Citi Updates FY Estimates On Merck After Reporting Solid Earnings

Citi raised its 2011E EPS from $3.68 to $3.74 vs. the Street's $3.69 & MRK's $3.66-$3.76 range on Merck MRK. The new estimates reflect the 1Q11 beat, partially offset by a higher tax rate & the lost profit from the JNJ settlement on Remicade/Simponi. Citi increased ‘11E-‘14E sales by $290M/$220M/$150M/$60M & raised ‘12E EPS by $0.02 to $3.98(+1%), but left out-year EPS unchanged. In 1Q11, Merck's EM grew ~10% & accounted for 18% of pharma sales. MRK reiterated its goal to achieve 25% of pharma sales from EM by ‘13, despite losing 30% in Remicade/Simponi EM sales. Citi's model assumes MRK achieves this goal, but with less margin for error. Citi assumes Victrelis Is approved on its FDA action date in May. MRK noted that it completed all trials that were necessary for approval. Its model assumes the vast majority of Victrelis sales come from ex-US markets, potentially through bundling against VRTX/JNJ's telaprevir. Citi maintained its global Victrelis 2015E sales at $450M vs. $700M for consensus. Citi has a $34 PT and Hold rating on MRK MRK closed Friday at $35.95