Q3 2019 Earnings Call

Good morning, My name is there room in that will be your conference operator to be this time I would like to welcome everyone to the Merck and company first quarter sales and earnings conference call all lines have been placed on mute.

Jerome: Good morning. My name is Jerome, and I will be your conference operator today. At this time, I would like to welcome everyone to the Merck & Co. 3rd Quarter Sales & Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Background noise afraid of speakers remarks, there will be of course trending down first question. If he would like to ask questions. During this time simply press forward, but the number one on your telephone keypad, because we do all your questions crest apparel.

Unknown Executive: After the speaker's remarks, there will be a question and answer session. Thank you, Jerome. Good morning. Welcome to Merck's third quarter 2019 conference call. Today I'm joined by Ken Frazier, our Chairman and Chief Executive Officer, Rob Davis, our Chief Financial Officer, and Dr. Roger Polmutter, President of Merck Research Labs, who will each have prepared remarks. In addition, I'm also joined by Mike Nally, our Chief Marketing Officer, and Frank Clyburn, our Chief Commercial Officer, who will be available for the Q&A portion of the call. Before I turn the call over to Ken, I'd like to point out a few things.

Q I would I like the critical over a few Peter Tonti, Bob Vice President Investor Relations. Please go ahead.

Thank you Jerome good morning, welcome to Merck's third quarter 2019 conference call.

I'm joined by Ken Frazier, our chairman and Chief Executive Officer, Rob Davis, Our Chief Financial Officer, Dr., Roger poor murder precedent Merck research labs, but each of our prepared remarks.

Additionally, I'm also joined by might not only our chief marketing officer.

Right Cliburn, our chief commercial officer, who will be available for the Q1, a portion of the cool.

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

Unknown Executive: 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've excluded these from our non-GAAP results and provided a reconciliation in our press release. We have also provided a table in our press release to help you understand the sales in the quarter for the business units and products. I would like to remind you that some of the statements that we make during today's call may be considered forward-looking statements within the meaning of the safe harbor provision of the U.S. The Private Securities Litigation Reform Act of 1995.

See that we'd have items in our GAAP results, such as acquisition related charges restructuring costs and certain other items.

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

We've also provided a table in our press release to help you understand the sales in the quarter for the business units and products.

I'd like to remind you that some of the statements that we make during today's call maybe considered forward looking statements within the meaning of the safe Harbor provision the U.S. Private Securities Litigation Reform Act at 1990 fun.

Unknown Executive: Such statements are made based on the current beliefs of Merck's management and are subject to significant risk and uncertainty. If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statement. Our SEC filings, including Item 1A in the 2018 10-K, identify certain risk factors and cautionary statements that could cause the company's actual results to differ materially from those projected in any of our forward-looking statements made this morning. Merck undertakes no obligation to publicly update any forward-looking statements. You can see our SEC filings as well as today's earnings release on Merck.com. We have also posted a presentation in the investor section of Merck.com, which includes some of the highlights from our results. With that, I'd like to turn the call over to Ken.

Such statements are made based on the current beliefs that merck's management and are subject to significant risks and uncertainties.

It for underlying assumptions prove inaccurate were uncertainties materialize actual results may differ materially from those set forth in the forward looking statements.

Our FTC filings, including item one during the 2018 10-K identify certain risk factors and cautionary statements that could cause the company's actual results could 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 you can see RPC filings as well as today's earnings release on Merck Dot com.

We've also posted a presentation to the Investor section of Merck Dot Com, which includes some of the highlights from our result.

With that I'd like to turn the call over to come.

Unknown Attendee: Thank you, Peter. Good morning, and thank you all for joining the call. We are extremely pleased by the performance of our business this year. Execution both in the Merck Research Lab and in our commercial operations has been exceptional, and Merck again achieved one of its best quarters in many years. This success reinforces our belief that our science-led approach and the significant focus and resources we are putting into innovation is the right strategy and the best path towards delivering meaningful and sustained value to our patients and shareholders. As we highlighted at our Investor Day in June, we have good visibility into the growth of our de-risked portfolio of innovative products over the next five years. We are also confident that the investments we are making now in cutting-edge science focused on areas of significant unmet medical need, from discovery through late-stage clinical development, will help us deliver breakthroughs over the next decade and beyond.

