You might say that Merck (NYSE:MRK) is experiencing malaise. Its shares sank 10% in 2020 while many stocks soared. The big drugmaker hasn't gotten off to a great start in 2021, having announced in January that it was giving up on its COVID-19 vaccine program.

Merck reported its fourth-quarter results before the market opened on Thursday. However, those results didn't do anything to give investors a warm and fuzzy feeling about the stock. Here's what's behind Merck's disappointing Q4 update.

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Image source: Getty Images.

By the numbers

Merck announced revenue in the fourth quarter of $12.5 billion, a 5% increase from the $11.9 billion reported in the same quarter of the previous year. This result was lower than the average analysts revenue estimate of $12.68 billion.

The company reported a net loss in the fourth quarter of $2.1 billion, or $0.83 per share, based on generally accepted accounting principles (GAAP). In the prior-year period, Merck posted GAAP earnings of $2.4 billion, or $0.92 per share.

On a non-GAAP (adjusted) basis, Merck's earnings in the fourth quarter totaled $3.4 billion, or $1.32 per share. This reflected an improvement from the adjusted net income of $2.9 billion, or $1.16 per share, recorded in the prior-year period. However, it fell short of the consensus Wall Street adjusted earnings estimate of $1.38 per share.

Behind the numbers

The COVID-19 pandemic continued to weigh on Merck's business during the fourth quarter. The company estimated the negative impact of the pandemic on its Q4 pharmaceutical revenue at around $400 million. 

Several of Merck's products faced headwinds due to loss of market exclusivity, including Nuvaring and Zetia. Competition in the U.S. market from branded rivals also presented problems for Januvia and Janumet, with combined sales of the diabetes drugs falling 6% year over year.

Merck did have several bright spots, though. Sales of cancer immunotherapy Keytruda jumped 27% year over year to $4 billion even with the pandemic putting a damper on growth in Japan. Revenue generated by cancer drugs Lynparza and Lenvima also soared.

The global pandemic hurt the company's overall vaccine sales growth. However, sales of human papillomavirus (HPV) vaccine Gardasil skyrocketed 44% year over year to $998 million. This seemingly impressive growth, though, stemmed in large part from lower sales of Gardasil in the prior-year period due to the CDC Pediatric Vaccine Stockpile borrowing doses in the fourth quarter of 2019.

Looking ahead

Merck expects that revenue for full-year 2021 will be between $51.8 billion and $53.8 billion. The company projects GAAP earnings per share (EPS) in the range of $5.52 to $5.72, with adjusted non-GAAP EPS between $6.48 and $6.68. 

Perhaps the most important coming event that could affect the pharmaceutical stock is Merck's planned spinoff of its women's health, legacy brands, and biosimilars businesses into a new company to be called Organon. The transaction should close by the latter part of Q2.

Merck won't have Kenneth Frazier at its helm for much longer. Frazier is retiring as CEO effective June 30, 2021. He'll continue to serve as executive chairman of the company's board of directors for a transition period. The board named current CFO Robert Davis as Frazier's replacement as CEO. Davis will step into his new role in July.

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