MRK - Earnings call transcript Q1 2018

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Operator

Good morning. My name is Darla and I will be your conference operator today. At this time, I would like to welcome everyone to Merck's First Quarter 2018 Sales and Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. you. Thank like call now Loxam. to turn to would over the Teri I go Please ahead.

Teri Loxam

and to Human Research Frazier, morning. XXXX you, Schechter, of Davis, good Thank Darla, Merck Officer; Financial Welcome Dr. Chief Officer; Today, Adam Roger joined our President Chief and of conference I'm Merck's and by Laboratories. Chairman Ken Global our President Executive Rob Health; call. quarter first Perlmutter,

to Before few Ken, the I over I'd a call point items. to like out turn

have items acquisition-related we our GAAP and You other as that will in results such charges, certain see costs restructuring items.

excluded You from press should note that we reconciliation in non-GAAP have a and our of these these provide results release. our

for provision may like made statements based those that Securities We that the our have maybe Safe sales Harbor release the in the also to some statements and of of during underlying inaccurate to of make materialize, quarter are considered press management the current If of beliefs business significant and Such the forth and forward-looking I results from uncertainties. or products. Litigation of remind Merck's XXXX. forward-looking the prove a risks understand within units help you would the provided actual statements. call today's table you our we Reform the the subject on in differ statements to Act materially assumptions U.S. are set uncertainties Private in meaning

morning. obligation forward-looking identify could update projected the in those to this any XX-K, cause of materially results statements. XA certain actual statements any factors company's differ Item including in made forward-looking XXXX Merck filings, to SEC our the and risk no Our cautionary publicly that undertakes statements from

Ken. today's on filings I'd see as With to turn the well You that, SEC call our earnings over release as like to merck.com. can

Kenneth C. Frazier

about at when were These and a combined This data the chemotherapy advance, performance, which significant for offers in cancer patients This first KEYTRUDA new cancer compared results survival that especially any patients this treatment as form you that a is in Delivering given that should new patients a Teri. sets KEYTRUDA was is be for for value showed as future Association lung all to cancer establish With needs doing a in to of our these for alone. first-line off in and lung you, addition for than everyone, in trials lung standard-of-care Merck recent top medical Meeting. priority. patients Research Hello, setting. we're disease. measured. with KEYNOTE-XXX start American and XXXX, bar a kills the it is patient KEYTRUDA against therapeutics KEYNOTE-XXX unmet hope chemotherapy call Cancer the compelling quarter new is longer including presented should other what today. help nonsquamous Thank and joining way malignant to thank our vaccines provides first-line long-term shareholders with more strong

cancer we and but as KEYNOTE-XXX into company. then good always we firmly from this Our momentum our prospects the XXXX XXXX strong driver forward firmly going a for believed in think KEYTRUDA, foundation to establishes anticipate our along be with a what program for substantial and data KEYTRUDA a growth treatment We've revenue believe underappreciated. solid of and for that long-term. beyond quarter performance year the We provides first rest through the to are for

GARDASIL We by next-generation and early-stage Lenvima, and products, with robust our also and the complemented asset, value. VXXX, believe along our vaccines Lynparza long-term portfolio, partnered we opportunities can including our have pipeline. with We near pneumococcal believe drive oncology tremendous significant

must for we we contributors. confidence. expect areas to Health opportunities continued outlook. remains and We Business to top augment also strength pillars. Financial should to Our The detail. and continue our I significant these our early-stage further results including with a long-term our development near Rob? in look trajectory growth further to neuroscience priority Davis, will very that, HIV, other about vaccines, more driven Officer, key execute, Rob Animal through pipeline, from by to but our call to and be will adds And Chief over go continue I optimistic now our am turn the

Robert M. Davis

Thanks, Ken, morning, and everyone. good

Our first in bottom good continued key strength pillars discipline reflect quarter growth. and results resulting operational line and our in top

quarter note for that Our strong underlying setting company year. I the billion, perform well and an both Health of the FX Animal quarter more expected non-operational the well, revenues the of increase related Total to included occur businesses. originally over in as just to to a favorable-than-expected benefit X% results company as the Human a benefit. Health Apotex one-time a settlement our year-over-year, up business by second $XX continues first $X.XX litigation to were start will driven

exchange, revenues Excluding the X%. impact of first quarter grew

grew excluding Health moment. results business exchange. Adam color X%, Our more Human in a on will provide those

it this business, billion Health a first segment given XXXX, of including segment from of quarter, the size including percentage release Health $X.X Animal additional morning, requirements, we totaled our As sales positive QX, quarter of impact currency. an press increase this with in the compared noted became disclosure foreign resulting a profits. in reportable X point our Animal XX%

sales and costs We XXXX, exclude the segment impact Animal exchange, When grew full quarter exchange. of business margin. Health Note overhead year, operating a leveraged exchange, in incurred million to the of quarterly animal Animal deliver other will the one-time business. of these profits expenses livestock representing not the driven profits year-ago, excluding while P&L, of the certain Excluding $XXX for XX% directly X%. compared roughly the segment the million to Health decreased X% by $XXX a and in compared sales grew anticipate X%, were by quarter that first the impact first charges. companion primarily a seasonality XXXX, profits

synergies capabilities. and our our see, is the Health Health from with diversification can Health has Human profitable, growth, benefits provides R&D significant company you business the strong As Animal with Human from business

for As Merck such, of Animal important XXXX beyond. and pillar Health in represents growth an

to amortization first largely XXXX, margin the non-GAAP P&L, gross due of foreign points the to in total unfavorable quarter, well of manufacturing back decrease last increased from company X billion, a quarter was incident. unfavorable year-over-year, XX.X% impact exchange. exchange $X.X year's operating a cyber percentage versus from as X% of point expenses of foreign negative variances, XXX resulting basis including partly Turning as the Non-GAAP

