Merck & Co., Inc. Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
October 27, 2022

There are 12 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Good morning. My name is Leah West, and I will be your conference moderator today. At this time, I would like to welcome everyone to the Merck and Company Q3 Sales and Earnings Conference Call. At this time, all participants are in a listen only mode.

Operator

Later, we will conduct a question and answer As a reminder, this conference is being recorded. I would now like to turn the conference over to Peter Tannenbaum, Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you, and good morning. Welcome to Merck's Q3 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. Before we get started, I'd like to point out a few items.

Speaker 1

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 meaning of the Safe Harbor provision of the U. S. Private Securities Litigation Reform Act of 1995.

Speaker 1

Such statements are made based on 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 2021 10 ks, I 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.

Speaker 1

The presentation, today's earnings release as well as 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.

Speaker 2

Thanks, Peter. Good morning and thank you for joining today's call. Our strong performance this quarter reflects sustained momentum across our key growth drivers and steady progress in our pipeline. We're well positioned to successfully close out the year, and we look forward to building on this momentum in 2023 and beyond. We're delivering across our strategic priorities and executing well scientifically, operationally and commercially.

Speaker 2

As a result, our pipeline is advancing, Our business is healthy. Our growth pillars are intact and our financial performance is strong. We remain keenly focused on sustaining the success By driving continued growth and delivering long term value to patients and shareholders. With that, let's turn first to our results. We're pleased to report exceptional revenue and underlying earnings growth again this quarter.

Speaker 2

We continue to see robust demand for our innovative human and animal health portfolios, Including for products such as KEYTRUDA, GARDASIL, VIRDION and VIRVECTO. Our updated guidance reflects our expectation of truly Stand out full year growth. Moving to our research organization, we made considerable progress across multiple therapeutic areas. In cardiovascular, the top line results of the STELLAR Phase 3 trial evaluating sertatercept in patients with pulmonary arterial hypertension Achieve successful outcomes across both the primary and almost every secondary endpoint, Suggesting the potential to transform the treatment of patients suffering from this devastating disease. I'm proud of the way our research organization has moved swiftly Following last year's acquisition of Acceleron to advance sotatercept's development.

Speaker 2

We continue to advance other programs Across our broad cardiovascular pipeline, including our Factor XI inhibitor, which recently received an FDA Fast Track designation for patients with end stage renal disease. Turning to oncology, we presented encouraging results at ESMO across our broad portfolio and promising pipeline. Long term survival data reinforces the durable benefits of KEYTRUDA and LYNPARZA for certain patients. We remain enthusiastic about the potential of KEYTRUDA in earlier stages of cancer as well as in combination with other agents. In vaccines, we launched Vaxxin Advance in the pediatric setting and are progressing our Phase 3 trial of B-one hundred and sixteen in adults, An important component of our population specific approach to invasive pneumococcal disease and part of our broader efforts To provide strong protection to both infants and adults.

Speaker 2

And finally, in HIV, we are pleased that there is The path forward for Xelostra drill clinical trials in the treatment setting. We remain committed to helping address unmet needs in both treatment and prevention. Moving to our efforts around sustainability. We continue to execute on our priorities, further demonstrating our long standing commitment To delivering value to society, which in turn creates value for shareholders. In August, we published our annual ESG progress report, Which provides a comprehensive review of our sustainability strategy, initiatives underway and progress against our goals.

Speaker 2

Consistent with our mission, we're focused on access to health, ensuring that our inventions reach as many patients as possible. To enable access, we're committed to responsibly discovering and manufacturing our medicines and vaccines to bringing our best ideas forward To the empowerment of our talented and diverse employees and to always operating with strong ethics and values. Some of our initiatives include a commitment to providing 91,500,000 doses of HPV vaccines in Gavi supported countries, Advancing our goal to achieve carbon neutrality by 2025 and supporting projects and partnerships in our priority areas through the issuance of an inaugural $1,000,000,000 sustainability bond. Our approach to sustainability helps propel and enable our business strategy In ways that align with our operating priorities, this makes us a better company and global citizen, creating value for society and for shareholders. Yesterday evening, we also announced that Ken Frazier will be retiring from his role as Chairman of Merck's Board of Directors At the end of November, I know I speak on behalf of the entire company and our Board in expressing our deepest appreciation for Ken, His principal leadership, respect for science, passion for engaging with employees everywhere, commitment to patients and health equity And contributions to communities around the world.

Speaker 2

Speaking personally, I'm deeply grateful for the inspiration, Mentorship and support Ken has provided to me. Moving ahead, I look forward to working with the Board in my new role as Chairman we continue to build on Ken's legacy and drive toward our purpose of using leading edge science to save and improve lives globally, I'm confident that we have the fundamental building blocks in place to achieve sustainable growth and value creation. This is exemplified by our talented team of scientists And our colleagues all around the world who are dedicated to discovering, developing and delivering life changing medicines and vaccines. I'm very confident in the short and long term outlook of our company, and I look forward to continuing to share progress as we move into the future. With that, I'll turn the call over to Carolyn.

