Wednesday, April 19, 2017

Q1 2017 Forecasting: Will Merck's Sales Lines Look Light, Again -- As J&J's Just Did?

As is often the case, we take a moderate amount of "Kentucky windage" -- on Kenilworth's prospects -- by looking at other similar large cap mulinational life science companies. One of those would be J&J. And J&J this past quarter saw the first truly pronounced full-quarter's effect -- of biosimilars to, and Pfizer's branded alternative for, infliximab on market, post-launch. But sales were soft in several of its traditional pharma strongholds -- including the diabetes space. And that might be worrisome for Merck.

[J&J is also in devices, while Merck is not -- but that isn't comforting for followers of Merck, since J&J's growth in devices was reasonably robust -- and Merck doesn't offer any entrant, in any device segment.]

While we ought not get ahead of ourselves, I would expect only modest constant currency growth in most of Merck's franchises -- with Keytruda® as the stand out growth franchise -- on both volume and price. J&J has no such flagship oncology product, so overall we remain sanguine for an in-line quarter at Merck. The company reports nearer month's end.

It is also true that both J&J and Merck have now seen a full quarter's effect of more aggressive price negotiating at US formularies by insurers (and similar toughness -- by government payers in the UK and EU). In any event, here is Morningstar's take on J&J latest results:

. . . .J&J reported first-quarter results largely in line with our expectations, and we don’t expect any major changes to our $108 fair value estimate. We continue to view the stock as slightly overvalued as the growth prospects for the company’s divisions don’t appear strong enough to support the current market price. . . .

Backgronders here, on infliximab going bio-similar (from October 2015), and the overall arbitration fight, from 2010 -- triggered by poor deal lawyering, at legacy Schering-Plough. Now you know. Onward -- toward the University of Alabama campus.


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