Merck & Co., Inc. Q4 2023 Earnings Report

Merck & Co., Inc. EPS Results

• Actual EPS: $0.03
• Consensus EPS: -$0.09
• Beat/Miss: Beat by +$0.12
• One Year Ago EPS: $1.62

Merck & Co., Inc. Revenue Results

• Actual Revenue: $14.63 billion
• Expected Revenue: $14.49 billion
• Beat/Miss: Beat by +$141.03 million
• YoY Revenue Growth: +5.80%

Merck & Co., Inc. Announcement Details

• Quarter: Q4 2023
• Date: 2/1/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, February 1, 2024
• Conference Call Time: 9:00AM ET

Merck & Co., Inc. (NYSE:MRK) is a global healthcare company that develops and markets prescription medicines, vaccines, and animal-health products. The company serves patients, healthcare providers, and customers in markets around the world, with research and commercial operations spanning multiple geographic regions.

Its pharmaceutical portfolio includes oncology, infectious-disease, cardiovascular, immunology, and other therapeutic areas. Key products include Keytruda, an oncology treatment; Gardasil, a human papillomavirus (HPV) vaccine; Januvia and Janumet for type 2 diabetes; Bridion for anesthesia-related use; and Winrevair for pulmonary arterial hypertension. Merck also operates an animal-health business that provides veterinary pharmaceuticals, vaccines, and health-management solutions for livestock and companion animals.

Founded in 1891, Merck & Co. is headquartered in Rahway, New Jersey. It is a separate company from Merck KGaA, the Germany-based healthcare and life-sciences company. Robert M. Davis has served as Merck & Co.’s chairman and chief executive officer since 2021.

Merck & Co., Inc. Q4 2023 Earnings Call Transcript

Key Takeaways

• Merck delivered 12% revenue growth in 2023 excluding Lagevrio and forex, led by KEYTRUDA (+22% to $6.6 bn), Gardasil (+27% to $1.9 bn) and a 4% rise in Animal Health sales.
• For 2024 Merck forecasts revenues of $62.7–64.2 bn (up 4–7%) and non-GAAP EPS of $8.44–8.59, despite a ~2% forex headwind and one-time charges, underscoring continued commercial momentum.
• Key near-term catalysts include potential FDA approvals for sotatercept (PAH) on March 26, V114 (pneumococcal vaccine in adults) on June 17 and the HER3 ADC patritamab-daruxtecan on June 26.
• Merck is deepening its pipeline beyond oncology with over $30 bn invested in R&D, acquisitions like Prometheus and Harpoon, and a broad strategy across immuno-oncology, precision targeting and ADCs.
• The company retains ample financial capacity and plans to pursue disciplined science-led business development deals in the $1–15 bn range while maintaining dividend growth and modest share repurchases.

Presentation

[Operator]

Thank you for standing by. Welcome to the Merck and Company Q4 Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode until the question-and-answer session of today's conference. This call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Peter Dannenbaum, Vice President, Investor Relations. Sir, you may begin.

[Peter Dannenbaum, VP of Investor Relations at Merck & Co.]

Thank you, Ivy, and good morning, everyone. Welcome to Merck's fourth quarter 2023 conference call. Speaking on today's call will be Rob Davis, Chairman and Chief Executive Officer, Caroline Litchfield, Chief Financial Officer, and Dr. Dean Li, President of Merck Research Labs. Before we get started, I'd like to point out a few items. You will see that we have items in our GAAP results, such as acquisition-related charges, restructuring costs, and certain other items. You should note that we have excluded these from our non-GAAP results and provide a reconciliation in our press release. I would like to remind you that some of the statements that we make today may be considered forward-looking statements within the meaning of the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995.

[Peter Dannenbaum, VP of Investor Relations at Merck & Co.]

Such statements are made based on the current beliefs of Merck's management and are subject to significant risks and uncertainties. If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements. Our SEC filings, including Item 1A in the 2022 10-K, identify certain risk factors and cautionary statements that could cause the company's actual results to differ materially from those projected in any of our forward-looking statements made this morning. Merck undertakes no obligation to publicly update any forward-looking statements. During today's call, a slide presentation will accompany our speakers' prepared remarks. These slides, along with the earnings release, today's prepared remarks, and our SEC filings, are all posted to the investor relations section of Merck's website. With that, I'd like to turn the call over to Rob.

[Rob Davis, Chairman and CEO at Merck & Co.]

Thanks, Peter. Good morning, and thank you for joining today's call. 2023 was another very strong year for Merck. I'm extremely pleased by the progress we've made to develop and deliver transformative therapies and vaccines that will help save and improve lives around the world. We reached more than 500 million people with our medicines last year alone, over half of which were through donations. We also made substantial investments in research and development in our ongoing effort to discover and bring forward to patients the next generation of impactful innovations. Over $30 billion in total, including the cost of certain acquisitions and collaborations. As we move forward, I'm confident that our strong momentum will continue, underpinned by the unwavering dedication of our talented global team. We're realizing the benefits of our sustained focus on key strategic priorities.

[Rob Davis, Chairman and CEO at Merck & Co.]

The excellence of our commercial and operational execution enables us to deliver tangible value in the short term, while we invest in new innovations and strengthen our pipeline for the long term. In 2023, we advanced important clinical programs and augmented our pipeline with promising business development, such as the acquisition of Prometheus and our collaboration with Daiichi Sankyo. Guided by our science-led strategy, I'm confident that the focused and disciplined business decisions we make and the actions we take will lead to sustainable benefits for the patients we serve and long-term growth and value for our shareholders. Turning to our results and initial outlook for 2024, we delivered excellent underlying growth in 2023, reflecting robust demand for our innovative portfolio. I'm pleased to share that we expect continued strong growth in 2024, driven by demand for our key products, which Caroline will speak to momentarily.

[Rob Davis, Chairman and CEO at Merck & Co.]

Turning to the progress we're making in research, we're currently pursuing programs across a more diverse set of therapeutic areas with high unmet need and across more modalities than in any time in recent memory. This year, we'll remain keenly focused on advancing our broad and diverse pipeline, which includes two launches that will address critical health needs and have blockbuster commercial opportunity. In cardiometabolic, we're very excited by the anticipated FDA action on our application for sotatercept in the United States, which we believe has the potential to transform the treatment journey for many patients suffering from pulmonary arterial hypertension. Our commercial and manufacturing teams are fully prepared for the strong uptake we expect. Sotatercept is an important component of our growing cardiometabolic pipeline, which we believe has significant long-term potential. In vaccines, the FDA accepted for priority review our filing for V116.