Thank you Peter Good morning, and thank you all for joining the call.

We were extremely pleased by the performance of our business this year.

Execution, both in the Merck Research lab and in our commercial operations has been exceptional.

Mark again achieved one of its best quarters in many years.

The success reinforces our belief that our science led approach and the significant focusing resources, we are putting it to innovation is the right strategy and the best path towards delivering meaningful and sustained value to all patients and shareholders.

As we highlighted at our Investor day in June we have good visibility into the growth of our de risk portfolio of innovative products over the next five years.

We are also confident that the investments we are making now can cutting edge client focused on area. It's a significant unmet medical need from discovery through late stage clinical development will help us deliver breakthroughs over the next decade and beyond.

Unknown Attendee: Notwithstanding the strong momentum we are seeing in our business, we will continue to prioritize business development aimed at supplementing our portfolio and strengthening our pipeline, and we are very happy with the additions of Antelic, Peloton, Immune Design, and Telos this year. We are realizing the benefits of focusing on our key growth drivers and are now operating from a position of strength. With that said, we're also mindful of the changing industry landscape. At Investor Day, Rob spoke about our efforts to best position Merck for the future by becoming a more focused, innovation-driven company. In order to realize this vision, we are evolving our operating model, driving productivity across our operations, and looking for ways to optimize our human health portfolio, all in an effort to create sustainable growth. With that said, I'll now pass it over to my colleague Rob to review the details of our quarterly performance.

Notwithstanding the strong momentum we're seeing in our business, we will continue to prioritize business development aimed at supplementing our portfolio and strengthening our pipeline and we're very happy with the addition for them Kelly Telecom immune design and she loves this year.

We are realizing the benefits of focusing on our key growth drivers and are now operating from a position of strength.

With that said, we're also mindful of the changing industry landscape.

At Investor Day, Ross spoke about our efforts to best position Mark for the future by becoming a more focused innovation driven company and.

In order to realize this vision, we are evolving our operating model driving productivity across our operations and looking for ways to optimize our human health portfolio, Oh, it's effort to create sustainable growth.

With that I'll now pass it over to my colleague Rob to review the details of our quarterly performance.

Rob Davis: Thanks, Ken. Good morning, everyone. As Ken stated, the strong results we achieved across our clinical and commercial operations this quarter highlight the successful execution of our strategy to drive sustained revenue growth through innovation. As such, we remain committed to continuing to fully invest in our pipeline while also delivering meaningful operating margin expansion over time through disciplined resource allocation and improved operating efficiency. Now, turning to our results.

Thanks, Ken good morning, everyone.

As Ken stated the strong results, we achieved across for clinical and commercial operations. This quarter I like the successful execution of our strategy to drive sustained revenue growth through innovation.

As such we remain committed to continuing to pull in Boston or pipeline.

Also delivering meaningful operating margin expansion over time through disciplined resource allocation and improved operating efficiencies.

Now turning to our results.

Rob Davis: Total company revenues were $12.4 billion, an increase of 15% year-over-year, or 16% excluding the negative impact from foreign currency. Both our human health and animal health divisions contributed to the growth this quarter. The remainder of my comments pertaining to sales will be made on an ex-exchange basis.

Total company revenues were $12.4 billion.

Increase of 15% year over year or 16%, excluding the negative impact from foreign currency.

For human health and animal health divisions contributed to the growth this quarter.

The remainder of my comments pertaining to sales will be on an ex exchange basis.

Rob Davis: Our human health revenues grew 16%, led by key products in our oncology, vaccines, and hospital business. In oncology, Keytruda sales increased 64% year-over-year and for the first time exceeded $3 billion in a quarter. In the U.S., growth was driven by strong demand across all indications. In squamous and non-squamous first-line lung cancer, Keytruda continues to penetrate all eligible patient populations, including low- and non-PD-L1-expressed patients. The survival benefits demonstrated across our four first-line lung cancer trials have firmly established Keytruda as the standard of care in these settings. We are also encouraged by our recent launches and new indications. In advanced first-line renal cell carcinoma, we are seeing strong uptake across all three patient risk groups for which we are indicated, and in adjuvant melanoma, positive momentum has continued since our approval earlier this year.

Our human health revenues grew 16% led by Q products in oncology vaccines and hospital businesses.