Speaker 3

Thank you, Rob. Good morning. 2022 continues to be a year performance for our business. This quarter, we again achieved exceptional revenue and underlying earnings growth, driven by demand for our innovative portfolio. These results reinforce our commitment to our science led strategy, Enabled by the flawless execution of our dedicated colleagues across the globe, we are confident in our ability to continue to deliver in the short term, While we make disciplined investments to maximize long term value for patients and shareholders.

Speaker 3

Total company revenues were $15,000,000,000 an increase of 14%. Excluding Lagevrio, The business delivered strong growth of 10%. Underlying growth was 4 percentage points higher given the growing headwinds from foreign exchange. The remainder of my revenue comments will be on an ex exchange basis. Our human health business continued its momentum with growth of 19% or 15% excluding Lagebrio, driven by strength across our key pillars.

Speaker 3

Our Animal Health business delivered a solid quarter as sales increased 4% in both our companion animal and livestock products. Now turning to the Q3 performance of our key brands. In oncology, KEYTRUDA grew 26 percent to $5,400,000,000 driven by Strong global demand as well as continued expansion into new indications. In the U. S, KEYTRUDA grew across all key tumor types and continues to benefit from uptake in earlier stage cancers, including triple negative breast cancer, as well as in certain types Renal cell carcinoma and melanoma.

Speaker 3

Intervening earlier in cancer progression provides the potential for better patient outcomes, Which is why we remain excited by the impact KEYTRUDA is having on patients with these earlier stage cancers. Notably, there continues to be very strong demand in neoadjuvant, high risk, early stage triple negative breast cancer, A testament to the profound effect KEYTRUDA is having for patients with this aggressive form of disease. In the metastatic setting, KEYTRUDA is maintaining its leadership position in non small cell lung cancer. Outside the U. S, KEYTRUDA growth continues to be driven by uptake in non small cell lung cancer, Head and Neck Cancer and Renal Cell Carcinoma.

Speaker 3

Recently approved earlier stage indications, Including certain types of high risk, early stage triple negative breast cancer and renal cell carcinoma are off to a strong start following launches in key European Markets earlier this year. Lynparza maintains its leadership of the PARP inhibitor class. Our alliance revenue grew 23%, driven by continued demand in certain patients with high risk Early stage breast cancer based on the Olympias study. The outlook for Lynparza remains strong And if approved, we are confident in the potential to reach patients with metastatic castration resistant prostate cancer based on the PROPEL study. LENZYMA Alliance revenue grew 11%, a strong demand in the U.

Speaker 3

S. Driven by continued uptake in advanced Renal cell carcinoma and endometrial cancer was partially offset by shipment timing in China. Lastly, Wellyred is performing consistent with our expectations, providing a treatment option to the significant unmet need for patients with certain BHL associated tumors. Our vaccines portfolio achieved excellent growth led by GARDASIL, We increased 20 percent to $2,300,000,000 Growth is being driven by strong underlying demand in ex U. S.

Speaker 3

Markets, particularly China. We recently received approval from China's National Medical Products Administration To expand the use of GARDASIL-nine to girls and women 9 to 45 years of age, which will further And our opportunity in this important market. Growth in the U. S. Was due to timing of CDC purchases, Which will negatively impact 4th quarter sales.

Speaker 3

We are confident in our ability to drive sustainable growth of Dardasil Given its proven effectiveness in preventing certain types of HPV related cancers and other diseases, Global immunization levels remain low, which provides us a tremendous opportunity to benefit more patients. And we have invested aggressively in manufacturing capacity, which positions us well to supply the demand we expect to see now and over the long term. In our hospital acute care portfolio, BRIDION sales grew 22% driven by an increase in market share among neuromuscular blockade reversal agents and an increase in surgical procedures. As mentioned earlier, Animal Health sales increased 4%, Livestock sales increased due to poultry products and Ruminant Technology Solutions. Companion animal sales growth was driven by the Bravecto line of products, partially offset by supply challenges for certain vaccines.

Speaker 3

I will now walk you through the remainder of our And my comments will be on a non GAAP basis. Gross margin was 77%, an increase of 0.2 percentage points, Reflecting favorable product mix and foreign exchange, partially offset by the impact of lower margin Lagevrio and supply sales. Operating expenses were $6,000,000,000 which includes $690,000,000 of payments related Certain collaborations and licensing agreements. Excluding these payments, operating expenses grew 13%, driven by increased investments to support our key growth drivers and pipeline. Other expense was approximately $100,000,000 Which reflects lower pension expense compared to last year.

Speaker 3

Our tax rate was 13.6%. Taken together, we earned $1.85 per share, which includes $0.22 of charges related to Significant collaborations and licensing agreements. Excluding these charges, we had exceptional underlying growth. Turning now to our 2022 non GAAP guidance. The continued operational strength of our business Enables us to raise and narrow our full year revenue guidance.