both M&A which spending early clinical FX, investment quarter Excluding the drug increased in the with costs, and of the licensing reflecting declined the than development in and R&D timing offset in development. R&D more decrease

we excluding Taken per $X.XX XX%, non-GAAP up basis, earned exchange. together, on share a

revenue we and for and for guidance the outlook narrowing year, EPS are Turning ranges to the XXXX. non-GAAP both raising our

to pillars, drive Animal oncology, bottom several both growth our that the believe vaccines continue of for and We and year. top including growth Health, line will

environment. more favorable a We also expect exchange

between earnings momentum summary, X $X.XX other topline at full to elements at percentage positive foreign from bottom the expect XXXX. continue This including $XX.X quarter to mid-April $X.XX, provided we revenues rates. point expect unchanged. point foreign For billion, line we non-GAAP flows the we including be EPS percentage to remain to and currency year, from between X the impact mid-April fourth of currency expect billion In guidance during be call roughly our a and and our an through impact now increase $XX approximately non-GAAP now rates. All

positions We fund ability to pipeline fully and invest well approach and remain our in drive shareholder value. near-term resources, our growth. opportunities in to to grow earnings both will disciplined we This maximize our long-term revenues and to of us while allocation our deliver

Now, Adam. to to turn like I'd the call over

Adam H. Schechter

X%, of comments by the oncology. quarter. highlights everyone. of and driven select Human good Merck's Human morning sales. Global representing our morning, you, first $X.X Merck and in solid several grew offset be will start important competitive exclusivity constant the now for Global loss Health provide with key of first XXXX. a and a achieved This billion more pressures U.S. of than the now of almost XX% Thank I'll highlight Health My currency few X%, outside franchises franchises performance Health of total products. I'll I'll sales the which Sales business for grew on in Global Human Rob, of growth basis. quarter

Our expand versus United doubled remains to there year. Global immunotherapy prior billion new and led KEYTRUDA States, starts across more of tumor cancer. more with patients which oncology foundational sales cancer KEYTRUDA by now treatment the the rapidly, are business nearly on any KEYTRUDA in $X.X KEYTRUDA, patient than a continues other In lung to leader multiple is types. than metastatic

by the across this positive the the overwhelmingly data. given feedback from is substantially use received benefit overall key that have the expect impressed very KEYNOTE-XXX forward. We were leaders survival based subgroups. chemo increase physicians standard, They to OS gold we of And and combo PD-LX all moving opinion recently-presented upon

continues it used to remains cancers head KEYTRUDA and in in lung, bladder the metastatic Beyond and and neck immunotherapy extensively leading melanoma. be

increase KEYTRUDA inhibitor and and cancer in of nearly tripled testing Outside by both representing We're gaining the also KEYTRUDA MSI-high, European a following sales pleased summary, to we're the both markets. Lynparza in traction become lung U.S. where prescriptions. increase of and PARP care now the remains cancer performance the types. in total breast is leads addition, very January across cancer, approval. tumor In cancer in many potential in where launch new In in and and growth well metastatic recently continue ovarian of the access XXXX KEYTRUDA the in majority Lynparza different as the more is major U.S., rates sales continues ago, to year from for progressing has beyond foundational strong. very class

an announced Eisai. addition, product portfolio In through our important with collaboration Lenvima will for oncology recently be

which We renal, cancers. indications, are Lenvima, and itself has in thyroid accelerating and, commercialization established the hepatocellular approved recently, more and of already the development several including

additions the and both they we We Lenvima are optimistic to believe portfolio. and of our about potential represent growing Lynparza long-term important very oncology

grew other in in pressure key driven the vaccines and first view a following in the the nearly global from our launch Merck's billion China demand continued doubled, for by year Ex-U.S., despite growth. sales a approval regimen. strong portfolio to moving demand GARDASIL in U.S. strong the We sales vaccine continued future of GARDASIL, two-dose transition driven its to business, as by XX% our quarter, pillar $X.X which markets. last exceeded strong Now, in

strong, most global to $X.X trends diabetes franchise, remained the with in diabetes quarters. was markets by as TRx sales growth Ex-U.S., increased Turning the declined pricing demand and quarter. U.S. grew to for world. billion around sales past driven consistent the

the franchise view to continue stable diabetes moving as a franchise forward. We relatively

share as years time XX in driven launched to by Moving is procedures optimistic Merck our With countries. remarkable and has significant deliver a favorable neuromuscular In so and oncology experiences. pressures indications. important two X% ex-U.S. and wide where the BRIDION able to what product, call growth I'll blockade the see were products used to a overcome since of over quarter. competitive ago. strongly be expiries closing, for our of it turn launching its remain In launch just at grow and BRIDION this With new is has in of we where continues as reversal us gained portfolio market by well, fast-growing it acceptance portfolio to formulary broad beyond. many in year Roger. the patent of and BRIDION several to We customer the rest the U.S., stands and that, the we Hospital/Specialty range out front footprint, strong and a in global

Roger M. Perlmutter

Adam. thanks, And

Merck to area Much data activity new was oncology The several advance had important opportunity regulatory for on programs. quarter quarter present review Laboratories first to many Research fronts. important the where an the and this progress therapeutic we across with in one meaningful focused the of was