[Rob Davis, Chairman and CEO at Merck & Co.]

If approved, V116 would be the first vaccine specifically designed to address the majority of invasive pneumococcal disease in adults ages 65 and older. Based on its compelling profile, V116 has the potential to become an important new preventative option for adults, and we believe it can achieve majority market share in this setting. We look forward to a potential approval in June. In oncology, we continue to expand into additional tumor types and earlier stages of certain cancers, as well as progress our increasingly broad pipeline of novel candidates. We have achieved substantial diversification with a dramatically expanded set of late-stage programs, which Dean will speak to. I'm confident that Merck is well positioned to provide important innovation to patients and sustain its leadership in oncology well into the future.

[Rob Davis, Chairman and CEO at Merck & Co.]

I know Dean and his team are energized by our progress and are prepared to build on the success we've had in 2023 to further advance Merck's pipeline and bring transformative innovation to patients this year and beyond. In summary, our science-led strategy, which keeps the patient at the center of everything we do, is delivering important advancements and helping us build a sustainable growth engine for our company. We've made considerable progress over the past year in advancing and expanding our pipeline, which has resulted in substantially increased long-term commercial opportunities. We've taken meaningful steps to diversify and position ourselves for sustained leadership in oncology, while also building one of our deepest and broadest pipelines across discovery and development in our recent history outside of oncology, and notably in cardiometabolic and immunology.

[Rob Davis, Chairman and CEO at Merck & Co.]

Further, we also expect to benefit from promising late-stage programs across our vaccines, neurosciences, HIV, and animal health pipelines, a robust set of early-phase programs, and the potential to add exciting innovation through future science-led business development. As a result, we are increasingly confident that we're well-positioned to drive patient impact and value creation this year and well into the next decade. I would again like to thank our global teams for their commitment to strong research, commercial, and operational execution. With a concerted focus on achieving continued excellence, I'm very confident in our ability to deliver short and long-term stakeholder value. I look forward to providing future updates on our progress and impact. With that, I'll turn the call over to Caroline.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

Thank you, Rob. Good morning. 2023 was another impactful year for our company. We delivered strong revenue growth of 12%, excluding LYNPARZA and foreign exchange. Growth was driven by robust performance across oncology, vaccines, and animal health. We remain confident in our ability to continue to deliver strong results in the near term, while making disciplined investments in innovative science, which will drive long-term value for patients and shareholders. Now, turning to our fourth quarter results. Total company revenues were $14.6 billion, excluding the impact from LYNPARZA and foreign exchange. The business delivered strong growth of 13%. The following revenue comments will be on an ex-exchange basis. Our human health business sustained its momentum. Excluding LYNPARZA, growth was 14%, driven by oncology and vaccines. Sales in our animal health business increased 4%, driven by companion animal products.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

Turning to the performance of our key brands. In oncology, sales of KEYTRUDA grew 22% to $6.6 billion. Global growth was driven by increased uptake in earlier stage cancers, including triple-negative breast cancer and renal cell carcinoma, with particularly strong growth in international markets due to the more recent launches of these important indications. Growth was also driven by the strong global need of patients with metastatic disease. We continue to be encouraged by the positive impact our recent approvals are having on certain patients with earlier stage non-small cell lung cancer. In the U.S., we have made considerable progress in helping to improve drug treatment rates and have further increased our leadership position in the adjuvant setting. We also received positive feedback from healthcare providers following the recent launch of KEYNOTE-A39 in advanced urothelial cancer.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

With this approval, KEYTRUDA, in combination with PADCEV, is now indicated for first-line advanced urothelial cancer patients, regardless of cisplatin eligibility. Based on the outstanding clinical data, we believe this regimen has the potential to transform the standard of care for these patients. Alliance revenue from LYNPARZA and LENVIMA grew 8% and 5%, respectively. WELIREG sales grew 78% to $72 million, driven by increased uptake in VHL-associated tumors. We are excited by the opportunity to provide a new treatment option for certain patients with previously treated advanced renal cell carcinoma following the recent approval based on the LITESPARK-005 study. Our vaccines portfolio delivered excellent growth, led by GARDASIL, which increased 27% to $1.9 billion, driven by global demand, particularly in China. In the US, GARDASIL sales benefited from CDC purchasing patterns.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

VAXNEUVANCE sales grew to $176 million, driven by ongoing launches in Europe and continued uptake of the pediatric indication in the U.S. As a reminder, fourth quarter 2022 sales in the U.S. benefited from inventory stocking in preparation for the pediatric launch. In our hospital acute care portfolio, BRIDION sales declined 3%. Increased market share among neuromuscular blockade reversal agents in the US was more than offset by the impact of generic entrants in international markets, particularly in Europe. Our animal health business delivered another solid quarter, with sales increasing 4%. Companion animal sales grew 12%, driven by the BRAVECTO line of products due to strong underlying demand and timing of purchases. Livestock sales were flat, reflecting favorable price actions, offset by the timing of ruminant product purchases.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

I will now walk you through the remainder of our P&L, and my comments will be on a non-GAAP basis. Gross margin was 77.2%, an increase of 1.5 percentage points, largely due to favorable product mix, including a benefit from lower sales of LAGEVRIO. Operating expenses increased to $11.6 billion, including a $5.5 billion one-time charge related to our collaboration with Daiichi Sankyo. Excluding this charge, operating expenses grew 8%, reflecting disciplined investment in support of our expansive early and late-phase pipeline and key growth drivers. Other expense was $174 million. Our tax rate was approximately 114%, which reflects the impact of the charge related to Daiichi Sankyo. Excluding this charge, the underlying tax rate was 13.1%.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

Taken together, earnings per share were $0.03, which includes a $1.69 negative impact from the charge related to Daiichi Sankyo. Now, turning to our 2024 non-GAAP guidance. We expect another year of strong growth, driven by key marketed products, and will begin to benefit from the anticipated launches of impactful new products such as sotatercept and V116. We project revenue to be between $62.7 billion and $64.2 billion, representing growth of 4%-7%. This growth includes a negative impact from foreign exchange of approximately 2% using mid-January rates. The headwind is primarily due to the devaluation of the Argentine peso, which we expect will largely be offset by inflation-related price increases consistent with market practice.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