On college, Keytruda sales increased 64% year over year and for the first time exceeded $3 billion in a quarter.

And the U.S. growth was driven by strong demand across all indications.

In squamous and non spring was first line lung Keytruda continues to penetrate all eligible patient populations, including low and non PDL one expressers.

There's a bottle benefits demonstrated across our for first line lung cancer trials of firmly established keytruda up the standard of care in the sense.

We're also encouraged by our recent launches a new indications.

In advance first wind renal cell carcinoma, we're seeing strong uptake across all three patient risk groups, which we are indicated and and adamant melanoma. The positive momentum continues since or approval earlier this year.

Rob Davis: We are early in the launch of Keytruda Monotherapy and in combination with chemo and first-line head and neck cancer, and we've received positive feedback from both scientific leaders and the prescribing community. Outside the United States, Keytruda sales grew 75%, driven by Lung Globally. In Europe and the EU, we recently received additional reimbursements for Keynote 189, and we look forward to bringing Keytruda to more patients in those markets. In Japan, we are seeing strong usage across all PD-L1 patient subgroups in lung cancer, and we continue to grow our share in bladder cancer.

We're early in the launch of Keytruda monotherapy and in combination with chemo in first line had it not cancer and we've received positive feedback from both scientific leaders and the prescribing community.

Outside the United States Keytruda sales grew 75% driven by long globally.

And the Europe and you. We recently received additional reimbursements for keynote 189, and we look forward to bringing the trued up to more patients in those markets.

Japan, we're seeing strong usage across all PDL, one patient subgroups and lung and we continue to grow our share in bladder cancer.

Rob Davis: And in China, First Line Lung is the primary driver of growth, and we are excited by the recent approval based on Keynote 042. Our results also reflect continued strength for both Lynparza and Lynvima, important products from our collaborations with AstraZeneca and EASI, respectively. In fact, our revenue for both products more than doubled in the third quarter. Lympharzoid growth reflects further uptake in ovarian cancer based on the results of SOLO1 in the United States, as well as strength in Europe, China, and Japan when PARSA has over 60% total patient share in the PARP inhibitor class. This leadership sets us up well as we look to broaden the use of OnePARSA across additional indications in the future. Launches in hepatocellular carcinoma, particularly in the United States, China, and Japan, continue to drive increased use of 1-BEMA.

And in China first line lung is the primary driver of growth and we're excited by the recent approval based off of Q4 two.

Our results also reflect continued strength for both Lynparza Amlin bema important products from our collaborations with Astra zeneca inside respectively.

In fact, our revenue for both products more than doubled in the third quarter.

The bars or growth reflects further uptake in ovarian cancer based on results of sold a one in the United States as well strikes in Europe , China and Japan.

In the United States Lynparza has over 60% total patient share in the PARP inhibitor class.

Leadership sets us up well as we look to broaden to use the one part of the across additional indications in the future.

Launches in the past only were carcinoma, particularly in the United States, China, and Japan continued to drive increased use of one pima.

Rob Davis: Also, we are early in the launch of the first approved combination of lenvima and Keytruda to treat certain patients with endometrial carcinoma, and we expect more approvals in the future. Turning to vaccines. Our vaccines business reflects continued growth in our pediatric portfolio, as well as strength in Gardasil, which is primarily due to growth outside of the United States. However, the timing of public sector purchases negatively impacted our U.S. revenue in the third quarter. Our hospital business benefited from 32% growth in Britain, reflecting strong performance in the United States due to increased share within the reversal market. Animal health revenue increased 12% this quarter to $1.1 billion. Livestock grew 12% due to the contributions from the products acquired in the Antelic Acquisition, and Companion Animal Sales also grew 12%, driven by our Breveto line of products, partially due to the timing of purchases last year.

Also we were early in the launch of the first approved combination of one being the m. keytruda to treat certain patients endometrial carcinoma, and we expect more approvals in the future.

Turning to vaccines.

Our vaccines business reflects continued growth in our pediatric portfolio as well a strengthened gardasil, which is primarily due to growth outside the United States.

The timing of public sector purchases negatively impacted our U.S. revenue in the third quarter.

Our hospital business benefited from 32% growth in bringing on reflecting strong performance in the United States due to increased share within the reversal market.