Speaker 3

We now expect revenue to be between 58.5 And $59,000,000,000 including LAGEBRYO sales of $5,200,000,000 to $5,400,000,000 Our increased revenue guidance range represents growth of 20% to 21%. The projected impact from foreign exchange includes an incremental headwind of nearly 1% using mid October rates, resulting in a full year negative impact of approximately 4%. Excluding foreign exchange and Lagevrio, We expect growth of approximately 16%. We are maintaining our gross margin expectation of between 74.5 percent. We are increasing and narrowing our operating expense projection to 21.3 $21,700,000,000 principally driven by a $250,000,000 payment related to the recent exercise of our option to jointly develop a personalized cancer vaccine as part of our ongoing collaboration with Moderna.

Speaker 3

As a reminder, our guidance does not assume additional significant potential business development transactions. We continue to assume other expense of approximately $500,000,000 We expect our full year tax rate to be approximately 14%. We assume 2,540,000,000 shares outstanding. Taken together, we have increased and narrowed our expected EPS range to $7.32 to $7.37

Speaker 1

An increase

Speaker 3

of $0.05 at the midpoint. The operational momentum in our business would have led to an approximately $0.20 Increase in our guidance. However, this is being partially offset by the option payment to Moderna And an incremental headwind from foreign exchange of nearly 1% using mid October rates. Our guidance reflects confidence in the underlying strength of our business. We continue to demonstrate strong momentum and expect durable underlying demand across our key pillars, including KEYTRUDA, GARDASIL and Animal Health.

Speaker 3

As you consider your models, there are a few items to keep in mind. While we actively manage foreign exchange through our revenue hedging program, It continues to be a headwind to growth, particularly across products with a larger portion of international revenues, such as in our Animal Health business. The hedging program mitigates the impact of foreign exchange. And to the extent we continue to see foreign Headwinds recorded at the product level, we will see a benefit in other revenue. In addition, other revenue includes the supply sales to As you saw in our results, Pneumofax23 is experiencing pressure, particularly in the U.

Speaker 3

S. As the market continues to shift We remain committed to our capital allocation priorities. We will continue to prioritize investments in our pipeline and business to drive near and long term growth across our portfolio. We have made significant progress across our pipeline, which Dean will speak to that has the potential to drive sustainable revenue growth. We are augmenting our pipeline by pursuing the best external science through value enhancing business development, Which we will invest in to realize the promise of these products.

Speaker 3

We continue to consider the full breadth of the business development landscape. We have ample balance sheet capacity and we will act only when science and value align. Should meaningful business development not materialize and depending on the pipeline of potential transactions, we will opportunistically buy back shares. We remain committed to our dividend with the goal of increasing it over time. To conclude, As we finish the year, we remain confident in the continued growth of our business.

Speaker 3

Global demand for our innovative medicines and vaccines remains Strong. And we continue to demonstrate the operational momentum and commercial execution that will enable us to deliver value to Thank you,

Speaker 4

Thank you, Caroline. It's my pleasure to provide an update on our progress since the Q2 call. We have growing momentum in our pipeline across therapeutic areas, across modalities, across stages of development And across the spectrum of internal programs, established partnerships and recent business development opportunities. In cardiology, we are making strong headway in pulmonary arterial hypertension as well as our PCSK9 and Factor XI program. In vaccines, we are moving with rigor and speed to build on the VaxUVANTH approval and establish a suite of tailored pneumococcal vaccine.

Speaker 4

In oncology, we are expanding our portfolio in partnerships with Orion, Chelan and most recently Moderna. This progress strengthens my confidence in the pipeline and reinforces to me the opportunity presented by several candidates poised to positively As Rob noted, we see significant opportunity to make an impact in cardiovascular disease. Earlier this month, we announced top line results from the Phase 3 SELLAR trial evaluating tatatercept for the treatment of pulmonary arterial hypertension. Sotatercept added to currently approved standard of care Had a profound effect on the primary efficacy outcome measure of improvement in 6 minute walk distance from baseline at 24 weeks. Of note, 8 out of 9 secondary efficacy outcome measures achieved statistical significance, including The outcome measure of proportion of participants achieving multi component improvement and the outcome measure of Time to death for the first occurrence of a clinical worsening event.

Speaker 4

We look forward to sharing the results with regulatory authorities and I am to present the findings at a scientific congress in 2023. The data from the STELLAR trial It's an important milestone as we work to establish a beachhead in pulmonary arterial hypertension. Looking ahead, The ZENITH trial is evaluating sotatercept for morbidity and mortality and will enable assessments of the potential to reverse progression of disease And will be followed by the Hyperion trial, which is designed to evaluate whether administration of cetatercept earlier in the course The PH can help improve outcomes and delay time to clinical worsening. And we also have the Phase 2 CADENCE trial, Which is exploring the potential for cetatercept in left heart failure. In addition to cetatercept, we are studying MK-five thousand four hundred and seventy five, An investigational inhaled soluble guanylate cyclase stimulator designed to provide selective pulmonary arterial vasodilation With limited systemic exposure for the treatment of PAH.