Our gross margin assumption is approximately 80.5%, which includes the benefit from reduced royalties paid on KEYTRUDA and GARDASIL. Operating expenses are assumed to be between $25.1 billion and $26.1 billion, which includes an approximate $650 million one-time charge related to the announced acquisition of Harpoon Therapeutics. As a reminder, our guidance does not assume additional significant potential business development transactions. Other expense is expected to be approximately $200 million. We assume a full-year tax rate between 14.5% and 15.5%. We assume approximately 2.54 billion shares outstanding. Taken together, we expect EPS of $8.44-$8.59.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

This range includes an approximate $0.26 per share charge related to the planned acquisition of Harpoon Therapeutics, which is not tax-deductible, and a negative impact from foreign exchange of approximately $0.25 using mid-January rates, including the impact from Argentina. Now turning to capital allocation, where our strategy remains unchanged. We will prioritize investments in our business to drive near and long-term growth. We are excited by the significant progress our team has made to advance and augment our innovative pipeline in 2023. In 2024, we will increase this investment, including the initiation of more late-stage clinical trials across multiple novel candidates, each of which has significant potential to address important unmet medical needs. We remain committed to our dividend and plan to increase it over time. Business development remains a high priority.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

We maintain ample capacity, given our strong investment-grade credit rating and cash flow, to pursue additional science-driven, value-enhancing transactions going forward. We will continue to execute a modest level of share repurchases. To conclude, we enter 2024 with confidence in the outlook for our business in the near and long term. Global demand for our innovative medicines and vaccines remains strong, and we are excited about our expansive pipeline. We are in a position of financial and operational strength as a direct result of our long-standing commitment to science in order to improve the lives of the patients we serve. Our continued investment in innovation and excellent execution will enable us to deliver value to patients, customers, and shareholders well into the future. With that, I'd now like to turn the call over to Dean.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Thank you, Caroline. Good morning. Today, I will provide notable R&D updates since our last earnings call and a brief summary of 2023 accomplishments. Momentum in the pipeline remains strong. Progress is spanning both early and late-phase programs across multiple therapeutic areas. Starting with oncology, we are diversifying our portfolio and executing on our strategy, which is broadly based on three strategic pillars: immuno-oncology, precision molecular targeting, and tissue targeting.... In immuno-oncology, we remain committed to the development of KEYTRUDA and further transforming cancer care to address the needs of certain patients. In the fourth quarter, we received approvals from both the FDA and the European Commission in two gastrointestinal indications.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

One in combination with chemotherapy for the first-line treatment of adults with locally advanced unresectable or metastatic HER2-negative gastric or gastroesophageal junction adenocarcinoma based on KEYNOTE-859, and another in combination with gemcitabine and cisplatin for the treatment of patients with locally advanced unresectable or metastatic biliary tract cancer based on KEYNOTE-966. As we continue to harness the potential of KEYTRUDA, we have an increased focus on earlier stages of disease, where we believe timely, effective intervention may significantly improve patient outcomes. Last month, we announced FDA approval for KEYTRUDA in combination with chemoradiotherapy for the treatment of FIGO Stage III through IVA cervical cancer based on the phase III KEYNOTE-A18 trial. This is an important advancement and provides a new option that has potential to become the standard of care.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

To date, with all the research conducted with checkpoint inhibitors, the only studies that have demonstrated statistically significant overall survival benefit in earlier stage cancers are KEYTRUDA-based regimens. KEYNOTE-671, as part of a neoadjuvant followed by postsurgery adjuvant treatment regimen for certain patients with resectable non-small cell lung cancer, and KEYNOTE-564 as a postsurgery adjuvant treatment regimen for certain patients with renal cell carcinoma. Since the approval of KEYNOTE-671 in October, it is notable that the American Cancer Society released guidance recommending that certain individuals with significant smoking history undergo an annual low-dose CT scan. The guidance also expands the age range for lung cancer screening. We look forward to the opportunity to help impact patients and support the identification of more patients at risk.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Additional data from KEYNOTE-564, demonstrating an overall survival benefit, were presented at the ASCO GU conference last week. Detailed findings from KEYNOTE-123, evaluating KEYTRUDA for the adjuvant treatment of patients with localized muscle-invasive and locally advanced resectable urothelial carcinoma, demonstrating a disease-free survival benefit versus observation, were also presented at ASCO GU. Also, in the earlier stage setting, along with our partner, Moderna, we announced three-year recurrent-free survival and distant metastases-free survival data for our individualized neoantigen therapy, V940, in combination with KEYTRUDA for the adjuvant treatment of Stage three and four melanoma following complete resection. We are encouraged by the durability of the responses observed and the potential for this regimen to impact patients earlier in their diagnosis. The Phase III trials in the adjuvant setting for certain patients with melanoma and non-small cell lung cancer are actively enrolling.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Progress continues in precision oncology. The FDA approval for WELIREG, our HIF-2 alpha inhibitor for the treatment of adults with advanced RCC following a PD-1 or PD-L1 inhibitor and a VEGF-TKI, marks the first drug approved in a new therapeutic class for eligible patients with advanced renal cell carcinoma in nearly a decade and builds on the 2021 approval for the treatment of adults with certain von Hippel-Lindau disease-associated tumors. Additional Phase III studies for WELIREG in combination with KEYTRUDA and/or lenvatinib for the treatment of certain types of renal cell carcinoma in the advanced and adjuvant settings are ongoing. Finally, moving to the tissue targeting space. Together with Astellas and Seagen, now Pfizer, we announced the FDA approval for KEYTRUDA in combination with PADCEV, a nectin-4 targeting ADC, for the first-line treatment of patients with locally advanced or metastatic urothelial cancer based on results from KEYNOTE-A39.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

These results demonstrated a superior overall survival benefit versus gemcitabine plus cisplatin or carboplatin, and extend our pioneering work in combining KEYTRUDA with chemotherapy, as well as reinforcing the value of an ADC to enable targeted delivery of chemotherapy to the tumor tissue. Following the announcement of our collaboration with Daiichi Sankyo in October, we are pleased to receive priority review from the FDA for MK-1022, or patritumab deruxtecan, our investigational fully humanized anti-HER3 ADC, for patients with advanced EGFR mutated non-small cell lung cancer previously treated with two or more systemic therapies. The agency has set a target action date of June twenty-sixth. Through our agreements with Kelun and Daiichi Sankyo, as well as our own discovery programs, we have established a robust pipeline of tissue-targeting ADCs.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