Animal health revenue increased 12% this quarter to $1.1 billion.

Smartstop grew 12% due to the contributions from the products acquired in the until like acquisition.

Companion animal sales also grew 12% driven by our productive line of products, partially due to the timing of purchases last year.

Turning to the rest of our piano my comments will be on a non-GAAP basis.

Rob Davis: Turning to the rest of our P&L, my comments will be on a non-GAAP basis. Gross margin was 75.9% in the quarter, a decrease of 80 basis points year over year, driven by unfavorable manufacturing variances. Operating expenses of $4.8 billion increased 6% year over. Higher administrative and promotional expenses for our growth pillars drove higher SG&A costs in the quarter, while higher clinical development spend and costs associated with our discovery efforts drove higher R&D expenses. Other income and expense was unfavorably impacted by lower income in our equity securities portfolio, as well as higher net interest expense.

Gross margin was 75.9% in the quarter.

Decrease of 80 basis points year over year, driven by unfavorable manufacturing variances.

Operating expenses of $4.8 billion increased 6% year over year higher administrative and promotional expenses for our growth pillars drove higher estimated cost in the quarter, we'll hire clinical development spend and cost associated with our discovery efforts drove higher R&D expense.

Other income and expense was unfavorably impacted by lower income in our equity securities portfolio as well as tighter net interest expense.

Rob Davis: Our effective tax rate for the quarter was 15.7%, driven by a lower assumed four-year effective tax rate as a result of favorable earnings. This represents a decrease of 320 basis points year-over-year. Taken together, we earned $1.51 per share, an increase of 27% excluding exchange. Now, turning to our outlook for the year. We are narrowing and raising both our revenue and non-GAAP EPS guidance ranges for the full year of 2019. We now expect revenues of $46.5 billion to $47 billion, which represents 10% to 11% growth versus 2018. This includes the impact of the Gardasil CDC stockpile borrowing, which will negatively impact our fourth quarter revenue by approximately $120 million. Our updated revenue range assumes a negative impact from foreign exchange of roughly 2 percentage points using mid-October ratings. Consequently, we are lowering our non-GAAP expected tax rate to roughly 17.5%. Our revised non-GAAP EPS range is now $5.12 to $5.17, which represents growth of approximately 18% to 19% versus 2018, including a roughly one percentage point negative impact from foreign exchange. All other elements of our guidance provided in July remain unchanged.

Our effective tax rate for the quarter was 17.7% driven by a lower assumed for your effective tax rate as a result of favorable earnings mix.

This represents a decrease of 320 basis points year over year.

Taken together, we earned $1.51 cents per share an increase of 27% excluding exchange.

Now turning to our outlook for the year.

We are narrowing in raising both revenue and non-GAAP EPS guidance ranges for the full year 2019.

We now expect revenues of 46.5 billion to 47 billion, which represents 10% to 11% growth versus 2018.

This includes the impact of the Gardasil, CDC stockpile borrowing which will negatively impact our fourth quarter revenue by approximately $120 million.

Our updated revenue range assumes a negative impact from foreign exchange of roughly two percentage points using mid October rates.

We are lowering our non-GAAP expected tax rate to roughly 17.5% for the year.

Our revised non-GAAP EPS range is now $5 in 12 cents to $5 in 17 cents, which represents growth of approximately 18% to 19% versus 2018.

Including a roughly one percentage point negative impact from foreign exchange.

All other elements of our guidance provided in July remain unchanged.

Rob Davis: Before I conclude, I'd like to take a moment to put our 2019 results into context. Our expected top and bottom line growth rates for the full year are exceptional. While we continue to expect strong revenue and EPS growth in 2020, there are a few things I'd like you to keep in mind as you think about your models. First, we expect increased pricing pressure in 2020. Second, demand for Gardasil continues to outpace supply, and we expect tempered growth rates for the product versus what we've reported over the last couple of years. And third, as you'll recall, we expect to face LOE pressure mainly on Noxifil and Nuvri.

Before I conclude I'd like to take a moment to put our 2019 results into context.

Our expected top and bottom line growth rates for the full year are exceptional.

While we continue to expect strong revenue and EPS growth in 2020, or a few things I'd like to keep in mind as you think about your models.

First we expect increased pricing pressure in 20 Twond.