Speaker 4

We remain confident in the promise of our investigational portfolio To fundamentally change the treatment of pulmonary arterial hypertension. Next, the Lagevrio. Approximately 2,500,000 people have now received Lagevrio for the treatment of COVID-nineteen, and studies are continuing to Show the impact this oral treatment option is having on patients and on healthcare system. Real world evidence of High risk, older populations conducted in Israel and Hong Kong found a reduction in hospitalization and death consistent with the Phase 3 MOVE OUT clinical trial. Unsurprisingly, a large study in the UK evaluating a broader Highly vaccinated population conducted during the omicron era found no difference in hospitalization versus standard of care.

Speaker 4

Nevertheless, there were important observations from certain secondary analysis, including quicker time to recovery and to symptom alleviation, As well as reduced physician visits. Lagevriel continues to demonstrate a safety profile consistent with our findings in move out. The pandemic continues to evolve and vaccination rates still vary substantially from country to country. More recent variants such as Omicron are generally associated with less severe disease, but the elderly and those with comorbidities remain at High risk of poor outcomes. Insights from real world studies are important in this context as we try to understand how Lagevril is being used as a potential benefit for various patient population.

Speaker 4

Lagevrio continues to be an important tool In addition to COVID-nineteen, we are now taking steps to harness the broad antiviral potential of Lagevrio. We have initiated a Phase 2 trial evaluating its use in the treatment of respiratory syncytial virus And we'll provide further updates as they become available. Shifting to our HIV portfolio, Since last year's setback to the AZLASHRAIR program, we have gained tremendous learning and insights through the evaluation of data. Following consultation with the FDA, we are pleased we have a path forward. We initiated a new Phase 3 clinical program evaluating Once daily oral combination of duravary and a lower dose of vaslacrovert for the treatment of people with HIV-one infection.

Speaker 4

In addition, the Phase 2 study with Gilead evaluating a weekly oral combination treatment regimen of ezlotivir and lenticapivir We continue to see significant potential in the nucleoside reverse transcriptase translocation inhibitor mechanism and remain committed to addressing the unmet need in both treatment and in prevention of HIV. In the press setting, We are prioritizing an internal novel NRTTI compound for development. Next to vaccine and specifically GARDASIL-nine. As Caroline noted, last month, the National Medical Products Administration in China its effectiveness in preventing certain types of HPV related cancers and diseases. In addition, We were pleased with the recent approval of Baxuvance, our 15 valent pneumococcal conjugate vaccine by the European Commission in the pediatric population.

Speaker 4

This approval brings an important treatment option to a vulnerable population, including infants less than 1 year of age, Who typically experience the highest rates of disease. I would also like to touch on the recently announced collaboration with Orana Therapeutics. We have made significant investments and gained important insights into the use of RNA technology. The compelling circular RNA platform that Orna has developed Allows us to explore the potential for a new generation of vaccines and therapeutics. Turning to oncology.

Speaker 4

Strong momentum continues in our oncology portfolio across tumor types and stages of disease. Last month, at the European Society For Medical Oncology meeting, we showcased long term survival benefit data for KEYTRUDA In non small cell lung cancer, melanoma and head and neck cancer, as well as for Lynparza in ovarian cancer. In addition, we presented data that continues to support the potential of KEYTRUDA in earlier stage disease. Our expansive research efforts in treating in earlier stage settings reflect our ambition to treat cancer when the potential of curing cancer may be high. Also at ESMO, in collaboration with Seagen and Axtellus, first time data was presented from the Phase 1btwo EV-one hundred and three for KEYNOTE-eight 69 Cohort K trial.

Speaker 4

KEYTRUDA plus emfortumab vedotin Demonstrated encouraging objective response rate as a first line treatment in patients with unresectable locally advanced metastatic urothelial We are ineligible to receive cisplatin based chemotherapy. There remains a high unmet Medical need for new medicines for the treatment of locally advanced or metastatic bladder cancer, and we look forward to the potential of this combination. This quarter, we received priority review for Lynparza in combination with abiraterone as first line treatment for patients with metastatic castration resistant Regardless of their genetic mutational status based on the PROPEL study, The PDUFA date has been set for the Q4. Outside of the U. S, we continue to deliver on our oncology strategy.