Data non-small use survival lack FDA Application review yesterday, plus combination Licensing those were nonsquamous our Biologics improvement the example, a first-line whose as which that in PDUFA announced EGF filing seeking study, XX KEYNOTE-XXX chemotherapy chemotherapy mutations. or therapy or KEYTRUDA data initial full of with KEYTRUDA in a of treatment nonsquamous in has cell we European metastatic combination in Dr. For for receptor lung ALK patients Association our also cancer Medicines or receiving Research derived Annual Medicine. greater Cancer simultaneously patients compared of overall from for to published showed the cell KEYNOTE-XXX with receiving the new our of cancer. to gene KEYTRUDA the data, tumors this XX% with at supporting than metastatic approval the in the and Review granted pemetrexed selected for September under were in Agency Japan. platinum-based and Priority chemotherapy for supplementary the Meeting Roy by date and comment the chemotherapy AACR alone. and the These of The for discussant non-small describes American Herbst, New as lung Pharmaceuticals results receiving regimen PMDA The on presented England standard KEYNOTE-XXX in patients early the care Medical by AACR April are at Devices Agency Journal

tumor KEYNOTE-XXX Meeting to in collaboration last adjuvant Cancer, Treatment performed AACR and for that European the month, data were demonstrated of able death also published our of melanoma. During the present or placebo in definitive the to study, also from high-risk Journal Medicine. of Research stage in recurrence by therapy KEYTRUDA risk we Organization with surgery as with New England which reduced patients XX% for were These results The III undergoing compared

scores patients Because During which and upcoming with histologies monotherapy when both in benefit KEYNOTE-XXX FDA survival overall regulatory received a EGFR this receiving study, negative XXXX, Oncology patients monotherapy demonstrated majority in approval the new survival urothelial tumor of promise cell were in non-small quarter, cell for the of head in XX American extend traditional was lung agent cohort study, month. These different new KEYTRUDA proportion tumor squamous we ALK we included cancer; showed cell Society Lymphoma; already Meeting tumors our of cells X%. results the with different study from use of patients be XX% the and important for repair treatment this instability. neck; cancer. of microsatellite presented the cells. PD-LX study, tumor results data the greater the than first these involving from ASCO extending patients classical chemotherapy and settings the details carcinoma The those single expressed advanced or non-small of cancer, our also cancer; to in KEYNOTE-XXX biomarker mismatch improved which the of offer DNA with opposed Annual least non-small next and squamous with from with as platinum-based obtained on the melanoma; KEYTRUDA tumors FDA of received Clinical overall as lung showing KEYTRUDA lung a has tumor for the metastatic PD-LX to improved in Hodgkin first-line at at mutation patients from nonsquamous X approval will gastric or solid types, cancer; therefore smaller of whose of deficiency evidence cell or which

During until for XX the off following treatment also progression of the of also to additional under is date Priority of with with patients especially analysis of treatment advanced June X review granted first for KEYTRUDA our The supplementary Review lymphoma filing to cancer or PDUFA quarter, mediastinal we chemotherapy. FDA the and a primary data malignancy. the PDUFA cervical B-cell third-line have aggressive July date was on that provided. permit extended

than clinicaltrials.gov, In with all, and more carcinoma on December including KEYTRUDA use FDA XX. review second-line these based head treatment on of the of more Not listed supporting all also KEYNOTE-XXX recurrent of X course. of of Phase date the PDUFA studies there of and succeed studies filing combination metastatic the in for XXX Another KEYTRUDA XXX will than trial accepted now squamous cell the our or a neck are been has of by studies.

therapy exploring alone. the as III During a for of in its quarter, with in to melanoma KEYTRUDA, Corporation's survival utility KEYTRUDA compared primary metastatic example, that overall first with progression-free Phase with endpoints and the epacadostat, of malignant announced survival we patients used failed Incyte combination study meet

numerous However, appear other other employing combination quite agents promising. programs

partial metastatic important use inhibitor the our the the in Beyond our positive was peritoneal in United States at for Lynparza with opinion in has complete maintenance Agency participating progress Already with are first following so had following tube during research. setting, adjuvant ovarian, a HERX-negative it by approved indication, ratification infectious Progress or the or in AstraZeneca. European who've KEYTRUDA, community. in platinum-sensitive neoadjuvant, with chemotherapy, will a United disease Lynparza, with our cancer also is Medicines all the become by first European saw review response to patients for of as States quarter. EMA the a adopted also markets similar we breast metastatic the applicable developing that quarter fallopian in traditional primary chemotherapy PARP for use indication that colleagues therapy development cancer the for under an in European or the patients treatment approved BRCA-mutated continued

the very Melbourne, relebactam, we of imipenem, of the on Based data the submit first we announced III first at to earlier drug announced new new of we to Diseases will two from pneumococcal favorable and are initiation conjugate which utility virus novel will satisfactory patients an relebactam and for Society vaccine. III basis adult and the and of important safety beta-lactamase the in of immunodeficiency a therapy promises with presented During along addition primary the Pneumococci the quarter, a demonstrate findings which improved cilastatin of our that our broad Separately, polyvalent Pneumococcal receiving imipenem, endpoint with subjects The this of on VXXX, near was in form vaccine in tolerability imipenem-insensitive favorable infection, infection. adults our inhibitor, new our combination bacterial demonstrated intend expand application immunogenicity Phase serology spectrum that response optimistic of International we XXXX in These antibiotic. overall human which studies healthy the study. some studies, we future. data Phase in

and responsive business Corporation an tyrosine KEYTRUDA was the announcement has on multiple the to Initial combination differentiated the the Lenvima been Indeed States As efficacy III cell second-line of that renal XXXX. for versus of thyroid results United radio-iodine intriguing Lenvima-KEYTRUDA treatment for in everolimus. carcinoma Eisai protein important or a available development combination advanced monotherapy in as treatment longer regarding schedule collaboration dose and defined tumor carcinoma cell with already the the testing types. and a orally of the for studies for with the treatment one yielded the sunitinib also of already our combining for is treatment and Lenvima, in approved first-line plus mentioned, began an everolimus program October inhibitor monotherapy of Phase of first development with no renal combination quarter kinase Lenvima cancer in

