What is Merck and Co

Merck is a global healthcare company that delivers innovative health solutions through its
prescription medicines, vaccines, biologic therapies, and animal health products.

2022 guidance
 Raised full year 2022 EPS guidance to be between $7.32 and $7.37
 Raised full year 2022 revenue guidance to be between $58.5B and $59B indicating sales
growth of 20% to 21%
 66% of Merck’s revenues are international so they have been affected by foreign
exchange
 Merck continues to hedge against foreign exchange through currency options, forwards,
and interest rate swaps.
Q3 Earnings highlights
 Q3 sales were $15B an increase of 14% from Q3 2021 excluding foreign exchange sales
grew by
 Q3 Non-GAAP EPS was $1.85 vs forecasts of $1.71 up 4% from last year.
 GAAP eps came in at $1.28 a declined of 29% from Q3 last year
 The difference is due to acquisitions, divestitures, restructuring costs, and losses from
investments in securities.
 Q3 Pharmaceutical sales increased by 13% from last year
Revenue Drivers
 Keytruda sales grew by 20% to $5.4B, excluding foreign exchange sales grew by 26%
 Gardasil sales grew 15% to $2.3B excluding foreign exchange sales grew by 20%
 Januvia sales declined by -15%, excluding foreign exchange sales declined by -9% (lost
market exclusivity in China and certain European markets)
 The company expects Lagevrio sales to for the year to be between $5.2B and $5.4B.
Lagevrio was approved at the end of 2021. Revenues are falling off incredibly fast. 3.1B
in Q1 22 down to .4B in Q3 22
 Third quarter pharmaceutical sales increased 13% to 13B
 Excluding LAGEVRIO sales increased by 15%. LAGEVRIO was approved in 2022.

Pipeline Updates
 Merck announced positive results from phase three STELLAR trial. Sotatercept
demonstrated significant improvement in exercise and key secondary outcome measures
compared to placebo. Sotatercept, the drug being tested one of Mercks massive
investments. They acquired Acceleron for $11.5B in 2021 who owned the rights to
Sotatercept
 Sotatercept treats pulmonary arterial hypertension (heart issues) 43% death rate over 5
years.
 Keytrude received four new approvals in Japan
 Vaxneuvance was approved for children under 18 in Europe
 Merck Received a Fast Track designation for MK-2060.
 Gardasil 9 was approved in China for women aged 9-45. Previously Gardasil was
approved for women 16-26.
Changes to the model
  Changed risk free rate to 4%. The new WACC is 7.2%
 Keytruda grew 26% vs previous prediction of 12%
 Gardasil grew 20% vs previous prediction of 10%
 Adjusted model to account for decline in Gardasil
 Added Lageverio to the model with the expected decline in revenues
 New blended price target of $88 implying a 13.6% downside. 40% perpetuity approach,
40% EBITDA multiple approach and 20% comps. (ABBVIE, PFIZER, ELILILLY &
CO, Bristol myers, Johnson and johnson)

Recommendation: Hold
 I recommend a hold for Merck & Co. The company earnings beat reinforces its ability to
withstand economic uncertainty, changes in foreign exchange, and inflation. If this
company falls below $80 we may want to consider buying more shares.
Drugs
KEYTRUDA – cancer immunotherapy that treats melanoma, lung cancer and other cancers
GARDASIL – HPV vaccine
JANUVIA – treats diabetes
LAGEVRIO – antiviral drug that helps fight Covid-19
SOTATERCEPT – treatment of pulmonary arterial hypertension. Helps the heart.
Islatravir – HIV treatment
MK-2060 – treats major thrombotic cardiovascular desease

They didn’t mention anything about expiring patents.