Speaker 4

There remains significant opportunity for us to help improve patient outcomes and address unmet need in Japan and in China. We received 4 new approvals in Japan based on KEYNOTE-five twenty two for KEYTRUDA in combination with chemotherapy in neoadjuvant, adjuvant high risk Early stage triple negative breast cancer KEYNOTE-five sixty four for the adjuvant treatment of certain patients with renal cell carcinoma following surgery KEYNOTE-seven 16 for the adjuvant treatment of certain patients 12 years and older with completely receptive stage IIb or IIc melanoma And KEYNOTE-eight twenty six for KEYTRUDA in combination with chemotherapy with or without bevacizumab in certain patients with advanced for recurrent cervical cancer. For Lynparza, we received approvals in the EU and Japan for the adjuvant treatment for patients Certain types of high risk early stage breast cancer based on the OLYMPIA trial and in China as first line maintenance Finally, we exercise our option to jointly develop the personalized Cancer vaccine mRNA-four thousand one hundred and fifty seven or V940, which our partner Moderna is currently evaluating in combination with KEYTRUDA in a Phase 2 study for patients with locally advanced and receptive melanoma. The Primary objective of the Phase 2 study is to assess efficacy of a personalized cancer vaccine plus KEYTRUDA versus KEYTRUDA alone in a randomized study of early stage melanoma in the adjuvant setting.

Speaker 4

We are energized To continue our collaboration with Moderna, a pioneer in mRNA vaccine technology. To conclude, there has been substantive progress across our pipeline, and I look forward to providing further updates on our progress in the future. And now, I will turn the call back to Peter.

Speaker 1

Thank you, Dean. Leo, will you please start the Q and A? And I'd like to request in order to get to as many analysts as possible today that they limit themselves to one question, please. Thank you.

Operator

For our first question. And our first question is from Chris Schott with JPMorgan. Please go

Speaker 5

ahead. Great. Thanks so much. I guess my question was on capital deployment. I think you mentioned in the prepared remarks that if BDA doesn't materialize and based on the progression of the pipeline, you consider repo at some point down the line.

Speaker 5

So I guess on that front, How are you thinking about the overall business development landscape at this point? And has your preference on or I guess actionability of kind of larger deals Versus Acceleron type tuck ins evolved at all as we've gone through this year. I know it's obviously a big kind of point of debate on the Merck story. So I'd just love to hear kind of latest thinking on Kind of BD landscape and are we getting closer to a point where maybe repo makes sense just given the cash that seems to be kind of accumulating at Thank you.

Speaker 2

Yes, great. Chris, thanks for the question, and I'll ask Caroline to comment specifically on the share repurchase side of the question. But just to the BD landscape, We continue to frankly see a portfolio of opportunities that we are interested in and are Continuing to look at, so as we sit here today, our focus, our urgency on business development has not changed. We do see A list of potential places to play. Obviously, we got to bring them through the fruition, which we're working to do.

Speaker 2

But that is our priority because we continue to believe the best thing we can do for long term value creation is to invest in the sustainability of our business, which is Investing in the pipeline of the future and both what we do internally and through BD. So that's our priority and I do see opportunities. But obviously, we remain committed also to not hold cash. So with that, maybe I'll let Caroline comment specifically on the share repurchase.

Speaker 3

So Chris, our Capital allocation priorities are unchanged. We seek to provide a competitive return to our shareholders through both the dividend that we pay and we expect We'll grow as well as through share repurchases, while we balance the need to invest in our business strategies as Rob has just outlined. Given where we are with our focus on business development, our desire to not create excess cash on the balance sheet, We will look opportunistically at share buybacks based on our assessment of that BD pipeline.

Speaker 1

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

Operator

Next question is from Dana Graybosch with SVB Securities. Please go ahead. Yes. I wonder if you could talk a little bit more about your novel pneumococcal vaccine strategy, V114 And how you think that will compete ultimately with competitor vaccines that continue to increase in their serotype

Speaker 4

This is Dean. I'll take that, and thank you very much for the question. So The top line is, I would just emphasize that our view is that more, more serotypes is not always better And one size does not fit all. Our view and the view that I've had when I practice medicine, it's the right medicine or in this case, the Right vaccine for the right patient at the right time. So when you look at vaccine events, which is our 15 valine, which has Yes.

Speaker 4

The core responses for stereotype 3, but also 22S and 33S, You look at that and you have to look at the epidemiology of pneumococcal And it's a bimodal curve where really in the 1st 2 years of life, especially in the 1st year of life, it's really important. And then in the adult section, you realize that there's increasing at 45, 55, 65. So there's a Bimodal curve, if you also lay down the different serotypes, the serotypes are quite different between the 2. So that's why we believe it's the right vaccine for the right patient at the right time. Now we have a pediatric V114 that has ACIP that's gone through and in terms of differentiation in relationship to pediatrics, We don't have clear view of other vaccines, but we are very confident in our ability to give coverage in the 1st year.

Speaker 4

And data to date might suggest that that is an important differentiation in a pediatric setting. There is some questions in relationship to top line serotypes that's been sort of laid out. There's Then some discussion of 6 nit stereotypes, 2 substantial. We can't really comment on that differentiation of stereotypes And what the real details stated. In relationship to the adult market, This gives us great insight and great enthusiasm for V114, our 21 valent Vaccine, now that one is specifically targeted for the stereotypes that are important for the adult.