carcinoma first in recently than more engaged in Japan activity has was it disease in for we've So, for the in in KEYTRUDA this Japan, hepatocellular time. of combination the with a treatment broad been decade. Lenvima studying as therapy and unresectable monotherapy first-line for some approved approved new systemic Lenvima

announced first of Viralytics, providing us the involving During quarter, CAVATAK CAVATAK been oncolytic at with we also virus called of has in acquisition Details upcoming the clinical programs these as be combination scientific monotherapy KEYTRUDA. meetings. with coxsackie will Incorporated, a both that and AXX-derived studied presented

studies, Speaking which, these a the non-small of international renal study, lung submitted in monotherapy are chemotherapy, Teri. plus at back of the many the we in our first of study traditional including call Meeting cancer, combination more presentation and carcinoma. I'll forward ASCO treatment cell of include sharing of KEYTRUDA study KEYNOTE-XXX in of over squamous the cell XXX treatment KEYNOTE-XXX turn during at Included to Lenvima exploratory our first-line to look and broad than chemotherapy these those We mentioned first-line the abstracts like for previously KEYNOTE-XXX XXXX. be now oncologists also with quarter, ASCO involving next in cell community at to presentations in monotherapy the data treatment carcinoma, manipulations. presented ASCO the immunological the month. targeted agents traditional examples Data

Teri Loxam

to everybody the maximum, Thanks, keep to our to people we Q&A or I one to to as call two on Roger. try phase. would questions possible. as on Darla, can like your get many remind so we're to move ready

over. with Darla, So, turn it let's that,

Operator

is Risinger Stanley. Your from first Morgan with question David

David R. Risinger

to two Congrats Thanks on questions. very I the much. wanted performance. ask

in key and company's will on appears ex-U.S., First, pressures to could subside approval it you franchises years. XXXX about update after potential, I characterize negative on Thank us the you're the you. But of timing operating years. revenue in the faster the drive opportunity profit growth potentially that major coming And second, leverage to just you should growth markets? operating in just thinking potential then, for to ask and be respect KEYNOTE-XXX, some leverage to with coming operating there how wanted

Roger M. Perlmutter

regard David, of to for With approval moving files timing are it's the jurisdictions. in ex-U.S., Roger. variety forward KEYNOTE-XXX, a the

progress. We jurisdictions, to see that of we no as forward the expect and, in you in more, sort we There them files other accelerations Europe usual learn we'll will their in the way. move or but update are move special on

Robert M. Davis

we've Thanks, that several fact David. line been our of expect total in operating And due your address is we we some our a question studies behind for The the the improvement. obviously, shift we've as leverage. been KEYTRUDA have we investment, to operating – the things. about several see heavy period drive in portfolio This and the do in improvement Rob. margin should have particularly growth oncology signaling as our answer in over expect talking quite do last moving expansion into – products, we been operating we and the I'll through long-term clinical clinic. really just One, time, mix sales margin as the vast quarters, on is continue that to and of

putting near-term. make margin leverage leverage focused near-term that will over the drive to continue driving ability challenging pressure our has on So, and But in more obviously on improvement. we are the been some to operating long-term,

them. you So, should see

Teri Loxam

Great.

please, question, Next Darla.

Operator

the from with Gregg line It's of Deutsche Bank. Gilbert

Gregg Gilbert

many Ken for Thank articulated I you times. Good reasons Rob, Health and you. the know business you've Animal morning. like the

of but question And be Thanks. to TKIs? the you other versus you the company? the Roger, balance need my for the highly much differentiation what that do you don't So, more second Lenvima with could important is the outside those valued repeat points see fact Eisai those, on how collaboration. attributes are business of

Kenneth C. Frazier

thanks, so, the Gregg, question. for Well,

is by is healthy we past, the the with growth company Let a saying driver in me market stated for that outlook. key strong and this start which margins what think we've a

R&D good Human generates fund generating Health, intend cash actually of is way helps a to term long-term and to we longer that the think within we flows, is really Health long-term a value over the goal business Animal Merck. shareholder drive do, Our that growth

I guess, time that of rest add that a Human is KEYTRUDA as our provides I In well concentration around from concern we're the portfolio. risk the from diversification might addition, Health and KEYTRUDA told this as ironically, to time,

an I future Merck. growth So, as we of would business pillar I for important guess, say view this

Roger M. Perlmutter

Right. is, And, range the tyrosine spectra the different out, difficult you number Lenvima across broad with family, of of a related, them, PDGF pretty active as inhibitors compare one receptor but just Gregg, point of inhibitors malignancies. because is have and respect identical that of the It's activity to are kinase large a protein tyrosine to VEGF kinase others. not receptor

As all, look good the a are of and a thyroid I'd data, in renal clinical strong and cell that result, at say hepatocellular are one data just Lenvima carcinoma first monotherapy data. in Japan. very that approval in has the really provided as to differentiated

KEYTRUDA Our combination the effectively begin the carcinoma to knowledge of Lenvima presented We two this studies. led the we very, for the which we in were with and able in really very are combine of results us to encouraging. cell found combination part renal initial

at plus ongoing year, of and combination Additional next is really That be will is but combination. course, available Phase be of on formidable the presented data interesting quite III program, won't and they're KEYTRUDA a results. still it Lenvima until ASCO

Teri Loxam

Darla? the question, take We'll please, next Great.

Operator

of line Schott the from It's with JPMorgan. Chris

Christopher Schott

much the Great. Thanks very questions. for

My combo to KEYNOTE-XXX about that was the we visibility to we're provides success question broader in The those and combo does was trying I X upcoming KEYNOTE-XXX well second XX just population, think the about the had be the longer-term as you've KEYTRUDA people specifically. was a guess to what business, that from using data just and just at the thinking Ken. two Thank thoughts you the expressors data When with for here well think you the study. high as settings how is your relative question business about in seeing either KEYTRUDA non-core all you're of core first all? as that today, priorities investing understand KEYNOTE-XXX, how versus how monotherapy KEYTRUDA light versus I change you about think or through will on as monotherapy very in role assets much. just from one at on development your portfolio of the how the

Teri Loxam

Roger, you start on want to KEYTRUDA?