The recently announced acquisition of Harpoon Therapeutics provides the opportunity to help complement and strengthen our approach by providing a portfolio of novel T-cell engagers, the most significant of which is HPN328, an investigational delta-like ligand three targeting T-cell engager being evaluated in small cell lung cancer and neuroendocrine tumors. A strong, diverse portfolio of immuno-oncology, precision molecular, and tissue-targeting agents positions us well to have a profound impact on even more patients long into the future. Next, to our vaccine pipeline. We are making notable advancements with our population-specific vaccine program for pneumococcal disease. The FDA has accepted for priority review the new biologics license application for V116, our 21-valent pneumococcal conjugate vaccine, specifically designed for adults, supported by results from multiple phase III clinical trials evaluating V116 in both pneumococcal vaccine-naive and vaccine-experienced adult patient populations.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Results from STRIDE-3 trial were presented at the World Vaccine Congress West Coast in November, and additional data from STRIDE-3, as well as STRIDE studies 4, 5, and 6, will be presented at the International Society of Pneumonia and Pneumococcal Disease Congress in March. If approved, as Rob noted, V116 would be the first pneumococcal conjugate vaccine specifically designed to address the serotypes responsible for approximately 83% of invasive pneumococcal disease in adults 65 years of age and older, according to CDC data from 2018 to 2021. Importantly, V116 includes eight unique serotypes, which account for 30% of disease, according to the same CDC data. These serotypes are not covered by currently licensed pneumococcal vaccine options. The FDA has set a target action date of June seventeenth.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Turning to programs in the cardiometabolic disease pipeline, we are eager to bring sotatercept to patients as an important treatment option for pulmonary arterial hypertension. The FDA has set a target action date of March 26th. Beyond data from the STELLAR trial, we have the phase III ZENITH and HYPERION studies, which are evaluating sotatercept in patients with more advanced disease and those earlier on their disease journey. In addition, the phase II CADENCE trial will evaluate WHO Group II pulmonary hypertension, focused on a type of left heart disease. As we close out 2023, it is important to highlight our significant progress and execution across therapeutic areas and modalities, as well as multiple business development transactions. In the year, we have more than 25 regulatory approvals in major markets.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

We also initiated over 20 phase III studies across multiple new classes of assets, including in oncology, with bomedemstat, our LSD1 inhibitor in essential thrombocythemia, nemtabrutinib, our BTK inhibitor in first-line chronic lymphocytic leukemia/small lymphocytic lymphoma, MK-2870, our Trop-2 ADC in collaboration with Kelun in non-small cell lung cancer and endometrial carcinoma, MK-5684, our CYP11A1 inhibitor in collaboration with Orion in metastatic castration-resistant prostate cancer, and V940 in collaboration with Moderna for the adjuvant treatment of certain types of melanoma and non-small cell lung cancer. Also in immunology with tulisokibart in ulcerative colitis, finally in cardiometabolic disease with multiple trials for MK-0616 in hypercholesterolemia. As a result of the increasing depth and breadth of our pipeline, we are planning to initiate an even greater number of phase III trials in 2024. Considerable credit goes to my colleagues across the organization for their hard work and unwavering dedication.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

We are executing on our science-led strategy and look forward to providing further updates on our progress throughout the year. Now, I will turn the call back to Peter.

[Peter Dannenbaum, VP of Investor Relations at Merck & Co.]

Thank you, Dean. Ivy, we're now ready to take questions. If analysts could please limit themselves to one question today in order to get to as many questioners as possible, we'd appreciate it. Thank you.

[Operator]

Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad. You may withdraw your question at any time by pressing star two. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, you may use star one. Our first question will come from the line of Umer Raffat from Evercore ISI. Please go ahead.

[Umer Raffat, Senior Managing Director, Equity Research at Evercore ISI]

Hi, guys. Thanks for taking my question. I know, there's a trial due for you guys later this year, a KEYNOTE-007 trial. That's the LAG-3 with pembrolizumab in colorectal cancer. Just curious, how you were thinking about the, risk profile and the odds of success heading into that, and if there's been any interim OS analysis. Thank you very much.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

I'll take this, Umer. Thank you very much for that question. I mean, just to recognize that in MSI-H, we have a strong presence with pembro there. The larger group in CRC or colorectal cancer is in the MSS population. At this point, there's not really been any checkpoint inhibitor that's shown dramatic impact in MSS CRC. So our interest in driving pembro plus LAG-3 in that is to demonstrate that a checkpoint inhibitor could have a meaningful impact in MSS CRC.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

If we should get a positive signal in that, clearly we would use that as a beachhead to expand and extend the role of PD-1 checkpoint inhibitors in MSS CRC, which is a place that requires a lot more innovation. In terms of specific interim analysis on this, we generally try to keep that when there's data that's worth sharing, that's when we share it. Thanks.

[Operator]

Just real quick, just some quick microphone check. Can you hear us? Yeah, we're muted.

[Operator]

No, we can hear you.

[Operator]

Oh, you can? Okay. Well, we were showing that we're muted. Sorry.

[Operator]

Oh, no, you're fine. We can hear you loud and clear.

[Operator]

All right, great. Next question please, Ivy.

[Operator]

Next, we'll go to the line of Trung Huynh from UBS. Please go ahead.

[Trung Huynh, Executive Director, Equity Research at UBS]

Morning, guys. Thanks for taking my question. So for sotatercept, we noticed the Hyperion study primary completion date has now moved to August 26th. It was November 29th on ClinicalTrials.gov. That's three years earlier. Just, could you just let us know the reason for that change?

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Yeah.

