Merck & Co., Inc. Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 28, 2022

There are 13 speakers on the call.

Operator

Good morning. My name is Grace Lachren. I will be your conference operator today. At this time, I would like to welcome everyone to the Merck and Co. Q1 Sales and Earnings Conference Call.

Operator

All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question and answer session. Thank you. I would like to turn the call over to Peter Denenbaum, Vice President of Investor Relations. Please go ahead.

Speaker 1

Call. Thank you, Grace, and good morning. Welcome to Merck's Q1 2022 conference call. Speaking on today's call will be Rob Davis, President and Chief Executive Officer Caroline Litchfield, Chief Financial Officer and Doctor. Dean Lee, President of Merck Research Labs.

Speaker 1

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

Speaker 1

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. Call. Such statements are made based on the current beliefs of Merck's management and are subject to significant risks and uncertainties.

Speaker 1

If our underlying assumptions prove inaccurate or uncertainties materialize, call. Actual results may differ materially from those set forth in the forward looking statements. Our SEC filings, including Item 1A in the 2021 10 ks, and earnings call. 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. Call.

Speaker 1

Merck undertakes no obligation to publicly update any forward looking statements. During today's call, a slide presentation will accompany our speakers' prepared remarks. Call. The presentation, today's earnings release as well as our SEC filings are all posted to the Investor Relations section of Merck's website. Call.

Speaker 1

With that, I'd like to turn the

Speaker 2

call over to Ron. Thanks, Peter. Good morning and thank you for joining today's call. Before I get started, Call. Let me take a moment to speak about the ongoing crisis in Ukraine.

Speaker 2

We are hopeful for an immediate and peaceful resolution to the Russian invasion of the country, call. And we support the Ukrainian people and stand with them and recognize what a terrible tragedy this represents. Call. Merck is making every effort to protect the health and safety of our employees and to ensure essential medicines and vaccines continue to reach patients. Call.

Speaker 2

In addition, we are dedicating meaningful resources to address the humanitarian crisis in the country through multiple channels. Turning to our business, we continue to deliver across our key strategic priorities in the Q1. We're sustaining the strong business momentum we delivered in 2021 with robust top and bottom line growth. We've also achieved significant clinical advancements across our research pipeline and successfully integrated Acceleron. Call.

Speaker 2

Now moving to our results. We've had a strong start to 2022, achieving very strong top and bottom line growth. Call. Commercially, we continue to execute well across a broad set of key growth drivers, most notably KEYTRUDA, Tardasil and Animal Health. Call.

Speaker 2

Our performance reflects robust underlying demand for our derisked innovative portfolio and reinforces the importance of our science led strategy. Call. The Gebrio, our COVID-nineteen antiviral treatment was a significant contributor as well. But even excluding these sales, Our top line growth was still a very healthy 19% versus last year. On Ligevrio, we've accelerated broad global access and it's now established as an important tool for patients and healthcare providers to address the ongoing pandemic.

Speaker 2

Since receiving emergency use authorization in December, we've delivered approximately 6,400,000 courses to more than 30 countries. Call. The success we are achieving is reflected in our updated 2022 guidance, which demonstrates our expectation for another year strong growth and overall business momentum. Our oncology business is benefiting from the continued rollout of new and important indications, including in earlier lines of therapy. Global demand for GARDASIL remains strong and growth will benefit from increased supply as a result of the significant investments we are making to expand manufacturing capacity and our Animal Health business remains positioned to grow at above market rates.

Speaker 2

Longer term, we remain confident in our ability to deliver strong revenue growth and operating margin expansion through 2025. Call. We're preparing for the post KEYTRUDA LOE period by continuing to strengthen the levers we have and building upon them in order to deliver long term growth. Call. In oncology, we remain committed to building on the foundational position that we have achieved with KEYTRUDA and we aim to expand our presence in this key therapeutic area and to establish an enduring leadership position.

Speaker 2

In addition, we'll continue to maximize the opportunities we see for our durable growth drivers such as GARDASIL, our pneumococcal portfolio and animal health through our proven commercial execution. Beyond our existing portfolio, business development remains

Speaker 3

a key

Speaker 2

priority. We remain highly focused in our pursuit of the best external innovation and will be appropriately aggressive when great science and value align. We have a strong track record of business development, but we know we need to do more and we believe we are well positioned to quickly deploy capital towards the right strategic assets as they present themselves. Call. And finally, we'll continue to advance our broad pipeline across key therapeutic areas in order to deliver medically important innovations to patients.

Speaker 2

Call. We've taken important steps to provide increased transparency into the opportunities we see in our portfolio and our business, including through 2 recent investor events. Call. Earlier this month, we provided a detailed description of our growing cardiovascular portfolio and pipeline. Call.

Speaker 2

At Merck, we're focusing our efforts where the needs are greatest and where we have the best opportunity to positively impact patients' lives, including in heart failure, across our CV pipeline and believe our broad differentiated portfolio can have meaningful impacts on patients' lives with at least 8 potential new approvals by 2,030. We're confident that these important innovations have the potential to be meaningful growth drivers for Merck well into the next decade. And in February, we hosted our inaugural ESG event, call, which highlighted our activities in our 4 priority areas of access to health, employees, environmental sustainability and ethics and values. Our ESG efforts are grounded in our company's values and we look forward to building on Merck's legacy Before I close, I'd like to take a moment to recognize Doctor. Roy Baines, who has announced his retirement after 8 years at Merck.