Roger M. Perlmutter

Yeah.

imagine, the physician to use very Chris, be a combination the that discussions where profile think, a you and and sensible the to monotherapy I as substantial general effect from chemotherapy, is So, decision concern there one comorbidities alternative. patients who of have patient. versus sort therapy, can will In for of adverse personal monotherapy between adding that way, go about whether as a results on is

over patients on becomes and will but be thing without stronger the and stronger guess a either for a where foundation time. to might KEYTRUDA data therapy the are is combination in concern, that provides not therapy For a younger emphasize are answer, the who comorbidities important it case, the right personalized be either very decision. I that with or chemotherapy and

Kenneth C. Frazier

aspire with first we've product me just that be for we the than to pleased Merck story. Merck, KEYTRUDA all, help. And, be patients has to ever but largest question, had, we're of due to which the the KEYTRUDA that is a and say broader a thing had, has are the more that But just we much execution your respect can also potential to good for Chris, let strong

able we we've enhance pipeline, like recently, relates for our it opportunities we've to in in AZ. better portfolio, as scope, at as going our Everything to look years, were of prices always deals based obviously so, growth And acquisitions, competition for Eisai have to and look that as for development, a sheet, over such our that drive we're make. for we at we to those and a number we say balance on to looked assumptions important the size drive to just past power with want forward, an done we and – the to assets and move but that The strong continue have portfolio business long-term of terms the became going at the our often our to company. to has to better what's what's we're as and been I continue outside challenge deals and is decide can couple in again, unreasonable the But do value any said, for portfolio, priority the I've acquisitions it's look the is stage things company. flexibility the

Teri Loxam

next on we'll Darla, move Ken. the please. Thanks, question, to

Operator

It's Sachs. Rubin with Jami from of the Goldman line

Jami Rubin

you. Thank

Just which one, that sort value you, been mostly the not patients, Merck been for on again war five the I-O has couple a years. a into three, questions, past Ken. winning but KEYTRUDA for shares translated news as Congrats with underperformer shareholder have creation phenomenal for chronic has of

wind other as So, Health. that, plans, shareholder the what and doing unlock way out that less for Animal succession in again, upon this to unlock absolute one to very your the much. said believe what Rob, you're Can unlock Investors touched would or if spin will cost that? more but you you want priorities been to succession is be cuts? but aggressive plans mix just be also you going an sort just plans. Ken, could BD Thanks then, margin you frustrated comment And on And primarily very down easy to value, I are then, You your to touch there just leverage, has are been that CEO as about upon of coming value? there absence not you value? have I activity. period talk of opportunity from

Kenneth C. Frazier

questions. your you, Thank Jami, for

and for it stock we've better exceptionally I-O I in I've given think, has of space see course, to as executed, positioned have than So, perform the said, we like well recent all, first also the the long-term think would and we years, value growth fact, we of in creation. company particularly our

growth we somewhat we look for the underappreciated, question, said revenue opportunities are my to, your are before. growth pipeline won't I opportunities augment think, what challenges. I that moving As I've our our continue in actually said to believe There to thrust business opening in of repeat but I've our development. comments, through

our across and are do but growth, as it what the you is industry, of what I there right long-term kind relates intend assets we challenges we finding as drive to that's to to do. expect think, that know, this to

have intend assure When they you primary know, that issue that's that totally right that I something something all our with. very, to is but in that board their is something is we'll As in let that's now. can board's something an on just it people the announce, say viewpoint very relates I'd to focused and that obviously to proceed we that's and succession, concerns

Robert M. Davis

And well question strong as on good Jami. On our obviously, XXXX growth shifting through to product margin, morning, and driving more revenue as operating what's your we expect given along now back with between XXXX, mix the over our last anticipate that move few specialty years, actually more margin mainly forward. a SG&A reductions you do out I would spend. as we aggressive focus, the look operating expansion broadly in done we've point if we

seeing XXXX. you while were allowed and over exercise we period, we oncology to and the to out us through R&D. that drive went invest $X.X from XXXX If That scratch billion growth cost-cutting recall, build in decline an EPS revenue during franchise importantly from

our by expenses the see productive what's look being SG&A discipline as we think to growth. already forward, near us with at than fund of we're much improve. to continue in pretty on drive do I allowed the how areas opportunity as the R&D. slower a percentage out seeing sales space and leverage our SG&A that's to allocation rates XX.X%, point there's we in more of best-in-class to within of our grow sales show to continuing in I'd to do So, are focus we really focused

at do So, initiatives. in than revenue sales not way growth drive is smaller this operating advantage spend there you cost-cutting through there, mix disciplined long-term product margin, about a is some of take growth opportunity to to much of the manage but more rate how a

Teri Loxam

Thanks, next please, Rob. to question, the move We'll Darla. on

Operator

(USA) much Suisse. Securities questions. K. my taking Divan Hi. Thanks for Divan Vamil It's - Credit LLC Suisse so from Credit with Vamil

there's So, lot cancer been one, lung know presented data you the I a and, of on focus obviously, there. market

whole been to then, my about in is sort guess. effect for And us that across range guess, might thoughts Roger the of Just is you maybe, indications I just be the just think second of of of halo question this terms other more the impact there have indications? have talking preferred sort commercial of the on on use could in driving that PD-X of be for KEYTRUDA I KEYTRUDA some a Adam, and some

mechanisms. just how news mentioned, IDO think that advancing you the wondering changes, about how I'm that you With

about sort from into on, that likely have an you move combinations, think Thanks you're more more working maybe think of about succeed combinations agents or does just you so you finding As them before others? than much. combinations any so different monotherapy of it make emphasis activity you to on thoughts, do many ones how prioritizing that