[Trung Huynh, Executive Director, Equity Research at UBS]

If I could sneak one in, just is there a place to transition sotatercept from inpatient clinic administration to self-administration? Thanks very much.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

So let me take the first question. So there's a series of trials in relationship to sotatercept. So the March date that we talk about is for a potential decision by the FDA for approval based on the Stellar trial. And we think in the second half of 2024, we may be in a position in relationship to the EU. We have other trials, as you point out, especially phase III trials, and they are Zenith and they're Hyperion. Those two are based on events, so it's a tracking of events that sort of define when those happen. So Zenith, I think, is now, like, September 2025, and Hyperion, August 2026. So that's just been event-driven.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

In relationship to how best to treat patients, well, we're in conversations with the FDA in relationship to where's the best place for patients to be treated, but I'll just highlight that, we have an image of an auto-injector moving very fast through our pipeline. So that might give you a sense of where we think this may end up.

[Operator]

Great. Thank you. Next question, please, Ivy.

[Operator]

Next, we'll go to the line of Daina Graybosch from Leerink Partners. Please go ahead.

[Operator]

Please go ahead.

[Daina Graybosch, Managing Director, Senior Research Analyst at Leerink Partners]

Hi. Thank you for the question. I have one on oncology for one of the new assets going into phase III, the Orion MK-5684. I wonder if you could talk more about that asset and what gives you confidence that it will demonstrate broad benefit in prostate cancer, in addition to the patients with the AR LBD mutations. And can you confirm the study design of the two OMAHA studies will prioritize a hierarchy to statistically look at the mutation segment first?

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Yeah, so just so that everyone is looking at this asset in the same way, there have been critical medicines that ablate androgen fueled growth in prostate cancer. And the interest in this CYP11A1 is it's very high upstream, and we think that it could be an important contribution. Clearly, we're in... As you point out, we're interested both broadly, but especially in the specific mutation patients. And so we will be advancing those trials to look at that subpopulation as well as more broad populations. In terms of the statistical sort of analysis in that, that's something that I think, you know, probably would be best sort of discussed with our clinical teams at a different time.

[Operator]

Thank you, Dana. Next question, please.

[Operator]

Next, we'll go to Carter Gould from Barclays. Please go ahead.

[Carter Gould, Senior Analyst, U.S. Biopharma Equity Research at Barclays]

Thank you very much for taking the question. Good morning. Maybe following up on the commentary on V116, you talked about the potential to reach a majority market share. What does that sort of imply around the potential ACIP recommendation or the potential for a catch-up opportunity in the adult segment?

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Yeah, so I'll just, you know. So again, we're talking about V116. We're talking about FDA potential action in June 2024, followed by ACIP, followed by MMWR. I think it's in March that we're going to be presenting STRIDE three and six, and I think the data will be out there. And as you'll see in that, the, between STRIDE three and throughout STRIDE 3 all the way to six, you'll see data in relationship to vaccination of those who are naive versus previously vaccinated. And you will see data in the patient population or the, or the population that's 65, but also in the 50-+ as well. As that data is digested, both by the FDA, but probably very importantly by the ACIP, I think those data will guide how the ACIP makes their decision.

[Operator]

Great. Anything else? Okay. Next question, please, Ivy.

[Operator]

Next, we'll go to the line of Evan Seigerman from BMO Capital Markets. Please go ahead.

[Evan Seigerman, Managing Director, Head of Healthcare Research at BMO Capital Markets]

Hi, guys. Thank you so much for taking my question. I was wondering if you could expand on some of the nuances of your guidance. Specifically, do you include meaningful revenues from sotatercept or V116, assuming their approval at some point this year?

[Caroline Litchfield, EVP and CFO at Merck & Co.]

Thank you for the question, Evan. This is Caroline. As we've guided for 2024, we're very confident in the underlying momentum in our business across oncology, across vaccines, across animal health. We also are very excited about the potential launches for sotatercept and V116.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

... For sotatercept, given the significant clinical data we have and the understanding that there are many patients that have already been identified who can benefit for sotatercept on top of the treatments they have, we are expecting a strong launch. For V116, as Dean just outlined, we'll wait for the FDA approval, the ACIP recommendation. We'll then expect MMWR to publish, and therefore expect to have impact with V116 coming towards the end of this year.

[Operator]

Great. Thanks for that. Next question, please, Ivy.

[Operator]

Next, we'll go to the line of Terence Flynn from Morgan Stanley. Please go ahead.

[Terence Flynn, Managing Director, Senior U.S. Pharma and Biotech Analyst at Morgan Stanley]

Great. Thanks so much for taking the question. A competitor recently reported some disappointing data with their Trop-2 ADC in later-line lung. I recognize, you know, these Trop-2s are all different, given the technology, the linkers, but does this impact at all your development strategy for your Trop-2 in lung or perhaps increase the need for a biomarker strategy here? Thank you.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Yeah, this is Dean. Thanks for that question. So I'll just step back, and I think I've said this previously. Especially in lung, it's very important to understand what the standard of care is, and that one would have to beat it in a significant way. And the standard of the care, in our minds, in the late stage, is roughly KEYNOTE-189, and now in the earlier stage, it's clearly in KEYNOTE-671, both with clear OS data. What we have said previously is that we are unclear that any one ADC can have as broad of an impact as KEYNOTE-189 or KEYNOTE-671, and that in order for ADC to have a substantial advantage in those patient populations, one may need to focus on a biomarker selected patient population.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

And so the data that we saw does not change our way of thinking. It's the way of thinking that we've discussed previously. I would just add that it's really important... There's also data out there where people are doing retrospective biomarker data in this. For us to demonstrate true efficacy in any patient population, we'd need a biomarker strategy that is prospective and one that can be easily actionable throughout the world. Thanks.

[Operator]

Thank you, Terence. Next question, please, Ivy.

[Operator]

Next, we'll go to the line of Tim Anderson from Wolfe Research. Please go ahead.

[Analyst at Wolfe Research]

Hi, thank you for taking our question. This is Adam on for Tim. On Gardasil, a two-dose regimen was recently approved in China. We're wondering if that poses a revenue problem. Potentially, it doesn't, if it just means that more supply gets spread out across more people, and Merck ends up selling just as many doses in total. Can Merck share its perspective here?

[Rob Davis, Chairman and CEO at Merck & Co.]

Sure. No, Adam, thanks for the question. So there's actually been Chinese competitors with an offering for some time, actually, in the Chinese market, and that market is large, and we continue to believe the eligible cohorts in the—in just the urban females, which is the tier one to tier three cities, is about 200 million, a little over 200 million women. And so of that, we think probably about 30% have actually received the vaccination. So you're still looking at, you know, 120-130 million eligible population. As we look at this, and as we've seen over time, we continue to be very competitive.