Speaker 2

Roy has been instrumental in helping Merck become a leading oncology company, call, particularly through his leadership and the development of KEYTRUDA. We wish Roy the best in his future endeavors and we're confident that he leaves behind an outstanding team and program. I'm pleased to report that Doctor. Elliott Barr was appointed to succeed Roy. Call.

Speaker 2

Elliot not only has deep experience having served in several research capacities throughout his more than 2 decades at Merck, but also has an unwavering commitment to patients call, consistent with Merck's purpose to save and improve lives. In summary, we've begun 2022 with strong operational momentum, call. And I want to express my sincere thanks to our employees worldwide for their continued focus and commitment. We remain confident in our fundamental strategy, call, our growth prospects and in our ability to deliver significant benefits for patients and value to shareholders well into the future. Call.

Speaker 2

With that, I'll turn the call over to Caroline.

Speaker 4

Thank you, Rob. Good morning. As Rob highlighted, We have had a very strong start to 2022 with exceptional performance in both revenues and earnings. Call. These results further demonstrate that our focus on science and innovation as the core of our strategy, enabled by excellent execution of our dedicated colleagues across the globe is delivering value for patients, customers and investors.

Speaker 4

Total company revenues were $15,900,000,000 an increase of 50%. Lagevrio contributed $3,200,000,000 in revenue. Excluding Lagevrio, the base business delivered very strong growth of 19%. The remainder of my comments will be on an ex exchange basis. Our human health business continued its strong momentum.

Speaker 4

Excluding LEGVRIO, the human health business grew 21%, guidance, driven primarily by our key pillars as well as the reduced impact of the pandemic. Our Animal Health business also delivered above market performance with sales increasing 9%, driven by growth across both companion animal and livestock segments. Call. Now turning to the Q1 performance of our key brands. In oncology, KEYTRUDA grew 27% to $4,800,000,000 reflecting continued robust global demand and the expansion into new indications.

Speaker 4

Call. In the U. S, KEYTRUDA continues to demonstrate strong growth across all key tumors and is benefiting from recent launches in earlier stage cancers, including triple negative breast, renal cell carcinoma and melanoma. Call. KEYTRUDA is currently approved to treat 5 indications in earlier stage cancers, and we are excited about the potential opportunity to expand into adjuvant lung cancer based on the encouraging data from KEYNOTE-ninety one.

Speaker 4

We continue to be confident that KEYTRUDA's robust clinical data combined with physicians' familiarity and experience with the product will support expanded use and patient benefit in early stage disease. In the metastatic setting, KEYTRUDA continues to maintain its leadership position segment. Outside the U. S, KEYTRUDA growth continues to be driven by lung cancer and the ongoing launches in head and neck cancer and renal cell carcinoma. Lynparza remains the market leading PARP inhibitor.

Speaker 4

Our alliance revenue grew 20%, driven by uptake in metastatic breast cancer. We are also excited by the expanded opportunity in early stage breast cancer following the recent FDA approval based on the Olympias study. Further, we look forward to potentially reaching a broad prostate population based on the PROPEL study. LENVIMA Alliance revenue also had very strong growth, driven by uptake following the launches of KEYNOTE-five 1 in advanced renal cell carcinoma and KEYNOTE-seven seventy five in metastatic endometrial cancer, where we are seeing encouraging new patient share trends across each of these tumor types. LENVIMA growth also benefited from increased demand in hepatocellular carcinoma in China and certain one time items.

Speaker 4

Call. We are also excited by the launch of WeliRig for patients with certain VHL associated tumors. Call. Wellirec continues to generate strong interest among scientific leaders, providers and patients. Call.

Speaker 4

Although still early in its launch, Welireg has had strong uptake, providing a treatment option to the significant unmet need for these patients. We are working to potentially extend its reach to broader RCC indications in the future. Call. Our vaccines portfolio again delivered excellent performance led by GARDASIL, which increased 60% to $1,500,000,000 Outside the U. S, significant growth was driven by strong underlying demand across key geographies, segment, particularly China as well as increased supply.

Speaker 4

In the U. S, sales increased due to the timing of CDC purchases. Global demand for Gardasil remains robust, supported by strong clinical and real world data, as well as efforts to increase the recognition of Gardasil as a vaccine that can help prevent certain HPV related cancers in both females and males. In our hospital acute care portfolio, BRIDION sales grew 20% driven by the ongoing recovery in surgical call procedures during the quarter and continued strong leadership of the neuromuscular blockage reversal agent class. Call.

Speaker 4

Our Animal Health business delivered another quarter of robust growth with sales increasing 9%. Companion animal sales increased 13%, driven by global demand in parasiticides, including the Bravecto line of products as well as vaccines. Livestock sales increased 7% due to higher demand in ruminants and poultry. Call. I will now walk you through the remainder of our P and L and my comments will be on a non GAAP basis.

Speaker 4

Gross margin was 70.7%, segment, a decrease of 5.9 percentage points, driven primarily by higher Lagevrio sales. Call. As a reminder, we share profits from Lagevrio equally with our partner Ridgeback, which is reflected within cost of sales and reduces our gross margin percentage. Gross margin this quarter also reflects the favorable impact of product mix, offset by higher manufacturing costs. Operating expenses increased 7% to $4,800,000,000 as we continue to prudently invest behind our growth drivers and pipeline.

Speaker 4

Other expense was approximately $140,000,000 segment. Our tax rate was 14%. Taken together, we earned $2.14 per share. Turning now to our 2022 non GAAP guidance. As a reminder, at the request of the SEC, call.