Adam H. Schechter

to number well. the lung, there's I very with data and encouraged as all be we're program a multiple many you Adam. This so We continuing the leader We're in already that Vamil. with forward. by think there already efficacy is strong strong the KEYTRUDA launches, move see Hi, first-line very, question. at the we're start neck particularly increased In we And to good U.S., but seeing do Head across Thanks in we're look indications. in halo I'll see will recent that talked We're is indications very last testing. bladder, hearing a time as just key seeing opinion also launch I not impact the traction U.S. one. uptake across where the larger more physician more the in a really the does that positive forward. community-based as particularly world. Meeting continue European leader but coming is International the I of is key in lung as get there I'd moving melanoma, remarkable only the in markets in all increase feedback and believe be it is in of around do KEYNOTE-XXX revenue, would coming significant halo a opinion cancer data well and landscape the and markets there hearing think we're and care. physicians out the that markets thing also Meeting. leader now out on foundational AACR it mindset The become as seeing about, growth in we think And the and say MSI-high when that for you clinical a are indications And perform I driving a over you Roger becomes is Yeah. in

Roger M. Perlmutter

other, think to was and and broader single-arm profound was studies, it should the reason its looked safety Right. mechanisms that that And, Sure, efficacy. favorable with what as that respect profile, deeper. responses for in With to about combinations, we'd it there tolerability to IDO-X, and to it. is if love single-agent that want are with that immunological have employ in regard. say advance can some were respect one think attractive to all, There see I was with combinations agents thing that of first I tolerability meant you most profile we Vamil,

I carefully we think need study was more there. and from the the detail do understand more that data to what much seen look in at epacadostat exactly

perspective lung studies at announced continuing been has colleagues back our II some but many as have, the epacadostat what data program, there. There for an from happened oncolytic toll-like immunologic are and agonists, program, and try other in Incyte, these and at we'll look are by We program, our receptor RIG-I example, programs STING viruses. combination now our scaled exactly Phase understand cancer involving,

Some of demonstrated already the with have TVEC, those, for combination in example, combined responses.

to but clinical right will we going experimentation. the it's there's for find that require a combinations, lot So, of clearly optimism reason quite

Teri Loxam

Thanks, Roger.

Next question, please.

Operator

Anderson from It's Tim Bernstein. with

Timothy Minton Anderson

value. and kind – about is has confused not create of is. speaks looking today, to balance transformative you like I sheet I'd focus talked Roger really you because really been being big how mentioned the message think pharma your which talked kind at of again At not on everything. M&A, Thank to I that about deals, AACR, Merck really deal you're yet tie-ups deals you suggest not you. what doesn't revenue-based, doing press have strong,

You I you claim big are at think high. prices that's when don't look asset really biopharma names. that true

is you really versus realistic kind willing rule just of leaves broad question it's it down companies nothing biopharma to narrow Merck still It'd And potentially. so, that transformative, looking name? if can big not. you're but a that could you I a my out bandwidth what that target is not consider understand this, open is very at be great of

you expressors? is the think meaningful benefit group question benefit directionally, was the KEYNOTE-XXX. XX% your been in say, at as been on or haven't really low Can you primarily high expressors ITT Second on one that segment, have cut such X% results whether to I the least offs released. the driven efficacy by a could I in know saw of

Kenneth C. Frazier

Tim. Thanks, Okay.

of same time cases, people both me just and will we well at. what think, as large, at and of saying start looking revenue. preference. scope are of all be, not to that are also the not which by for we What At may And access we I've I deal to we're enhance that our doing. scope, AstraZeneca to kinds size again some possibilities, try have is that whatever deals, our able the is collaborations, strategy. said what increase revenue, and and enhances that It not same acquisitions, do in pipeline with because of are pipeline said deals, looking say is I when to again, would indeed, with those restrict to opportunities. I enhance kinds if Let we're say we earlier terms the is pipeline they Eisai as we actually do that long-term. trying in the we our at in not those that we look – to will look our our do deals What call, what time, enhance scientific consistent terms we're if would before a transformational our deals is what able the the immediate at interested be we good think and solely I something that very in characterizes be would that to revenues deals pipeline

is valuations comment in the what we the to past, pricing the based making across too partnerships, got licensing. that, assets a general I in we was the I and about just expensive on looked about our referring continue look marketplace. So, opportunities at all for have acquisitions, competition, for in again, say collaborations was to your marketplace, And on good I'll today's not point assumptions.

Roger M. Perlmutter

patients study what population Tim, And, to announced PD-LX who on of a of was at we this KEYNOTE-XXX, remember, – X% was look had Right. or baseline cancer scores greater. at designed

be the not ultimately announced analysis having then total greater reasons endpoints analyses. the with down at study the to study, presenting see do in in we to it of For because population we there. on than very to population you detail XX% you'll going totality at those ASCO more stepped chance and and met that the and so of lot shading, color able to June, a and statistical that that looked survival Really to appropriate data overall give that a the first the will had have analysis, be more soon,

Teri Loxam

next please. the Roger. question, move Thanks, on We'll to

Operator

Steve with from It's Scala Cowen.

Steve Scala

couple A questions. Thanks.