[Rob Davis, Chairman and CEO at Merck & Co.]

We're maintaining a vast majority of share in the private market, and really, you're seeing most of the local competitors go to the lower-tier cities and to a different population than we've been targeting. So that does not change our view of the growth potential in China. Long term, obviously, we will continue to face competition there, and we are positioning ourselves to continue to succeed there. But the approval you're talking about is not changing our view.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

The only add, if I may, is we have significant opportunity to protect further females in China. At the end of 2023, we also submitted to the regulatory authorities our data on GARDASIL for males. So we're hopeful to introduce that in the Chinese market in the future.

[Operator]

Great. Thanks, Adam. Next question, please.

[Operator]

Next, we'll go to the line of Mohit Bansal from Wells Fargo. Please go ahead.

[Mohit Bansal, Managing Director, Biopharma Equity Research at Wells Fargo]

Great. Thank you very much for taking my question, and congrats on the progress. Maybe one question on V116 as well. So, Pfizer has recently made comments around, adult market shrinking at this point. So, could you, could you comment on how do you see the peak opportunity for V116 in the context of adult market shrinking, and then you taking share from a shrinking market? Thank you.

[Rob Davis, Chairman and CEO at Merck & Co.]

Yeah, I'll start, and then Caroline can jump in as well. But, you know, I think as you look at the market size and the comments, I don't want to speak to comments that others have made. I think it's also important to understand that as we bring a vaccine, which brings significant incremental coverage at 83%, versus if you look at PCV20, just as an example, is closer to, I think, about 50%. So you're looking at significant incremental coverage, which I think can have an impact on how you think both about catch-up to cover the disease. As Dean noted in his prepared comments, you know, we have 8 serotypes covering 30% of what is causing disease, which is unique to us.

[Rob Davis, Chairman and CEO at Merck & Co.]

So we think that that will have implications both in terms of catch-ups as well as potentially to be able to go for patients 50+ versus 65+. So if you take all those things into account, we still see this as a very large opportunity for us. You know, our view is it's about an $8 billion market in 2023. We anticipate it actually growing to be over $10 billion later in the decade. And with that being, the pediatric segment of that is about 70%. So we're looking at 30% of that is what is the adult piece. So, you know, as we see it, this is still a growing market, a good market, and we remain very confident that V116 will both have a majority share and be a meaningful contributor.

[Operator]

Great. Thanks, Mo. Next question, please.

[Operator]

Next, we'll go to the line of Chris Schott from JPMorgan. Please go ahead.

[Chris Schott, Senior Analyst, U.S. Major & Specialty Pharmaceuticals at J.P. Morgan]

Great. Thanks for the question. Just a bigger picture question on business development. Company's obviously been very active the past few years, and I'm just trying to get a sense of just kind of size and stage of assets that you consider, just given the current R&D investments you're making and the asset, the kind of the amount of capital you're allocating there. So just specifically, are deals along the lines of an Acceleron or a Prometheus still deals that Merck would look at and prioritize? Or at this point, should we be thinking about maybe earlier stage assets that would be more of the focus? Thanks so much.

[Rob Davis, Chairman and CEO at Merck & Co.]

Yeah, Chris, thanks for the question. You know, obviously, first, I just want to reinforce the pride I have in what Dean and the team have been able to do and the meaningful progress we're making, both in our internal pipeline and what we've been able to do through the business development, which is, you know, I think in some ways, in a weird way, underlying your question. But, you know, as we sit here today, while I feel very good about the progress we've made and the growing portfolio, the diverse and deep portfolio we have in our pipeline, we do continue to believe we need more, and we will continue to prioritize business development.

[Rob Davis, Chairman and CEO at Merck & Co.]

I would say that our views of deals like Prometheus, like Acceleron, are still the size of deals we are very interested in, if we can find great assets. So clearly, that's an area of focus, but also continuing to do smaller deals as well, like what you saw with Harpoon. So it's gonna be a range of deals, but I think as you look in that zero to kind of $15 billion, $1-$15 billion, it continues to be where we will look for. And then obviously, you know, we've also, I think, shown that not only are we very open to doing acquisition, but we see collaboration as an important tool as well, very similar to what we did with Daiichi Sankyo. So we're gonna be looking at the full suite and including deals that fit those categories.

[Operator]

Great. Thanks, Chris. Next question, please, Ivy.

[Operator]

Next, we'll go to the line of Andrew Baum from Citi. Please go ahead.

[Andrew Baum, Managing Director, Head of Global Healthcare Equity Research at Citi]

Thank you. I was gonna ask you about your expectations for the ACIP recommendation on revaccination of Prevnar vaccinated patients, but I suspect you may not want to share that view. So instead, maybe I could ask you about the first line Trop-2 ADC non-small cell trial that you're running in combination with KEYTRUDA. Some of the recently published academic data suggests that Trop-2 internalization is a biomarker in patients who are primary resistant to PD-1. So it just seems like an odd population to be exploring the drug and assuming that is a real and not a fake signal. And I take completely the caveat that it's retrospective data analysis in other settings. But given that, it would seem to be more sensible to have a combination with chemo and layering it on top.

[Andrew Baum, Managing Director, Head of Global Healthcare Equity Research at Citi]

Can you do this given the profile of the drug in terms of bone marrow suppression?

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Yeah, so I'll just answer more broadly in relationship to Trop-2 as an ADC and specifically our compound. One of the things that is extremely useful to us is its adverse effect profile, especially for lung cancer patients in relationship to lung toxicity, is readily manageable. It's a quite good profile. In terms of your question about the paper that I think that you talked about, about internalization and this, I think those are interesting and important papers for us to consider. But I think one of the things that's also important for us to do is to do the clinical experiment and see what the results are in relationship. We are confident that Trop-2 ADC will have an impact.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Trop-2 ADCs in breast cancer has had an impact, and we believe that our Trop-2 ADC, especially with the linker payload, will have an important impact in lung cancer. And then the question that you have is: how do you combine it? Do you combine it with chemo? Do you combine it with PD-1? How do you think through that? I think those are, you know, questions that our clinical team thinks deeply about, but we also think deeply about what line of therapy and also what the standard of care is. And if you want to move to first line, standard of care is KEYNOTE-189 with a chemo pembro basis. So one has to think about how one would advance a Trop-2 from different lines all the way to first line. So those considerations come in quite heavily. Thanks.