Speaker 4

Certain companies in our industry, including ours, have made changes to non GAAP reporting. Call. We will no longer exclude significant expenses for upfront and milestone payments related to collaborations and licensing agreements, as well as transactions accounted for as asset acquisitions from non GAAP results. As a result, $1,700,000,000 of R and D charges, primarily related to the acquisition of Pandion, are now included in our recast 2021 non GAAP results. This increased R and D expense by $1,700,000,000 and decreased non GAAP EPS by $0.65 There was no impact to the 1st quarters of 2021 and 2022.

Speaker 4

Our 2022 guidance does not assume any significant transactions that would have previously been excluded from non GAAP, though this could change in the future quarters if we execute business development, which is a strategic priority. Call. The underlying strength of our business enables us to raise and narrow our full year guidance. Call. We now expect revenues to be between $56,900,000,000 $58,100,000,000 representing growth of 17 to 19% or 11% to 12%, excluding Lagevrio and the impact from foreign exchange.

Speaker 4

Call. The projected impact from foreign exchange includes an incremental headwind of approximately $200,000,000 using mid April rates, results resulting in a full year negative impact of just over 2%. We are increasing our gross margin expectation to between 74% and 74.5%. We expect operating expenses of 20.3 to $21,300,000,000 At the midpoint, this is consistent with what was implied by our prior guidance. We expect other expense of approximately $350,000,000 call.

Speaker 4

We assume a full year tax rate between 13.5% 14.5% due to an increase in estimated U. S. Taxes to be paid on foreign income. We assume 2,530,000,000 shares outstanding. Taken together, we have increased our expected EPS range to $7.24 to $7.36 representing pull through of the operational strength from our key pillars and operating expense leverage, segment, offset in part by a slight reduction in the top end of our Lagebrio sales assumption, the increase in our tax rate and an incremental 1% headwind from foreign exchange using mid April rates.

Speaker 4

Call. As you consider your models, there are a few areas to focus on. First on Lagevrio, we are narrowing the range of our full year guidance to $5,000,000,000 to $5,500,000,000 We have entered into supply and purchase agreements for approximately 10,000,000 courses of therapy. Call. Since authorization, we delivered 6,400,000 courses of therapy, including 5,000,000 in the 1st quarter.

Speaker 4

Call. We expect approximately half of the remaining full year revenue from Lagebrio in the second quarter. Call. We continue to expect strong annual growth for Gardasil, especially in ex U. S.

Speaker 4

Markets, including China. Finally, as a reminder, our other revenue line contains several items, including supply sales to Organon, which we began recording upon the completion of the spin off last year and to Johnson and Johnson for its COVID vaccine. Call. Also included are our revenue hedge and royalties. Other revenue in the first quarter also benefited from approximately $100,000,000 in receipts relating to out licensing agreements.

Speaker 4

Our capital allocation priorities remain unchanged. First, we will continue to prioritize investments in our business and pipeline to drive near and long term growth. We will continue to be appropriately aggressive in augmenting our internal pipeline through strategic business development, and we intend to pursue additional value enhancing opportunities. Call. We remain committed to the dividend with the goal of increasing it over time.

Speaker 4

To the extent we have excess cash, We will return it to shareholders through share repurchases. To conclude, we remain very confident in the growth of our business, segment driven by the global demand for our innovative medicines and vaccines. We are in a position of financial and operational strength, and our continued execution will enable us to deliver value to patients and our shareholders well into the future. With that, Call. I'd now like to turn the call over to Dean.

Speaker 3

Thank you, Carol. It is good to be here to provide an update on our progress. Call. In the Q1, we continued to demonstrate progress in our pipeline. We made advances across multiple therapeutic areas, including oncology in both advanced and earlier stages of cancer as well as in cardiovascular disease and vaccines.

Speaker 3

Call. I will also provide an update on Lagevril. In oncology, we continue to build upon our strong position and execute on our strategy to expand, deepen and extend benefit to patients and diversify our imprints on cancer. Call. This past quarter, we achieved milestones from several tumor types as well as different stages of disease.

Speaker 3

Notably, we continue to expand our treatment impact call in earlier stages of disease where we now have 6 approvals from the FDA, 5 for KEYTRUDA and 1 for LYNPARZA. Call. At the European Society For Medical Oncology Virtual Plenary Session, last month data from the KEYNOTE-ninety one or PRERLS trial call. Evaluating KEYTRUDA for the adjuvant treatment of patients with stage 1b to 3a non small cell lung cancer following surgical resection report presented. At an interim analysis, KEYTRUDA significantly improved disease free survival in all comers, quarter.

Speaker 3

We expect high levels of PD L1, which did not meet statistical significance at the time of the planned interim analysis. These latest data provide a strong signal for the benefit of KEYTRUDA in the adjuvant treatment study. Additional ongoing studies in earlier stages Non small cell lung cancer includes KEYNOTE-six seventy one, which is evaluating neoadjuvant adjuvant therapy for patients with respect to both 2, 3a and 3b to z. KEYNOTE-eight sixty seven, which is studying stereotactic body radiotherapy with or without KEYTRUDA call. An adult with unresected stage 1 or 2 disease and kelaying 12 where we are studying KEYTRUDA in combination with Lynparza in stage 3 disease.