Speaker 4

So it's 21 valent, but I would just Emphasize that 11 serotypes in the 21 valent for V114 is not shared by PCV20. The reason is that we're focused on the adult disease and we are targeting 85% of residual invasive pneumococcal disease. And I would if I look at the vaccines that are in Phase III, but also Phase II or Phase I with recent data, I don't know that anyone else has a vaccine that's targeting 85% of the residual invasive pneumococcal disease. So more is not better, one size does not fit all, the right vaccine, the right patient and the right time.

Speaker 1

Thank you, Damon. Next question please, Leo.

Operator

Next is Colin Bristow with UBS. Please go ahead.

Speaker 6

Hey, good morning and congrats on the results. A great quarter for Gardasil, but you talk about the sort of the one time impact to the CDC purchase Just timing. Can you just quantify the level of impact that had? And then I just wanted to touch base on the additional Coming online in 20 3, 45, is this still on track? And could you just specify where the

Speaker 3

So Gardasil continues to be a very strong growth driver for our company and will be long into the future. Given to date, Only 9% of the world's eligible population are vaccinated. In terms of the quarter results, we saw growth in the U. S, which was largely driven By the CDC timing, in the Q3 of 2021, there was an approximate $125,000,000 buy in by CDC. In the Q3 of 'twenty two, there was an approximate buy in of $250,000,000 So year over year, that Contributed to growth to the tune of approximately $120,000,000 plus We do expect the majority of that buy in by CDC in the Q3 to come out during the Q4.

Speaker 3

As we look at our opportunity to satisfy The global demand and protect as many lives as we can going forward, we will be supported by the increased supply and capacity that we have Coming online commencing 2023, and we expect that, that additional supply will come online over the course of 23, 45, and therefore, we remain very confident in our ability to protect more lives To drive growth long into the future, including doubling the revenue of GARDASIL in the year 2,030 Compared to where we were in 2021.

Speaker 1

Great. Thank you, Collyn. Next question please, Leo.

Operator

Next is Seamus Fernandez with Guggenheim. Please go ahead.

Speaker 7

Thanks so much for the question. So, I really wanted to ask a question on sotatercept And perhaps the endpoints that surprised you the most, the feedback that we're getting from thought leaders is that the benefit on Clinical worsening actually coming as early as it did was a genuine surprise and suggests upside. Just wondering, Dean, where you fit in that point of discussion and perhaps what You're looking forward to in some of the earlier stage clinical studies for sotatercept? Thanks.

Speaker 4

Thank you very much for that question. So yes, we gave top line results. We're moving with to present those data to regulatory authorities throughout. But just to step back, I just want to remind at least myself and others that we were drawn to the santadustat mechanism because it was a unique Mechanism of action, it's to rebalance actin and DMP signaling. The other mechanisms of action could We reviewed as vasodilatory, and we have a very strong program in trying to make the best vasodilatory Medicine.

Speaker 4

But the mechanism action you would expect for sotatercept, you would expect it We'd potentially reprogram the cellular response and potentially be disease modifying. We are excited about the results. We note that there was a profound effect On 6 minute walk, but as you emphasized, time to clinical worsening, these multi components are all really important, and they came in Clinically meaningful and statistically significant. So we are hopeful that we can potentially reshape the treatment of PAH. I would emphasize that we talk about Hyperion, Venus and Cadence, but the level of Interest that I have in this program is I would point us also to Ceteria, which is the follow on program.

Speaker 4

And the reason why that is Really important to me is given the results that I see, I very much want the individuals who were on the STELLAR trial You have the opportunity to get in SAKERIA, which is an open label trial, because the effects that we see That will be reported in a meeting likely in 2023 are ones where we must make sure that those individuals who were recruited I have continued access to tatasan. That's how important we think the results are.

Speaker 1

Thank you, Seamus. Next question please, Leo.

Operator

Next is Steve Scala with Cowen. Please go ahead.

Speaker 8

Thank you. Rob, you have been CEO for 16 months and now you're going to be Chairman. What do you view as your greatest accomplishments during this time? And what have been the greatest disappointments? I think given the comments you made when you took over, we might have expected more to be done more quickly to build the pipeline, Especially since Merck's pipeline is the 2nd smallest in global pharma.

Speaker 8

Do you think this is a fair assertion? And if so, why haven't things

Speaker 2

Steve, thanks for the question. Obviously, it's been a fast 6 months We're 16 months in the role, but I'd say what I'm most proud of, several things. 1, the One of the organization has come together as one team and really brought more focus in the business. Obviously, the spin off Organon, I think, was very successful, has given us more simple structures, more focus that I feel very good about. Our progress on business development, obviously, the fact that we move so quickly with Acceleron and then you've heard what are just really exceptional results coming out of The STELLAR study, I'm very feel very proud about.