GARDASIL's prospects And through revenue underappreciated. need First, the you XXXX. current mid-single XXXX through you. be Ken, to do then Thank billion And in Adam can digit, M&A. a X% from China will double case, intensity you beyond? you that if saying base on higher, not than looks alone? for don't you sense that's Can the For of compound Merck mentioned if Consensus probably like then, potential GARDASIL that Are one China? $X.X to give and growth with GARDASIL. sales us $X in a instance, billion are growth revenue more the revenue past more for

Kenneth C. Frazier

as possible, to key I oncology, long-term and that pillars, What example, very about portfolio, are Steve, and look based our the guidance. growth the we confident before, be for look near- respect your in I'm vaccines, at giving oncology can Okay. grow I'm numbers say ability Health we specific Hospital/Specialty. about Animal to we not with company our in our the at that's and to long-term first is said I going question, to not on

very our be can't specific that growth terms are confident drive So, we guidance. in specific in ability more to and of I

Adam H. Schechter

forward. very time the of strong the And U.S., is the in was my a just I perform continuing partially world to this we for wait to will growth going by in growth no driver that that opportunity to script to really mentioned if demand moving that in China. outside it we many continue and performance we There's a We're GARDASIL GARDASIL see that for the then very – off hi, start, continues launches understand around to China. We're period in represents a strong a as initial over significant forward. quarter us we're well time. to Steve, in in move markets and as Adam. have driven China saw but see this doubt

good more believe I opportunity today, about very talk we the going time. represents have to us, magnitude we're it give that which So, of a to not for but

Teri Loxam

Thanks.

the next please. question, on move Let's

Operator

Baum It's Andrew Citi. with the of line from

Andrew S. Baum

Morning. Couple of questions, please.

patients. by Ken that have including they pass-through The note the to The biosimilars. and adopt adopted First PBMs, Adam. and made voluntarily on side, today, to of want to see commercial many clear rebates PBM HHS the to for I FDA success Express on anything question voluntarily been have is the think biosimilars' side in second, adopt first gets strategy through CMS Merck And KEYTRUDA with before MSI. pathway? do mandated then, biosimilars' approvals the pioneer has will you shareholders of legislative the tissue-agnostic a or regulatory

stats. Merck size a Given somewhat the market, DNA obvious of Do have Thank in germline Do reimbursement an year, Medicare you. of exploring with next-generation beginning area damage of for interest one trial this patients of KEYTRUDA isn't of the the have the the repair, that Given you? trial a on isn't the given planned? you of I'm surprised as ongoing? you sequencing

Adam H. Schechter

Yeah.

market. the Andrew. U.S. on hi, with and start is biosimilars So, And I'll Adam. This be focused I'll

it's through continue to work continue savings that biosimilars continue ensure supposed an in pressure you'll utilization free or which there cost to of who to for by use try are U.S. there's the in the their significant Whether I a way can occur and be that see appropriate there environment volunteering biosimilars be think potential see the At to will do I that a lot that time, energy in – it's increase of will first, payers price I and to that to same market the you'll that think work. market think utilization. do the biosimilars. I believe to regulatory

originators might the compete So, order come the in biosimilars. parent with compounds to the price or in down

biologic of utilization by is the products. the payers end to to what the appropriate I the are looking think cost reduce of day do at

pressure for So, of see I increased believe continued do use you'll biosimilars.

Roger M. Perlmutter

it's Roger. And, Andrew,

substitutions more would appropriate as than, The a like responses course, the We that. part and to sequence of have story be. exactly it anti-tumor DNA of are of on of driving interested in done is very what patients complex is lot of work question us in all KEYTRUDA-treated

large press We we repair have of course, one describing quite does is believe that's reasons, study this answer, and in contribute a the been course, with to combination in the interested Lynparza. that KEYTRUDA The especially among that of of damage in we've things. DNA to relationships the response these the

of a two damage mechanism for lot improve and anti-tumor further survival. have quite illicit likely KEYTRUDA repair done work overall the the on combination Our colleagues responses of and to of exploiting at the a ability profound AstraZeneca is DNA

next a few of we're this. it We're to at So, lot months. involved have in looking from more and It's it we'll story deeply in the a a about number complicated say perspectives.

Teri Loxam

on next move please. We'll Great. question, the to

Operator

the line from Geoff Meacham with Barclays. It's of

Geoffrey Meacham

of the strategic is assuming how long have this the Ken, opportunity. but guys. Health model now lung I'm you. morning, strategic on could dataset. for be who in you, that mentioned filling the in risk. about KEYNOTE-XXX or play on another U.S., been what the or first-line from a low diabetes priority prescriber expressors is question. Thank Investors – over diversifying sense the full this, and to incremental Animal based you biggest then gap share Good you Thanks on get much Roger, you concentration I question the And the LOE could and to Adam long-term? think want worried for overall on touched a better from you as the be

Adam H. Schechter

very Geoff. Adam. leader KEYNOTE-XXX on excitement the and before, Yes. community-based, the data the an even as there's I key strong. is Hi, mentioned This And opinion is

into X. And that lot runway all combination now what of I segments there utilization we're the there's will segments. I with use. data of that of to below patients increased the overall and successful, two it we've XX and greater-than-XX% shown segments that as X those survival that did those was of in mentioned patients in job past, marketplace think lot we with hearing previously monotherapy or go to is I we therapy good the a was penetrating the in the think weren't those As the be a very a for PD-LX the Where

Robert M. Davis

the the And, question about Rob. JANUVIA, I'll filling answer is to this gap JANUMET. Geoff, related

Ken that we gap. comments, you focused And As doing in in we the have done, of look Eisai, our pneumonia, look the you the Lynparza, mentioned his recent like filling potential on are are growth feeling at our assets pneumococcal deal prepared have. AstraZeneca we of all believe these in as deals we've at the some if very And doing for that as deals pipeline I asset confident with for well Lenvima like deal VXXX we to starting gap. PCV with are fill

that. part perform revenue confidence diversification. new have Health So, is Animal extremely and to continues do going an assets forward, making we increasing to progress. we these you we the them, but in why It to and And on we're more look progress. a we and today if are on given that's we're focus, where also important think be well. is development I a of making There's are think business It it focused continues at

pharma credit diversification both for rates I a think is. carries the risk annuity business a Animal people result, don't Health than good the Animal industry. stream gives it profile and for an it the business Health what give growth different It's both as us at and, and above very Merck and

gap. it sense, also help that should in that to So, fill

we're making progress, to that, So, on come. more we're focused

Teri Loxam

move Thanks, to please, on the question, Rob. next We'll Darla.