Second demand for Gardasil continues to outpace supply and we expect temper growth rates for the product versus what we've reported over the last couple of years.

And third as you'll recall, we expect to face lvs pressure, mainly on Knoxville and new marine.

Rob Davis: That being said, we remain very confident in our business. We continue to expect strong revenue growth each year through and including 2023, a year where we still believe our revenue prospects are underappreciated. In summary, our third quarter results and updated guidance are another proof point of the confidence we have in our business and our strategy. But more importantly, our innovation-led approach continues to positively impact the patients we serve. As such, we will continue to invest in research and development, which we believe will be the source of significant and sustainable value for both patients and shareholders. With that, I'd like to turn the call over to Roger. Thanks for reading this.

That being said, we remain very confident in our business. We continue to expect strong revenue growth each year through and including 2023, a year, where we still believe or revenue prospects are under appreciated.

In summary, our third quarter results, an updated guidance or another proof point of the confidence we have in our business in our strategy.

More importantly, our innovation led approach continues to positively impact the patients we serve.

We will continue to invest in research and development, which we believe will be the source of significant and sustainable value for both patients and shareholders.

With that I'd like to turn the call over to Roger.

Unknown Attendee: Thanks, Rob. During the third quarter, we advanced important new indications for key products, presented significant new data at scientific meetings, and made meaningful progress in building our research portfolio. Turning first to progress in oncology approvals, during the third quarter, we received accelerated approval from the U.S. FDA for Keytruda when given in combination with Lendema in patients with advanced endometrial cancer whose disease has progressed following prior systemic therapy and whose tumors are not mismatched repair deficient or MSI-HAR. This approval marks the first of what we believe will be a large set of opportunities to combine Limbema, which we are developing in collaboration with our colleagues at ISAI in Japan, with Keytruda for the treatment of advanced malignancies, including hepatocellular carcinoma, non-small cell lung cancer, renal cancer, squamous cell carcinoma of the head and neck, and urethelial.

Thanks, Rob.

During the third quarter, we advance important new indications for key products presented significant new data at scientific meetings and made meaningful progress in building our research portfolio.

Turning first to progress in oncology approvals during the third quarter, we received accelerated approval from the USSD for Keytruda when given in combination with Len DEMA in patients with advanced endometrial cancer, whose disease has progressed falling prior systemic therapy, and whose tumors are not mismatch repaired efficient for MSR hi. This is.

Brutal marks the first of what we believe will be a large set of opportunities to combine DEMA, which were developing collaboration with my colleagues that we saw in Japan with Keytruda in the treatment of advanced malignancies, including to kind of cellular carcinoma, non small cell lung cancer renal cancer squamous cell carcinoma that had mix and your.

Field cancer as noted in our press release, the FDA also accepted RSP Ali filing for the use of Keytruda as monotherapy in the treatment of recurrent or metastatic cutaneous squamous cell carcinoma that is not troubled by surgery or radiation with a PDUFA date of June 29 2020.

Unknown Attendee: As noted in our press release, the FDA also accepted our SBLA filing for the use of t-TRUDA as monotherapy in the treatment of recurrent or metastatic cutaneous squamous cell carcinoma that is not curable by surgery or radiation with a PDUFA date of June 29, 2020. Additionally, we received European Medicines Agency approval for the combination of Keykruda and Pfizer's Inlica based on data from our As Rob mentioned, it is one that has gained substantial traction in the United States.

Separately, we also received European Medicines agency approval for the combination of Keytruda and Pfizer's in Lisa based on data from our keynote <unk> four to six study this regimen.

As Rob mentioned is one that has gained substantial traction states.

Unknown Attendee: Meanwhile, in China, full approval of Kikuta for the first-line treatment of patients with locally advanced or metastatic non-small cell lung cancer whose tumors expressed PD-L1 on at least 1% of tumor cells based on our Keynote-042 study was also given. We are optimistic that this new indication will provide benefit to the very large number of patients in China who, each year, are diagnosed with non-small cell lung disease. Outside of oncology, the U.S. FDA granted approval for Peltro, when combined with other agents, and Delstrigo as a single-tablet combination, and HIV-infected patients who are virologically stable... And on a stable regimen, this is the so-called switch indication. We believe that Tefeltro, a second-generation non-nucleosidal reverse transcriptase inhibitor, offers many opportunities for combined regimens, including with Islatravir, our investigational nucleosidal transcription and translocation inhibitor. Also in the infectious disease area, we obtained Phase III data in hospital-acquired and ventilator-associated bacterial pneumonia, where recarbureo met its primary endpoint of non-inferiority versus the combination of piperacillin and casobacter. Together with Zurbaxan, Recarbio will offer, we believe, a full suite of options for the treatment of serious bacterial pneumonia.