Speaker 3

Following the approval of KEYTRUDA for the adjuvant treatment of patients 12 years and older With stage 2b or 2c melanoma following complete resection based on KEYNOTE-seven 16, call. We announced that at a pre specified interim analysis, the study also met its secondary endpoints of distinct metastasis free survival and showed continued improvement in recurrence free survival compared to placebo. The data from KEYNOTE-seven 16 reinforces the evidence for KEYTRUDA as adjuvant therapy for appropriate patients with Stage IIb and IIc following surgery to help prevent recurrence of disease. Call. Now similarly, in the earlier stage setting, along with AstraZeneca, we announced Lynparza was approved by the FDA for the adjuvant treatment of patients with germline BRCA mutations with HER2 negative high risk early breast cancer previously treated with chemotherapy call either before or after surgery based on the Olympiad study.

Speaker 3

Further, in women's cancer, we received FDA approval for based on new data for KEYNOTE-one hundred and fifty eight. Now this approval is a 4th gynecologic cancer approval for KEYTRUDA and Merck the 5th approval derived from the KEYNOTE-one hundred and fifty eight trial, an innovative trial designed to evaluate the use of predictive tumor biomarkers and patients receiving KEYTRUDA for advanced solid tumors. Next, the prostate cancer. Along with AstraZeneca, call. Positive results were presented at the American Society For Clinical Oncology Genitourinary Cancer Symposium for the PROPEL trial evaluating Lynparza in combination with evaretenone as a first line treatment for patients with metastatic At a planned interim analysis, results showed an improvement in radiographic progression free survival versus the standard of care.

Speaker 3

Call. These early results also showed a trend towards improved overall survival. The trial will continue to assess its key secondary endpoint and we plan to engage with health authorities to discuss the findings with the aim of bringing this important option to appropriate patients. Call. Crossly cancer represents a significant unmet need and we are continually gaining important insights into the biology of the tumor.

Speaker 3

Call. We are keen on making an impact for patients with late stage disease. Last month, we announced the discontinuation Call. At an interim analysis, the study showed no evidence of superiority to abiratinone and entalutamide call with respect to overall survival and radiographic progression free survival. Our attention in metastatic castrate resistant prostate cancer Now shift to KEYNOTE-nine twenty one, a study exploring the combination of KEYTRUDA and chemotherapy and KEYNOTE-six forty one, call, which is evaluating the combination of KEYTRUDA and enzalutamide.

Speaker 3

Outside of the United States, we continue to deliver on our regulatory strategy. Call. Notable actions include positive CHMP opinions for cervical, MSI high and early stage breast cancer in Europe and approvals by the combination regimen of KEYTRUDA plus LENVIMA for advanced renal cell carcinoma in Japan. And finally, to coincide with ASCO, in early June, we are planning to host an investor event in Chicago. Call.

Speaker 3

At our recent cardiovascular investor event, we showcased our growing portfolio of programs targeting a range of conditions including call. Following the completion of our acquisition of Acceleron Pharma, We are making strong progress in advancing the development of tepatercept, a potential 1st in class iUPO activin receptor type 2a fusion protein. We recently completed enrollment for the STELLAR trial ahead of schedule. Call. STELLAR is the first of 4 ongoing Phase 3 studies evaluating cetatercept.

Speaker 3

This progress reflects and enthusiasm from investigators regarding this novel investigational mechanism. For the first time, the 2022 American Heart Association, American College of Cardiology and Heart Failure Society of America's guidelines for the management of heart failures included their QBO, which we collaborate on with our partner, Bayer, as a Class 2b recommendation for the treatment of stage and the potential benefits of stimulating soluble guanalate cyclase and increasing cyclase GMP. Call. Based on evidence from the pioneering VICTORIA trial, Virtuvo is the first drug specifically studied and approved for patients with worsening heart failure and the only drug recommended in the new guidelines for these patients. Call.

Speaker 3

Our ongoing VICTOR study is designed to expand on the evidence to date by evaluating VIRCUVA in patients with chronic heart failure and reduced ejection fraction who have not experienced a recent worsening heart failure event. Merck is uniquely positioned to meaningfully impact the treatment of patients with cardiovascular disease with at least 8 potential approvals by 2,030 including for Q1 and stable heart failure and tataset as well as our pipeline of candidates, including an inhaled segment. Next, the COVID-nineteen and Lagevrio. As the pandemic evolves, there continues to be regional surges and infection rates with the emergence of new COVID-nineteen variants. Now some of these strains are resistant to specific monoclonal antibody regimens and appear able to evade some vaccine protection, highlighting the importance of testing and availability of antiviral options.

Speaker 3

Call. At the recent European Congress of Clinical Microbiology and Infectious Diseases, we presented Phase III virology outcomes data from MoveOut, The panoramic trial evaluating novel antivirals for early treatment, which is being sponsored by the University of Oxford and funded by the UK government and the move ahead trial evaluating Ligevrio for post exposure prophylaxis are both ongoing. We are working collaboratively with the European Medicines Agency to provide additional data from these trials in order to secure an approval. Call. We remain confident in the safety and efficacy of Lagevrio in appropriate patients.

Speaker 3

In particular, We believe its low propensity for drug drug interactions makes it an important option for patients. Next, on our pneumococcal program. Earlier this month, the FDA extended the PDUFA date for the supplemental biologics license application for VaccinueVent, our 15 valent conjugate pneumococcal vaccine in infants and children to July 1, 2022. The agency requested additional analyses of data, which we provided. Call.

Speaker 3

Importantly, no new studies were requested. Also in our pneumococcal program, we received breakthrough therapy designation for V114, call. Our investigational PCV that is designed to target serotypes responsible for approximately 80% of the residual invasive disease in the older adult population and includes 8 unique serotypes not in currently licensed vaccine. Call. We look forward to providing future updates.