Operator

Bank America Merrill from of It's Lynch. Jason Gerberry,

Jason M. Gerberry

Hi. my Good morning taking and thanks questions. for

I been would the clarification. presented KEYNOTE-XXX it you study thought in heard just titles see but at didn't question, hasn't wanted I first ASCO, say top-lined. be we the Just or

relative wondering you you provide on, there? that you ultimate on XX% Roger, X little study just that competitively your bit And on if valent could So, negative then to it successful? the Thanks. XX proposition coverage some studies about a Is Is Phase products positioned guys can that just the is see comment basically clarification Prevnar. (XX:XX) roughly you additional initiated sort vaccine no trade-offs? how with of if value

Roger M. Perlmutter

at and publication it Yeah. was presented abstract Roger. it will KEYNOTE-XXX, – actually be was title the the ASCO. Jason, in it's

very title which covered of have cancer. VXXX, will a regarding opportunity So, are It it to with present Melbourne add them. also in strong to to which pneumococcal just response those conjugate – recently, there the will chance the in chance specifically And the and serotypes disease. to invasive really vaccine. VXXX a vaccines, wasn't named, both to data, see the but respect very, for to And squamous other lung had data by be we will serology stereotypes people preventing additional provides important the strengthen pneumococcal but terms was

we can see same results there get areas in opportunities that So, profile. both that in a the then and kinds of those anticipate we'll Phase we very we attractive X assuming studies, have

Teri Loxam

to Great. here. to We're more in one try going Thanks. squeeze question

Operator

It's from Alex Arfaei with BMO.

Alex Arfaei

there's you. just productivity to if I'm estimated close Thank with but morning, please as if provide your KEYTRUDA, then, for strong your on And seeing execution lower of I'm please quick your steps by difference some rate, wondering of a gap. you a there rate a Good folks. it, A few Okay. but to being tax and R&D your questions. execution, there's notably not with on the the that if Thanks apparent you indications? if notable taken very any seems KEYTRUDA missed in Rob, Adam, sales tax opportunity further rate sure different Roger, I the a R&D you're from well. have may. I additional for finally, KEYTRUDA and peers. wondering could rest showing ones, taking obviously comment if just pipeline. that lowering be we're

Robert M. Davis

Good morning. tax the about I'll is Rob. question rate. answer This your

XX% look to you are, are XX% for we at if we this where guiding for So, year.

to quarter XXXX, – the X there opportunity rate do on a move tax point. is we to As call, us for percentage expect further in we fourth our of as see reduction we indicated up into our

our So, forward move see you from tax as into XXXX. will improve XXXX rate we

Roger M. Perlmutter

the have you I were I rest pipeline I agree is Alex, the on going say you stronger. to guess disagree KEYTRUDA outside of the the And, issue to pipeline. even execution to might and of thought

really the standard registration that work the in organ in at is which done are is that molecules the organization way way at along. and I gaining for things XX BRIDION. Look of the molecules the for look going being infectious which the work done I disease the it in our feel say you guess PREVYMIS, new regulatory clinical immuno-oncology totality these of balance including and If CMV, being in good transplant organization out affairs with the drug the the would development like in prosecuting was of the programs. which hematologic I registration in already development about of adopted in area transplant at Look work coming solid an the is is extraordinary these alone. that's is the pipeline, as

it. So, about feeling let's pretty I'm actually talk. And good

Adam H. Schechter

And is of estimates, the seeing X% then, Based the latest U.S. utilization is start is we and XX% data and U.S., think we the that utilization have, is the with What KEYTRUDA in bladder indication, about in in indications. is. and rough already where with X% on majority I'll some the the about regard XX% markets European in indication. of lung, these about about we're melanoma, in to neck, by and are of metastatic lung XX% largest becoming melanoma in other lung large Outside head

Kenneth C. Frazier

Okay.

basis we all a the good in on us BD thank pipeline, doesn't for our participating That provide the you of not thank we're to hope have any call look our momentum. confident to day. today are being confident at want I And to you near the the I business. trajectory near in and augment continue to again call. strong you trajectory. for and but I for reiterate beginning, long-term XXXX I with long-term mentioned And today's So, to that as starting confidence and am about I

Operator

XXXX call. This and concludes Merck's earnings first quarter conference sales

disconnect. now may You

Teri Loxam	Merck & Co., Inc.
Kenneth C. Frazier	Merck & Co., Inc.
Robert M. Davis	Merck & Co., Inc.
Adam H. Schechter	Merck & Co., Inc.
Roger M. Perlmutter	Merck & Co., Inc.
David R. Risinger	Morgan Stanley & Co. LLC
Gregg Gilbert	Deutsche Bank Securities, Inc.
Christopher Schott	JPMorgan Securities LLC
Jami Rubin	Goldman Sachs & Co. LLC
Vamil K. Divan	Credit Suisse Securities (NYSE:USA) LLC
Timothy Minton Anderson	Sanford C. Bernstein & Co. LLC
Steve Scala	Cowen & Co. LLC
Andrew S. Baum	Citigroup Global Markets Ltd.
Geoffrey Meacham	Barclays Capital, Inc.
Jason M. Gerberry	Bank of America Merrill Lynch
Alex Arfaei	BMO Capital Markets (United States)

Merck & Co. (MRK) 1 May 182018 Q1 Earnings call transcript