[Operator]

Thank you, Andrew. Next question, please, Ivy.

[Operator]

Next, we'll go to the line of Seamus Fernandez from Guggenheim Securities. Please go ahead.

[Seamus Fernandez, Analyst at Guggenheim Securities]

Thanks very much for the question. So, and congrats on the quarter and the guidance. Can you just talk a little bit about subcutaneous KEYTRUDA, how you anticipate payers' acceptance of this new delivery modality, as well as potential economic benefits to patients, given the shift from Part B to Part D? I think there could be some benefits from the updated catastrophic cap, you know, being drivers there, but struggling in the face of potential biosimilars of KEYTRUDA after 2028 to see how payers would treat this. Just interested to have a little bit more color on the economic benefits, not just the benefits to the patients of subcutaneous KEYTRUDA. Thanks so much.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

... So this is Dean. I'll take the first question, and then I'll hand it over to Rob and Caroline, because the economic question and the payer is also related to the innovation that you provide. I just want to make sure that our way of thinking about something like pembro with hyaluronidase, giving it subQ, is really there's gonna be a call for that innovation. I'll just emphasize, we constantly speak about the earlier stage cancer, and right now we have nine approvals. And as I've said, in relationship in the formative markets, you know, of those approvals, two- the only two that have checkpoint inhibitors that have OS benefit is KEYTRUDA-based, which is early lung cancer and RCC.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

I actually just came from a meeting speaking to a bunch of thoracic oncologists in this, and it's quite interesting to hear how they speak. For those who are thoracic oncologists, who are linked to a setting with medical oncologists, they very clearly understand why KEYNOTE-671 perioperative is a Category One. In situations where you may have a CT surgeon outside of a major care plan or a major medical center, sometimes you have CT surgeons moonlighting, doing lobectomies and the such, and for that, the KEYNOTE-091.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

And constantly, what we hear from the physicians and the providers, many of them are in provider systems of all different types, is the need to have an alternative way to get the KEYTRUDA to them, either Q3, Q6, given the regimen. So I just want to emphasize that the subQ pembro plus hyaluronidase is an innovation that is gonna be demanded and is being demanded by the field.

[Rob Davis, Chairman and CEO at Merck & Co.]

Yeah. Thanks, Dean. And to the questions on the economics, and I think we've commented on this a little bit in various settings, but you know, as we think about our strategy for bringing this to the market from a commercial perspective, you know, our view is the quality-of-life benefits this brings does demonstrate and afford us the ability to get a premium price. But we also are very cognizant that any subQ pembro will have to be considered in the context of a generic IV version.

[Rob Davis, Chairman and CEO at Merck & Co.]

So, you know, we will price our subQ to drive for volume and to do for conversion, which means we will be looking at prices really more in line with where you would see the generic version at a premium that history has shown is very manageable and expected and covered by payers today when you look at the different delivery forms. So, you know, in that sense, we think we will be able to manage this.

[Rob Davis, Chairman and CEO at Merck & Co.]

You know, the whole question of Part B versus Part D, we'll have to see how it plays out as far as the ultimate side of administration, but if it does end up being into the Part D category, which is a reasonable chance, you are correct in that some of the new coverages that are out there and catastrophic and with the cap, also, then from a patient perspective, should, you know, lower the burden they're gonna face, which we also think could help with conversion.

[Operator]

Great. Thanks, Seamus. Next question, please.

[Operator]

Next, we'll go to the line of Geoff Meacham from Bank of America. Please go ahead.

[Geoff Meacham, Managing Director, Biotechnology & Major Pharmaceuticals Equity Research at Bank of America]

Hey, guys. Good morning, thanks for the question. Caroline, on margins, you highlighted a benefit from KEYTRUDA and GARDASIL this year, which I think was expected. But looking forward, you know, is the guidance this year a reasonable target until the KEYTRUDA LOE? I wasn't sure if there's other drivers going forward or whether mix could impact margins as well. Thank you.

[Caroline Litchfield, EVP and CFO at Merck & Co.]

Thank you for the question, Geoff. As you all know, our company has made great progress in expanding operating margin over a number of years. As we look to 2024, we expect operating margin to improve, and that's really driven by the strength of the top line and mix of revenues, by the roll-off of royalties that we've noted on KEYTRUDA and GARDASIL, being disciplined in our expenses while we do invest fully behind our expansive pipeline. As we go beyond 2024, we still point to an operating margin of greater than 40% in 2025. But our focus as a company and as a team is to really ensure that we are fueling the pipeline, supporting the portfolio of products that we're launching to drive growth into the long term.

[Operator]

Great. Thanks, Geoff. Next question, please.

[Operator]

Next, we'll go to the line of Steve Scala from TD Cowen. Please go ahead.

[Steve Scala, Analyst at TD Cowen]

Oh, thank you. I believe the Merck RSV monoclonal antibody Phase 2/3 study is registrational and reads out this year. Is that correct? And assuming positive, how soon could Merck be on the market, and how might this product be differentiated from Beyfortus? It's just a little odd that this could be a billion-dollar opportunity, not that far off, and Merck never talks about it. Thank you.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

I really appreciate the question, so I will talk about it. In relationship to the RSV monoclonal antibody, it's for the every birth. It's an antibody, it's passive immunization, and it's for the pediatric population. This is a single shot; this is not weight-based, and we believe it has a longer season in relationship to other choices. And so we think it's an important readout, and we're very excited and interested to move on this RSV monoclonal antibody. I would also emphasize that the New England Journal of Medicine just published a series of papers, not in RSV, but also in dengue, that also we're very excited about, and we're moving that forward quickly.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

More broadly, from the IV vaccine, you know, I've said previously that I'm very intrigued to see the results of our NRTTI, islatravir, and our other NRTTI, MK-8527. So that will also be coming out this year, we'll be able to see those. So it is the RSV, it is the dengue that was just out there, and it is the HIV data that we're gonna be very interested in seeing across this year.

[Rob Davis, Chairman and CEO at Merck & Co.]

Yeah, and Steve, just to maybe from a commercial perspective, build on the question. From a launch timing perspective, our expectation is that we would be in the market in 2025, and obviously, we're working to be ready for that season in 2025. And then from, you know, differentiator for us, you know, recall that our coverage covers what is the full prevention season for RSV, which is five to six months. We're a single fixed dose, not a weight-based administered shot. So for us, those are all very important things. And the last thing I note is the site of action for us is really we think has low risk of development of resistance and is different than the competition. So we actually are very bullish on this.

