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3 Numbers That Matter When Merck Reports Its Fourth-Quarter Results

By Sean Williams – Feb 1, 2016 at 3:56PM

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These three figures may prove far more important than Merck's fourth-quarter and full-year headline results.

Image source: Flickr user 

We've officially entered the thick of earnings season, which means some of the biggest names in healthcare are slated to report this week. One such name is the $140 billion-plus drug development powerhouse known as Merck (MRK -0.69%).

Merck is slated to deliver its fourth-quarter earnings results on Wednesday, Feb. 3. Wall Street's current consensus is calling for nearly $10.4 billion in revenue, or roughly a 1% decline from the year-ago period, and EPS of $0.91, an improvement of almost 5% from Q4 2014. Although past results are no guarantee of future success, Merck has topped Wall Street's EPS estimates in seven consecutive quarters, so an EPS surprise to the upside is a real possibility.

But there's going to be much more to Merck's report than just its Q4 and full-year 2015 headline numbers. Here are the three most important figures you'll want to be aware of when Merck releases its results.

1. Januvia/Janumet total sales
Logically, it makes sense to pay close attention to sales of type 2 diabetes blockbuster Januvia (known as Janumet overseas) since it comprises about $6 billion of Wall Street's estimated $39.6 billion in annual revenue.

Image source: Merck & Co.

Merck has been making substantial investments in Januvia when it comes to marketing its drug with consumers and physicians. Competition among type 2 diabetes drugs has been picking up, but the bigger concern is what might happen to Januvia, the dominant DPP-4 inhibitor, with the entrance of SGLT-2 inhibitors.

SGLT-2 inhibitors block glucose absorption in the kidneys and allow excess sugars to be removed through a patient's urine. More interestingly, SGLT-2 inhibitors were also shown to induce weight-loss and lower systolic blood pressure, two welcome side effects for a disease population that is commonly overweight or suffering from high blood pressure.

Making things even tougher for investors to judge were the surprisingly strong results of Eli Lilly's (LLY -1.27%) and Boehringer Ingelheim's Jardiance in a long-term cardiovascular outcomes trial known as EMPA-REG OUTCOME. Jardiance demonstrated a statistically superior 32% risk of death reduction compared to the placebo in type 2 diabetes, which is huge and could be a major selling point for Eli Lilly's and Boehringer's drug.

But it makes Merck shareholders wonder where Januvia fits in long-term. Is it a complementary or competing therapy to SGLT-2 inhibitors like Jardiance? With EMPA-REG results being made public in September, we should be able to answer these questions on Wednesday by closely examining Januvia's Q4 sales.

2. Keytruda's total sales (and second-line metastatic NSCLC market share)
Shareholders will also be paying close attention to sales of rapidly growing cancer immunotherapy product Keytruda.

Image source: Merck & Co.

Sales of Keytruda grew 45% on a sequential quarterly basis in the third quarter, but Keytruda also gained a label expansion from the Food and Drug Administration in early October that now allows it to be used as a second-line therapy in metastatic non-small cell lung cancer patients with high levels of PD-L1 expression. The clear expectation here because of its label expansion is that sequential quarterly growth should be similar to Q3, or perhaps even higher.

Also important, investors should pay close attention to any commentary on Keytruda's second-line metastatic NSCLC market share. Bristol-Myers Squibb's (BMY -0.79%) Opdivo was approved seven months prior to Keytruda for advanced second-line NSCLC, but Bristol-Myers' drug was also OK'd for all patients regardless of PD-L1 expression. It'll be interesting to see how much market share Keytruda can wrangle in, although it does have the success of treating and curing former-president Jimmy Carter's metastatic melanoma in its back pocket.

3. 2016 guidance inclusive of Zepatier
Finally, Merck's 2016 full-year guidance takes on extra importance (and interest) after the company announced on Thursday that the FDA had approved its hepatitis C treatment pair of elbasvir and grazoprevir, henceforth known as Zepatier.

Image source: National Cancer Institute.

In clinical studies, Zepatier performed admirably, providing a sustained virologic response in 94% to 97% of genotype 1 patients (the most common genotype), and a 97% to 100% SVR in genotype 4 patients. But what really made waves was Merck's announcement that Zepatier would be priced at $54,600 for a 12-week treatment course. That's a substantial discount from the $94,500 cost of Harvoni or the $83,319 cost of Viekira Pak (two competing drugs) over a 12-week period. On the flipside, the need to use ribavirin for some indications, such as genotype 1 and 4 treatment-experienced patients, could limit Zepatier's potential relative to Harvoni, as ribavirin has been shown to cause anemia and rashes in some patients.

What investors will want to look for is a breakdown of what Merck's expectations are for Zepatier in its first year on the market. You'll also want to take note of any insurance deals Merck may have already secured, as well as pay attention to any plan of attack for securing additional coverage of Zepatier.

Stay the course
This year could be transformative for Merck as it looks to break a four-year downtrend in sales, partially caused by strength of the U.S. dollar. But everything starts with Januvia, Keytruda, and Zepatier. As go these three therapies, so likely goes Merck in 2016. For now, I'd suggest investors stay the course until we have the much awaited earnings data this Wednesday.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy

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