Speaker 3

In closing, I would like to thank Roy Banes for his many contributions to Merck call over the past 8 years. As we build upon his legacy, I'm constantly reminded of Roy's wisdom and teaching, And I'm grateful to work with the remarkable team he has trained and mentored. One of those mentees, of course, is Elliot Barr. Call. Elliot's experience and commitment to Merck's purpose of saving and improving lives makes him the ideal leader of our global clinical development program.

Speaker 3

Call. Elliot has a wealth of experience, holding leadership roles across an array of therapeutic areas during his 27 years at Merck, including vaccine, infectious disease and oncology. I look forward to continuing to partner with Elliot to build upon Merck's legacy of innovation and breakthrough science. And now back to Peter.

Speaker 1

Thank you, Dean. Grace, Call. If you could please begin the Q and A. And we request that analysts limit themselves to 1 question each today to get to as many analysts as possible. Thank you.

Operator

Your first question comes from the line of Carter Gould from Barclays. Your line is open.

Speaker 5

Hi, good morning. Thanks for taking our questions. This is Edra on for Carter. We wanted to ask about Cartasil. If you could talk about any impact you're seeing in China, either from a demand perspective or disruptions to manufacturing.

Speaker 5

And in that context, should we think about cadence or should we think about cadence over the year being notably different than in the years past? There's just a lot of different crosswinds in place, so any color there would be helpful. Thank you.

Speaker 4

Patu, this is Caroline. Thank you very much for the question. Call. DataSil continues to be a great growth driver for our company globally, including China. Segment.

Speaker 4

Specific to China, we saw strong performance in the quarter and we expect continued strong performance as we go through this year. We have significant demand in China. And as there are flares as a result of COVID and Potentially locked down in one part of the country, we have the ability to ensure that we're supplying more of the Gardasil doses to other parts of the country. Call. So with that, we're not anticipating a significant impact to our Gardasil performance in China as a result of what we're seeing in Shanghai at this moment in time.

Speaker 4

As it pertains to our supply chain, our company has a very robust supply chain. Call. And we have plan A and plan B if there are any interruptions in the supply chain. So we again have no concerns for the reliability of our supply chain, but we remain vigilant and focused on the situation at hand.

Speaker 1

Thank you, Carter. Next question please Grace.

Operator

Call. Thank you. Next up, we have Mohit Bansal from Wells Fargo. Your line is open.

Speaker 5

Great. Thanks for taking my question and congrats on the quarter. So one question we are getting a lot is, how do you feel about potential challenge from a competitor for PD L1 and PIGIT combo Potentially looking better than KEYTRUDA in first line PD L1 high lung cancer. Do you see this as a major threat, especially looking at the Phase 2 data from that competitor

Speaker 3

Hi, thank you for that question. So I just want to emphasize the question focuses on the addition of another point inhibitor, TIGIT on top of a PD-one and this is a strategy to sort of deepen the response of PD-1s and PD L1s. Call. I think it will be very important to see that data and look at the contribution of components. And really we're we have a 8 digit program that We're also advancing in non small cell lung cancer and small cell lung cancer.

Speaker 3

So the field will have to sort of see as the data evolves, How much does TIGIT add to PD-one in the lung space? But I do want to make a broader sort of comment, which is You'll see movements in TIGIT that was recently movement in PD-1s and CTLA-four and PD-1s and LAG-three. Call. What you recognize is each of those combinations, what they do is, if you're able to show a benefit of the additional agent, It doesn't have as broad of an impact as P1 has in many different tumors. And so one of the things that I think is important to highlight is call.

Speaker 3

Our strategy is not to just be invested in LAG-three, not to be just invested in CTLA-four, not to be just invested in 2 digits, But to be invested in all three and to focus them in specific tumor types.

Speaker 1

Great. Thank you, Mohit. Next question please, Grace.

Operator

Thank you. Next up, we have Seamus Fernandez from Guggenheim. Your line is open.

Speaker 6

Great. Thanks for the question. So Just really wanted to focus in on sotatercept and the 6 minute walk test as the primary endpoint.

Speaker 1

If you guys could just help

Speaker 6

us understand, what is being done in the clinical trial to really Manage closely the risk that sort of a subjective endpoint represents? Or Is your confidence that the magnitude of the difference that you saw in the Phase 2 will comfortably cover the challenges of The 6 minute walk test that we've seen in some other studies given some placebo responses that raised levels of concern. So just love to get your thoughts there. Thanks so much.

Speaker 3

Yes. So thank you so much for that question in relationship to tadaluspid. So just to reemphasize, we have 3 different trials, all driving towards somewhat different outcomes, the 6 minute walk, which is the STELLAR trial. There's also time for clinical worsening And then there is also even harder outcomes past that. And as you point out, each one of those is Sort of ratcheting up what the tatercept can do.

Speaker 3

In relationship to the first one, which is stellar, which is related to what you said, the 6 minute walk test, call. We saw actually quite impressive data in relationship to the Phase 2. We have very committed patient groups as well as sites who are very well trained in how to do these trials. And the Phase 2 was really nice data. And the fundamental issue is that we are confident that Many of those same sites that were involved with the Phase 2 are involved with Phase 3.

Speaker 3

So I think we're confident. We'll see what that data is. But the best predictor of how well we can manage those trials is really the best indicator is phase 2. And we're using very many of the same sites and the investigator, so we have great confidence in them.