[Rob Davis, Chairman and CEO at Merck & Co.]

I think we don't talk about it, frankly, 'cause we have so many other good things to talk about. It, it sometimes gets lost, but it doesn't mean we're not excited about this and/or dengue, which frankly, I still believe dengue, it's a little bit obviously later than this, but huge for us. So those are things we're excited about. It just reinforces the breadth of the portfolio we have. Thank you, Steve. Next question, please, Ivy.

[Operator]

Next, we'll go to the line of Chris Shibutani from Goldman Sachs. Please go ahead.

[Chris Shibutani, Managing Director, Senior Analyst, Biotechnology Equity Research at Goldman Sachs]

Thank you. If I could ask about immunology, essentially a re-entry into that realm with the Prometheus acquisition. If you could just update us on what we should be expecting to learn and also what you find interesting, perhaps, Dean, to further build out on the immunology platform. Specifically, the ClinicalTrials.gov has the Phase 2 maintenance data in UC is enrolling. Should we expect to hear from you on results there? I did not observe something there on Crohn's disease. What's the update on that program? And then in immunology further, it appeared from the start of the year, a lot of excitement about different modalities, cell therapies, in particular, oral, advanced treatments. Share with us some views on where you think immunology could go to take Merck to be a relevant presence in the 2030s. Thank you.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Chris, that's a great question and an expansive question. So let me just hit in relationship to the TL1A antibody. We have our ulcerative colitis trial moving forward, and that's been listed and that's moving forward. I think probably the really important thing for me that I look out is getting the Crohn's disease trial moving. The reason I think it's really important is I'll remind myself that TL1A is in the super TNF family, but TL1A may be different than run-of-the-mill TNF in its ability to not just dampen inflammation, but affect fibrosis. So going from ulcerative colitis to Crohn's disease, Crohn's disease has lots of strictures in this, that'll be important. And it'll be also important to look and follow, I follow our data in TL1A in relationship to lung disease and scleroderma.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

So that's with that. I would also emphasize that there are other assets within the partnership or acquisition that we did with Prometheus, and those compounds, which had already been discussed previously, are advancing through the pipeline as well. And then the other question that you have is, are we interested in other platforms and moving forward? The answer is absolutely yes. I think you had a question in terms of cell therapy with immunology. I think there is interesting data there, but as you know, when we've looked at cell therapy in relationship to cancer, especially actually not in heme, but in solid, we've been a little bit probably more exploratory. And right now, our view of cell therapy in immunology is one that might be more similar to our view of cell therapy in solid tumor, a little bit more exploratory.

[Rob Davis, Chairman and CEO at Merck & Co.]

Great. Thank you, Chris. Ivy, we have time for one more question, please.

[Operator]

For our final question, we'll go to the line of Louise Chen from Cantor Fitzgerald. Please go ahead.

[Louise Chen, Managing Director, Senior Analyst, Specialty Pharmaceuticals Equity Research at Cantor Fitzgerald]

Hi, thanks for taking my question. I just wanted to ask you, on your ADC platform, if you feel that what you have is enough for now, or do you want to expand or add on to it? And any interest in radiopharmaceuticals? Thank you.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

Thank you very much for that question. So when we think about tissue targeting, we think of ADCs, and the answer is, I think the ADC fields will continue to develop, and I think there will be other payloads, other linkers, but also the specificity by which you do the tissue targeting in relationship to the antibody may change. There's also clearly evidence of potential movements into peptide drug conjugates that we're interested in, as well as the possibility that the payload is no longer chemotherapy-based, but other sort of compound-based. So we're interested in that. In tissue targeting more broadly, we are interested in... So we view that as, okay, that's how we're gonna move sort of toxic cell chemotherapy agents into a tissue targeting sort of scheme, making chemotherapy precision medicine.

[Dean Li, EVP and President, Merck Research Laboratories at Merck & Co.]

But we also are very interested in the IO space in relationship to tissue targeting, and that is our foray, and that is really helped by our proposed acquisition with Harpoon that has a very interesting asset in relationship to tissue targeting and immune engagers.

[Rob Davis, Chairman and CEO at Merck & Co.]

Great. Thank you, Louise, and thank you all for the really good questions, and appreciate you sticking to mostly one question. We got to a lot of questioners, so appreciate that. If you have any follow-ups, please reach out to IR. We'll be seeing you soon. Thank you.

[Operator]

Thank you all for participating in the Merck & Co. Q4 Sales and Earnings conference call. That concludes today's conference. Please disconnect at this time and have a great rest of your day.

Participants

Executives

• Caroline Litchfield, EVP and CFO
• Dean Li, EVP and President, Merck Research Laboratories

Analysts

• Peter Dannenbaum, VP of Investor Relations at Merck & Co.
• Rob Davis, Chairman and CEO at Merck & Co.
• Umer Raffat, Senior Managing Director, Equity Research at Evercore ISI
• Trung Huynh, Executive Director, Equity Research at UBS
• Daina Graybosch, Managing Director, Senior Research Analyst at Leerink Partners
• Carter Gould, Senior Analyst, U.S. Biopharma Equity Research at Barclays
• Evan Seigerman, Managing Director, Head of Healthcare Research at BMO Capital Markets
• Terence Flynn, Managing Director, Senior U.S. Pharma and Biotech Analyst at Morgan Stanley
• Analyst at Wolfe Research
• Mohit Bansal, Managing Director, Biopharma Equity Research at Wells Fargo
• Chris Schott, Senior Analyst, U.S. Major & Specialty Pharmaceuticals at J.P. Morgan
• Andrew Baum, Managing Director, Head of Global Healthcare Equity Research at Citi
• Seamus Fernandez, Analyst at Guggenheim Securities
• Geoff Meacham, Managing Director, Biotechnology & Major Pharmaceuticals Equity Research at Bank of America
• Steve Scala, Analyst at TD Cowen
• Chris Shibutani, Managing Director, Senior Analyst, Biotechnology Equity Research at Goldman Sachs
• Louise Chen, Managing Director, Senior Analyst, Specialty Pharmaceuticals Equity Research at Cantor Fitzgerald