Meanwhile, in China full approval of Keytruda for the first line treatment of patients with locally advanced or metastatic non small cell lung cancer, whose tumors express PD one on at least one person tumor cells based on our Q4 two study was also.

We are optimistic that this new indications will provide benefit to the very large number of patients in China.

Here are diagnosed with non small cell lung cancer.

Outside of oncology, the USSTC granted approval for to sell true when combined with other agents and Dell Street as a single tablet combination.

I'd be infected patients, who have you ever logically suppressed and on the stable Regiment. This is the so called switch indication, we believe that to sell through the second generation Nondoms is on reverse transcriptase inhibitor offers many opportunities for combined regimens, including with this lots review our investigation on this on transcription and translocation inhibitor.

Also in infectious disease area, we obtain phase three data in the hospital acquired and ventilator associated bacterial pneumonia.

Cardio met its primary endpoint of Noninferiority versus the combination combination of to for cylinder and is it back.

Together with Zerbaxa Ricardo will offer we believe it full suite of options for the treatment of serious bacterial pneumonia.

An exceedingly proud of my colleagues in clinical development and regulatory affairs exemplary performance in 2019 has led to these approvals.

Unknown Attendee: I'm exceedingly proud of my colleagues in clinical development and in regulatory affairs, whose exemplary performance in 2019 has led to these approvals. The third quarter also saw the presentation of important new data at the European Society for Medical Oncology meetings, including the PAL-1 trial demonstrating the activity of Lymparza, which we are developing with colleagues at AstraZeneca. In this case, in combination with barbicizumab for the treatment of advanced ovarian cancer in patients who had previously responded to platinum-based therapy, but we also have a profound trial in which delayed radiographic progression of malignancy was demonstrated in men with metastatic castration-resistant prostate, whose tumor cells bear a homologous recombination for carotene, and who have progressed on next generation hormonal ablation therapy. Studies Phase II trials encourage the view that the addition of t-CRUDA to lympharzotherapy could prove advantageous, especially in the treatment of metastatic castration resistance.

The third quarter also saw the presentation of important new data at the European Society for medical oncology.

Including the power one trial, demonstrating the activity of Lynparza, which we are developing with colleagues Astra zeneca.

In this case in combination with Bevacizumab after the treatment of advanced ovarian cancer patients who had previously responded platinum based chemotherapy.

But we also have the profound trial in which delayed radiographic progression of delinquency was demonstrated in men with metastatic castration resistant prostate cancer, whose tumor cells. There homologous recombination repair gene defect and it would have progressed on next generation hormone replacement therapy.

Studies, incorporating them cars that have now yielded positive phase three data in four different tumor types breast.

Varian pancreatic and prostate.

Phase two trials encourage the view that the addition of Keytruda to Lynparza therapy could prove advantageous, especially in the treatment of metastatic castration resistant prostate cancer.

Phase three trials exploring this hypothesis are currently underway.

Also at the European Society for medical oncology meetings data from our keynote five to two study of Keytruda as Neoadjuvant therapy for Triple negative breast cancer demonstrated a statistically significant increase in cost a lot to complete response rate confirming what we've seen previously in the phase two I just want to drive.

These data coupled with additional results from the attachment portion.

To to which demonstrated a trend favoring Keytruda administration.

Unknown Attendee: Phase 3 trials exploring this hypothesis are currently underway. Also, at the European Society for Medical Oncology meetings, data from our Keynote 522 study of Keykruda as neoadjuvant therapy for triple-negative breast cancer demonstrated a statistically significant increase in pathologic complete response rate, confirming what we had seen previously in the Phase II ICE-V2 trials. These data, coupled with additional results from the adjuvant portion of 15.0522, which demonstrated a trend favoring Kikuta administration on event-free survival, augur well for future outcome measurements in this ongoing Phase III trial. Time does not permit me to highlight the many advances that have been made in earlier segments of the pipeline where critical work is being done.