Speaker 1

Great. Thank you, Seamus. Next question please, Grace.

Operator

Segment. Thank you. Next, we have Chris Schott from JPMorgan.

Speaker 7

Great. Thanks so much for the question. Maybe just a 2 parter around kind of corporate structure. I guess first, Business Development Landscape. I know you talked about this as a priority.

Speaker 7

I guess it's been another kind of quarter of week equity market performance in the biotech side. So Gus, are you seeing any change in willingness on the part of some of the targets to engage or any resets in valuations that could Enable some of these business development kind of activities to move forward. And then Rob, just a kind of a maybe tangential question on that is Group. Broadly across the pharma group, I think we've been seeing asset divestitures of non traditional pharma businesses. I know you viewed Animal Health is more core to the company, but have your thoughts evolved at all, I guess, as your time as CEO and when you look at your implied kind of core pharma valuation given where some of the animal health multiples trade.

Speaker 7

So to an incremental perspective there would be appreciated. Thanks.

Speaker 2

Great. Chris, thanks for the questions. On the BD landscape question, the Short answer is we are not seeing a fundamental shift in seller expectations as of this point. I think as time continues, if we see the market reset to become more permanent and more importantly, call. If the IPO market continues to be challenged for biotech companies, that might change over time as companies become more cash constrained.

Speaker 2

There are Some smaller players that do have cash challenges. So I think that's where you could see the movement first, But fundamentally, we've not seen the change in the landscape yet. We'll have to continue to watch. With regards to the Animal Health business, Our view continues to be that the Animal Health business, as you said, is core to call. The company is core to our strategy as part of our as part of a growth driver for the company.

Speaker 2

But as we've always said, we look at this regularly. Call. We always are challenging ourselves to ask what is the long term value creation opportunity of this business in our hands relative to call. What would it be outside of the company? And on a long term view, we continue to believe it is best in our hands as part of the company.

Speaker 2

But if that Situation evolves, we obviously will continue to be objective in how we analyze that, but we do not look at the short term The arbitrage opportunity for us, it's more about the long term value creation and that has not changed as of now.

Speaker 1

Thanks, Chris. Next question please, Grace.

Operator

Thank you. Next up, we have Chris Shibutani from Goldman Sachs. Your line is open.

Speaker 8

Thank you. Good morning. If I could ask questions on KEYTRUDA, the strength particularly out of the U. S. This quarter.

Speaker 8

If you could help us with some of the underpinnings there And relatedly, longer term 2025, I think you framed how KEYTRUDA your objective is to have, I guess, the wording changed slightly. You were previously looking for 30% coming from adjuvant with your focus framed around the U. S. If I'm reading it correctly, you've broadened the framework here to now think about it as 25% on a global basis. Maybe update us on where you feel you are in terms of making progress towards achieving those objectives of the adjuvant revenue contribution?

Speaker 8

Thank you.

Speaker 2

Yes. So Chris, this is Rob. Maybe I'll take the first part of the question and then Caroline can jump in for the second part. On the strength of the growth we're seeing in the United States, this is really a testament to what we've been talking about all along, which is call. As we continue to roll out new indications, we are continuing to see our share grow Call as the leading IO agent.

Speaker 2

And importantly, I would highlight that the growth we saw among other things in the quarter, segment. Continuation of our position in renal cell carcinoma, continuation of the growth we're seeing in head and neck. In RCC, obviously, being a first line treatment in the metastatic setting as well as not having adjuvant therapy as well, we've covered pretty much the waterfront of RCC and we have the opportunity to continue to grow there. But the standout frankly for the quarter And it's I think really important to understand is triple negative breast cancer, both in the metastatic setting and in the adjuvant setting. We are seeing incredible growth in that space, and it's something that we feel very proud of because I think we're going to have a meaningful difference there.

Speaker 2

Call. My reason to highlight that is both if you look at the adjuvant opportunity there and the growth we're getting, as well as what I mentioned in adjuvant RCC, I think it just reinforces what we see as the future, which is the growth contribution from the earlier lines of therapy Long term, but with that maybe Caroline can

Speaker 5

be specific to some of the guidance we provided.

Speaker 4

So to Rob's point, we are extremely excited about the opportunities we for adjuvant and the impact that that has on patients. We initially shared that we expected 50% of our growth to come from adjuvant, representing 30% of the U. S. Business. We have now extended that to say 50% of the growth will come from adjuvant, representing 25% of our global business in the year 2025.

Speaker 4

And to Rob's point, our early introductions into the and earnings. Earlier stage cancers with 5 indications now in KEYTRUDA are putting us on a very good course to have this impact.

Speaker 1

Great. Thank you, Chris. Next question please, Grace.

Operator

Thank you. Next, we have Umer Raffat from Evercore ISI. Your line is open.

Speaker 9

Hi, guys. Thanks for taking my question. Maybe let me touch up on Molnupiravir real quick. I think the total utilization to date is about 200,000 courses through mid April. And it looks like at least based on third party data sets that the Pfizer regimens getting used 8x to 10x more than molnupiravir.

Speaker 9

So I guess my question is, if only a couple of 100,000 courses have been used through mid April and 3,100,000 courses were contracted to U. S. Is there any recourse for U. S. To return a chunk of these courses back?

