Merck (MRK), the healthcare solutions giant, primarily operates through three segments.
The pharmaceutical segment includes human health pharmaceutical products and the vaccines that are sold to drug wholesalers, government agencies, and hospitals, among others. The animal health segment produces and distributes veterinary pharmaceutical and vaccine products through veterinarians and animal producers. The healthcare services segment engages in health analytics and other clinical services aimed at improving the quality of healthcare provided to patients.
The pharmaceutical segment is the major revenue-generating entity, bringing in nearly 90% of the company’s total revenue. Keytruda – Merck’s key oncology vaccine – alone brings in nearly 30% of the company’s overall revenue.
Strong Growth in Keytruda Helps Offset COVID-19 Impact
Due to COVID-19, Merck experienced a nearly $2.3 billion hit to its revenue from the pharmaceutical segment in 2020. Given that almost two-thirds of its pharmaceutical segment revenue is generated via physician-administered products, Merck was impacted due to lower patient visits as a result of social-distancing restrictions and delays in elective surgeries.
However, for the first nine months of 2020, Merck was able to improve its revenue by 1% compared to the same period of previous year – thanks to overall strong sales growth of Keytruda (nearly 30% increase) and higher sales of animal health products. Diluted EPS during the first nine months of 2020 also increased by nearly 25% to $3.61.
As a result, the company felt comfortable in increasing its quarterly dividend by 6.6% from 61 cents to 65 cents payable to shareholders of record as of December 15, 2020.
Like other pharma majors, Merck is also currently in the process of finding a cure for COVID-19 patients. Its orval antiviral candidate molnupiravir is currently in large-scale clinical trial phases. Besides, it is also working with 2 other vaccine candidates – V591 and V590 – aimed at COVID-19 treatment.
Merck continues to invest to increase its manufacturing capacity and support upcoming product launches. Accordingly, its capital expenditure increased by nearly 40% to $3.2 billion during the first nine months of 2020. Besides focusing on organic growth, Merck remains active in striking collaborative R&D and licensing deals to grow. Even in the peak of the COVID-19 pandemic, Merck made sure to acquire relevant companies. For instance, it recently announced to acquire VelosBio, Inc. for $2.75 billion, leveraging its expertise to develop first-in-class cancer therapies.
Lastly, Merck will continue with its organization-wide restructuring initiatives that began in early 2019 to optimize its manufacturing capacity and supply chain network. It is expected to be completed by the end of 2023.
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