Speaker 2

But I would say also just overall the way our team has continued to just execute Really flawlessly, scientifically, operationally, commercially, I couldn't be prouder of what everyone's doing. We've come together And we're really delivering for all of those things I would say I'm very proud about. On the pipeline itself, I actually think we're making a lot of progress. The fact that A year ago, no one even gave us credit for having a cardiovascular pipeline. And today, we talk about the fact By the 2024 to 2018 timeframe, we could be having as many as 8 new approvals Driving revenue that could be in excess of $10,000,000,000 by the mid-two 2030s across the whole suite of assets, some developed internally and obviously So I'm brought into this development like what we did with Acceleron.

Speaker 2

So I feel very good about that. The progress we're making in vaccines, what we're seeing, I think Vaxxuvance It is underappreciated this notion that Dean laid out of really having a bespoke approach where we are able to cover more Of the stereotypes that cause disease, whether it be in infants and then selectively and differently those in adults, we think that's a real game changer. Our growing pipeline in neuroscience and immunology, I could go on and on and the strength that we're continuing to have in adding to our oncology pipeline. Do I think we have everything we need? No.

Speaker 2

But do I think we've made great progress in a year? I actually think we have And it gives me confidence that we're going to continue to drive progress. The fact that we did 3 important business development deals this quarter alone, Spanning mRNA technologies into circular RNA technologies, personalized cancer vaccines And then more traditional oncology agents with a really novel mechanism, those all are adding to the future promise we have in this company. So I actually Feel very good about that. More to do, but confidence in what we've done so far.

Speaker 1

Thanks, Steve. Next question please, Leo.

Operator

Next is Mara Goldstein with Mizuho. Please go ahead.

Speaker 9

Great. Excuse me. Thanks so much for the question. I wanted to ask And given the pending applications for sotatercept, where you feel that that organization from a commercial perspective Needs to go or are you right sized to be able to launch and maximize sotatercept in the near term?

Speaker 2

Yes, maybe I can start that and Caroline or Dean can add on. If you look if you go back in history, Merck has actually had a strong history in legacy. I think we're very well positioned. So I have no worries about our confidence and ability to deliver this commercially. We've done it in the past, and we'll do it again.

Speaker 1

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

Operator

Next is Umer Raffat with Evercore. Please go ahead.

Speaker 10

Hi, guys. Thanks for taking my question. I wanted to Touch up on oncology trials, 2 of them in particular. There's an ongoing subcu KEYTRUDA trial versus IV. I just I was curious to gauge your confidence And if it's reasonable to assume that vast majority of the franchise could get switched to subcu?

Speaker 10

And also this KEYTRUDA plus KRAS G12C trial, curious if Your early experience implies such a combination is

Speaker 4

feasible or not. Thank you. I'll take a shot at both of those questions. I'll just emphasize that there is a continuing move to early cancer throughout the field, but especially at Merck. We've talked about the approvals that we have in the early stage, both for Lynparza and KEYTRUDA.

Speaker 4

And this recent Moderna collaboration is to extend that, essentially an IO, IO combination, Initially in melanoma, but with the possibility to expand, deepen and extend throughout other tumor types in different stages. So given that, the critical thing for patients, especially in the early stage, is to be able to have really Excellent access to our medicines and there is a need for scientific innovation. That is why we're advancing the subcu program And we are confident that that will not only be important and successful, But it will be really critical as we move into early stage because the ability to not be Linked to an infusion center of well-being watched. So we are confident in our strategy of moving to early stage, and it is linked Scientific innovation required to improve access. In relationship with the RAS program, I have said previously The RAS program of all of those who are advancing will require a combination and the ability to move those programs Such that you can have a dose and an ability to combine with other medicines is important.

Speaker 4

We have early data with our RAS inhibitor and many of the attributes that we think are required for that. We are on big the cards are looking like they could positively reflect on our KRAS program. But we will share that data both in monotherapy and in combination with pembrolizumab At an appropriate time when we present that at Congress.

Speaker 2

And Umer, to the specific question of the conversion, it's It's probably too early to get into the specifics of that, but I would say generally, we do see this as bringing meaningful patient benefit. If you think about quality of life, As you move, especially in the earlier stages of cancer to be able to deliver the drug subcutaneously, we think is both innovative and will bring real value to So that is part of the strategy as we look at the totality of how is it that we continue to deliver for patients As we extend our franchise. So that's something we're looking at, but more details as we get further down the road.

Speaker 1

Great. Thanks, Umer. Next question, please.

Operator

Next is Mohit Bansal with Wells Fargo. Please go ahead.

Speaker 6

Great. Thanks for taking my question. And Staying on sotaglifet, especially with the CADENCE study, so we spoke to a doctor and he was very excited about the study, Given that there are no approved therapies in the subset of patients you are going after, could you help us frame expectations for this study? Because lot of these endpoints are very similar to STELLAR. So would you expect a similar level of efficacy or BAW could be lower given there is no standard of care there?

Speaker 6

Thank you.