Speaker 9

And I'm asking because

Speaker 4

section. First, let me start with proud of Molnupiravir, Logevrio and the impact that it can have on the world. And it has impacts to the comments that Dean made given its importance, especially in patients that have drug to drug interactions. The data that we have access to suggests that we have actually had utilization by 500,000 patients globally at this stage. Expectations for utilization over a period of time.

Speaker 4

And we're actually seeing extremely strong utilization, especially in ex U. S. Market, where the statistics you quote are actually reversed in some of the markets. We have a very strong market share. So as we sit here today, we've guided on the to $5,500,000,000 based on the contracts that we have in hand and we are confident in that in our financials.

Speaker 1

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

Operator

Thank you. Next, we have Dana Graybosch from SVB Leerink. Your line is open.

Speaker 5

Hi. Thank you for the question. I have another one on KEYTRUDA in early stage. Can you please talk to how the success of Opdivo plus chemotherapy and neoadjuvant lung cancer changes your expectations or strategy for the early stage opportunities in lung cancer and in any other tumor.

Speaker 3

Yes. Thank you very much for that question. In relationship to sort of just call. Earlier stage in lung cancer, I think it's really important to emphasize there's a series of different ways to approach it. 1 is neoadjuvant, 1 is adjuvant.

Speaker 3

And I just think all of these signals just demonstrate throughout a variety of different studies, just the impact that PD-one can have. So our point of view of it is, it shouldn't change our strategy, it should just make our strategy pretty comprehensive. The fundamental thing is we have KEYNOTE-ninety one, which is in the adjuvant, so that's post surgery and that's usually given by a medical oncologists, the disease free survival was positive in all comers regardless of PD L1. There was a trend to TPS greater than 50%, but not statistically significant. And OS, it was a favorable trend regardless of PD L1.

Speaker 3

Call. So we'll be letting that data mature as we continue to discuss with the FDA. But getting going To your point, it's not just keynote 91, it's keynote 671, it's keynote 867, it's KeyLink 12. It's all in the earlier stage. So our desire to really push that earlier stage is going to be call.

Speaker 3

If anything, our commitment towards that is even greater. The one thing I would just add in relationship to some of the comments that Caroline and Rob made is that I think it's very important to think about melanoma, renal cell carcinoma and triple negative breast cancer, where at least My experience being in the hospital, there was a concept of really looking at that earlier stage. And I think uptake may be sort of built in the medical system. I think all of us, including us and other companies, as well as patient advocacy and medical centers are going to have to require diligent investment to really, really maximize the important scientific impacts of KEYTRUDA and PD-1s and PD L1s in the early lung space.

Speaker 1

Great. Thank you, Dana. Next question please, Grace.

Operator

Thank you. Next, We have Andrew Baum from Citi. Your line is open.

Speaker 3

Thank you. I'd just like

Speaker 10

to thank Roy for all the contributions and insights over the years. The question is on your Factor XI monoclonal. Given your background in cardiology, and I'm sure Thank you with hemostasis team. There's clearly been a number of indications where the DOACs were unsuccessful Compared to warfarin for both efficacy and safety, potentially speaking to different underlying mechanisms For thrombosis and a different indication, so I'm thinking about EASYS, I'm thinking about mechanical heart valves. Given what you know about Factor XI biology and the intrinsic pathway nature of the inhibition.

Speaker 10

What indications would you actively avoid or be somewhat cautious about taking a Factor XI inhibitor into be it yours or someone else's.

Speaker 3

Yes. So let me just step back for just a moment. Call. The benefit risk of whether it's platelet or coagulation factors in terms of clotting is something that's actually very topical in the news. I would just emphasize call.

Speaker 3

For years, for probably a decade or more, aspirin has been just everywhere. And recently, people realized the benefit risk, One has to be very careful. There has been a major change in the guidelines. So that impacts how I think about it. The other sort of thing that impact is, if you look at Factor XI, the fundamental advantage of that is that you can get blockage of the coagulation cascade with by genetics, very little impact in relationship to adverse event.

Speaker 3

And so for me, the critical thing is to prove that as quickly as possible. So we immediately go where is the problem where thrombosis And bleeding is both impacted there. And so that's why we ran the end stage renal disease. But I could see in the future, Mechanical devices, one of my favorite sort of things is left ventricular assist device. I think those will continue to need to be monitored in the future.

Speaker 3

So that's a place where the risk of bleeding and the risk of thrombosis is really high. Where we have chosen to be a little bit careful For example, broader sort of things such as atrial fibrillation and the risk relationship because we look at the Factor X as very effective. There are bleeding complications, but to make a safety argument for it, you're talking about a call. Very, very large trough. So we are racing to places where the benefit risk of thrombosis and clotting and bleeding, where that differential would make something like a Factor XI have the biggest impact.

Speaker 1

Thank you, Andrew. Next question please.

Operator

Thank you. Next, we have Louise Chen from Cantor. Your line is open.

Speaker 11

Hi, thanks for taking my question. I wanted to ask you about your pneumococcal conjugate vaccine and how you think your more targeted approach will be a competitive advantage versus the one size fits all that we're seeing now. And is there any precedence to what you're doing with V114 and 111 7. And maybe just lastly, how will you make that message clear to physicians since if everything goes as planned, you'll have several PCBs on the market? Thank you.

Speaker 3

Yes. So first of all, we need to get the data to demonstrate that we have an advantage in the different patient populations. But I think you point out a really important point, which is essentially what we're trying to do is, for lack of a better word, we're you want to call it precision targeted explanation, right. So the fundamental thing is, B-one hundred and fourteen is adult approved and we're driving towards a pediatric approval for the 15 valent. And so that will be in the pediatric population.

