines in double digit millions for incorrect or misleading information in connection with an innovation project.

2018 Outlook

Merck KGaA provided its guidance for 2018. The company expects net sales in the range of €14 – €14.5 billion including organic growth of 3% - 5% and a negative currency impact of 4% to 6%. The company anticipates earnings per share to be in the range of €5.00 - €5.40. The financial outlook excludes sales and earnings from Consumer Health business.

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