Speaker 4

Yes. So let me just speak to we look at both our both your And I would just also emphasize our inhaled soluble guanalate triplase is the same sort of general sense, which is We're going to drive it into PAH, but when you look at the mechanism of action, you ask yourself, is there other places that you can affect Diseases that aren't pulmonary or acute hypertension, but diseases where you have pulmonary hypertension such as diastolic heart failure For example, in lung disease. Our expectation is that we want to explore whether sotatercept And its unique mechanism of rebalancing certain molecular pathways Could also be applied to those patients who have diastolic heart failure and pulmonary hypertension. And Given the impact that sotatercept has that we've seen already with PAH, that gives us a little bit more confidence that, That mechanism may be applicable to those people with diastolic heart failure. The

Operator

We're sorry. Your conference will end in 5 minutes.

Speaker 4

So in PAH, we're also evaluating whether that molecule could also be used in those patients with lung disease who have pulmonary hypertension. So the results give us more confidence at the next step.

Speaker 1

Great. Thank you, Mohit. Next question please, Leo. We clearly

Speaker 4

have a partner.

Speaker 1

Yes. We have

Operator

one partner. Yes. Chris Shibutani with Goldman Sachs. One moment here. And you may go ahead, Chris.

Speaker 8

Thank you. To follow on Steve's question, to Rob in terms of the response about What you're most proud about? You talk about the successful implications of spinning off the Organon business And having the organization have a little bit of a simpler structure and focus, I want to juxtapose the question of the Animal Health business. Talk a little bit about your views these days in terms of how that fits the capital allocation priorities, Whether you envision potential for that to be a strategic step that you would consider to perhaps separate that business? Thank you.

Speaker 2

Yes, Chris, thanks for the question. As we said in the past, we are always looking at the portfolio. We are always asking what is the best Structure to develop and generate long term value for our business and for our shareholders. And with that We continue to believe that the Animal Health business is a key growth driver for us. It brings A lot of synergies, frankly, both directions.

Speaker 2

Obviously, they are benefiting from their ability to access the science on the human health side. We're benefiting from the value they bring. And in some cases, frankly, on the vaccine side, some of their manufacturing technologies are actually being brought over into the human health side. So We do see synergies in these two businesses. We continue to believe that our ability to invest fully to optimize And animal health is there.

Speaker 2

I think we've demonstrated that through the capital we've deployed and that capital is paying off. And I don't believe that business We'd have the capital it's had to grow if it wasn't part of Merck. So it's benefiting from what we can bring to them. We're benefiting from what it brings to us. And as of now, we continue to see it as a strategic asset.

Speaker 2

So no plans to look at spinning it.

Speaker 1

Thanks, Chris. Next question, please.

Operator

Our next question is from Luisa Hector with Berenberg. Please go ahead.

Speaker 11

Hello. Thanks for taking my question. Maybe a little bit more on Islaxtravir, Given your confidence to continue development, can you say any more about the impact drugs having on lymphocytes at the lower dose, clearly you're able to move forward to the regulator is happy. Is there some level of lymphocyte reduction that the regulator will accept? And how should we think about the risk of resistance development with the lower dose?

Speaker 11

And when might we see some Phase 3 data? Thank you.

Speaker 4

Thank you very much for that question. So I just want to emphasize that islotrevir is one molecule in our suite of NRTPI molecule. And as you mentioned, we are very interested in the importance of this Body of molecules and mechanism, both for the prep setting and for the treatment setting, and it has The possibility of really transforming the longer acting phase. Specifically to your question, We have a large range of clinical data as many people have.

Operator

We're sorry. Your conference will end in 1 minute.

Speaker 1

I'm sorry. Excuse me, Leah, our conference will continue past 9 am?

Operator

We are attempting to make sure that happens, sir.

Speaker 1

Okay. Thank you. We're prepared to go a few extra minutes.

Speaker 4

And so we have a plethora of clinical data. We are very confident that the 0.25 milligrams will be effective. We are confident that the effects on lymphocytes and CD4 T cells will be comparable to any standard antiviral. And so that's in the Q day. We're also very Interested in moving to the Q Week with our partner Gilead, and hopefully that We'll begin to get posted more, but we're focusing on amending the protocols and the dosing regimen under the guidance of the FDA.

Speaker 4

And I also want to emphasize that we'll continue to be committed on the 2 month oral. I mean, just think, 12 12 pills a year for patients who are at high risk to take for PrEP. We have MK-eight thousand five hundred and twenty seven. It is a different molecule in our suite of NRTPI, and we're confident

Speaker 1

Hello? Okay. So we're back. Sorry about that. The call seems to have been cut off.

Speaker 1

But for those that are still listening, we will take 2 more questions. Leo, can you queue up the next question, please? So apologies for the technical difficulties. Leo, can you hear us? Okay.

Speaker 1

So, for those that are still on the line, thank you very much. We'll have to close the call there because of those technical For those that were in the queue, please follow-up with IR, and we'll hope to get your questions answered. Thank you all very much.

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Earnings Conference Call
Merck & Co., Inc. Q3 2022
00:00 / 00:00