Speaker 3

In the V116, where we have a breakthrough designation. We're trying to demonstrate that we can target 85% of the residual serotypes. Call. And I would just sit there and say it would be 8 unique serotypes of in relationship to all the different currently approved ones. I think that patient population, I reflect a little bit about COVID, but it's that older population that Especially as risk factors who you really want to make sure that that whole population, that adult population is covered.

Speaker 3

And so I do think the fundamental thing is we'll have to have the data, but our concept is the adult Have a different set of serotypes and they need to be protected and we'll have to get the data to demonstrate that. But I think if we can demonstrate it, the uptake will be quite good.

Speaker 1

Thank you, Luis. Next question, please.

Operator

Thank you. Next, we have Myra Goldstein from Mizuho. Your line is open.

Speaker 5

Thanks for taking the question. I'm just hoping maybe we can return for a second back to the question of novel targets in combination with KEYTRUDA. And maybe if

Speaker 4

you could just give us a

Speaker 5

very high level perhaps rationale for which targets you're looking at and which indications and I'm referring here obviously to things like TIGIT, LAG-three, ILT-three and the like.

Speaker 3

All right. So let me just sort of separate. So we always talk about expand, deepen and extend. And when we talk about deepen, we're trying to Get a deeper response with PD-one. There's a series of things that we do with what I call non IO agents, which is chemotherapy.

Speaker 3

We're doing stuff with many other people as well as ourselves with ADCs, there are RAS programs that are advancing. So we think that that sort of combination, there's large precedent throughout our portfolio already And there will continue to be and that's also true with LENVIMA and LYNPARZA. The specific question I think you're driving to is Combinations of IO with IO agents. Yes. And LAG3, CTLA-four and TIGIT.

Speaker 3

So at least in our minds, we do recognize that There was demonstration of LAG-three adding to PD-one in melanoma. And I think that's an important signal for us. Where we focused our efforts at VLAD3 is in MFS CRC. So we know that PD-one has worked in MSI high And no one's really been able to crack MFS TRC, so that's very important. And also in classic Hodgkin.

Speaker 3

I would say in relationship to CTLA-four, there was recent data with HCC. I would make a comment that I think would Make some of the people from Merck smile a little bit. We were the ones who actually did the study with PD-one and CTLA-four in relationship And we could not show a clear contribution of component of CTLA-four over PD-one. So that is not a place that we think is an important place for patients and that is not a place that we're going because we have We did the study to demonstrate that. Where we think there could be is clearly other people have recently released HCC.

Speaker 3

We're focused in, for example, in renal cell carcinoma. And then PD-one and TIGIT, our initial focus is in non small cell lung cancer and also small cell lung cancer. And we're advancing a series of trials in that. So I hope that gave a comprehensive view of LAB3 in relationship to IL-four, other checkpoint inhibitors such as CD27 or in relationship to cytokines. I think the data that we're doing in earlier stages will have to play out for us to be able to answer that more completely.

Speaker 1

Great. Thank you, Thank you, Mara. I think we have time for one more question, then Rob will have a few

Operator

closing comments. Thank you. Last question comes from the line of Colin Bristow from UBS. Your line is open.

Speaker 12

Hey, good morning. Congrats on the quarter and also wanted to say all the best to Roy. It's been really great working with you and also congrats to Elliot. Call. So I

Speaker 4

just wanted to piggyback on

Speaker 12

a Gardasil question. Could you maybe just give us a little more detail on how you expect the Gardasil supply to increase? Call. And then maybe just help us think through what is the supply demand mismatch right now? Some of your prior comments suggested that call.

Speaker 12

There may not be such, but I know you said supply has been an issue over the past sort of couple of years. So would love to get some expanded

Speaker 4

thoughts there. Thanks. Thank you for the question. This is Caroline. So let me start first with the supply demand.

Speaker 4

There is significant demand for Gardasil. This cancer preventing vaccine in the HPV area has only reached today 9% of the global eligible population. So there is significant runway ahead of us to protect lives and to drive growth for Merck. Call. Indeed, we stated that we expect the revenue in the year 2030 to be double the $5,700,000,000 we achieved in 2021.

Speaker 4

Call. So we have significant opportunity ahead of us. In order to achieve that opportunity, we are building new facilities that will be coming online from 2023, 4/5. So we're going to have a step up in the level of supply to the market that will happen over that period. Specific then to this year, we will see a continuation of the supply into the market as we did in 2021, albeit not quite at the same step up that we achieved in 2021.

Speaker 4

So we remain really confident in our ability to drive strong growth for Gardasil, both in 2022 and the year to come.

Speaker 1

Call. Great. Thank you, Colin. Rob?

Speaker 2

Well, just let me say thank you for your time and your interest today. And I'd just like to conclude by Call. Again, thanking the Merck team globally for their focus and commitment and really in driving the results you've heard about today, but in continuing call to ensure we keep the purpose of the company front and center, which is to deliver for patients. Hopefully, you get the sense we are very confident in the business momentum we have. Call.

Speaker 2

And I'd like to say as well, we are feeling better and better about the evolution of our pipeline. And I think you've heard today, call. We're starting to expand. We're doing all of the things we need to do. We have more to do, but we're making great progress.

Speaker 2

And that's why I have such confidence in the sustainability of our business call. So we look forward to continuing to share these results with you to deliver for the patients that count on us and in turn

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Earnings Conference Call
Merck & Co., Inc. Q1 2022
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