Then free survival augur, well for future outcome measures in this ongoing phase three trial.

Time does not permit me to highlight the many advances have been made in earlier segments of the pipeline were critical work is being done however, I wish to note that as the third quarter came through close we celebrated the opening of our new discovery research facility in South San Francisco, where we expect over a period of time.

Celebrate the translation of fundamental breakthroughs in biologic understanding into therapies that improve and extend lives around the world. In this context I cannot sales meant that the committee for medicinal products for human use for the European Medicines Agency has recently adopted a positive opinion for being on 20 are experimental vaccine does.

Turning to prevent transmission of this year's strain to those lives.

As all of you are aware the 920 has been thoughtfully deployed to help slow the spread of a recent outbreak of the boulevard diseases of the Democratic Republic of the condo.

Our teams have shipped nearly a quarter million doses of the 920 to colleagues in the World Health organization and other agencies healthcare workers, who are performing heroic work and very dangerous environments by immunizing those at highest risk for exposure to this deadly buyers they and we believe that approval of the V. 920 vaccine.

Unknown Attendee: However, I wish to note that as the third quarter came to a close, we celebrated the opening of our new Discovery Research Facility in South San Francisco, where we expect, over a period of time, to accelerate the translation of fundamental breakthroughs in biological understanding into therapies that improve and extend lives around the world. In this context, I cannot fail to mention that the Committee for Medicinal Products for Human Use of the European Medicines Agency recently adopted a positive opinion for V920, our experimental vaccine designed to prevent the transmission of the Zaire strain of Ebola virus. As all of you are aware, V920 has been thoughtfully deployed to help slow the spread of the recent outbreak of Ebola virus disease in the Democratic Republic of the Congo.

We'll ultimately permit routine use of this important tool to prevent outbreaks of the pull a virus infection.

Wherever and whenever it is neat.

We will now take your questions.

Drunken U line at the Q. Please.

Ladies and gentlemen at this time, if he would like to ask a question. Please press Star then to number one on your telephone keypad again, if he would like to ask question.

As far the number one on your telephone keypad. Your first question comes from the line as David Risinger bed Morgan Stanley 's you May ask your question.

Good morning to great. Thank you very much [laughter] good morning. So.

Unknown Attendee: Our teams have shipped nearly a quarter million doses of B920 to colleagues in the World Health Organization and other agencies. Healthcare workers who are performing heroic work in very dangerous environments by immunizing those at highest risk for exposure to this deadly virus. They, and we, believe that approval of the V920 vaccine will ultimately permit routine use of this important tool to prevent outbreaks of the polovirus wherever and whenever it is needed.

Obviously the results were very impressive congrats on the quarter.

My questions are first.

Could you just talk a little bit.

Excuse me about what inning Merck is in with respect to 189 adoption in Europe . My understanding is that you havent booked any 189 sales in certain countries yet in the third quarter, but I just don't know how you would characterize the adoption of 189 in Europe to date and then second.

Roger could you please discuss the market opportunities and timing.

Jerome: Jerome, can you line up the queue, please? Ladies and gentlemen, at this time, if you would like to ask a question, simply press star, then the number one on your telephone keypad. Again, if you would like to ask a question, simply press star, then the number one on your telephone keypad. Your first question comes from the line of David Reisinger with Morgan Stanley.

For keynote six so for in small cell lung cancer, and keynotes 355 in triple negative breast cancer, thanks very much.

Frank do you want start off shored, good morning, David with regards to Europe and 189.

We received reimbursement in Germany in mid Europe .

David Reisinger: Can you ask your question, please? Good morning. Great. Thank you very much. Good morning. Obviously, the results were very impressive; congratulations on the quarter. My questions are first, could you just talk a little bit, Excuse me, about what inning Merck is in with respect to 189 adoption in Europe. My understanding is that you haven't booked any 189 sales in certain countries yet in the third quarter, but I just don't know how you would characterize the adoption of 189 in Europe to date. And then second, Roger, could you please discuss the market opportunities and timing for Keynote 604 Thanks very much. Frank, do you want to start off?

From Similiar last year, it's almost going to year, when we launched in Germany and reimbursement. We now are very pleased that we have reimbursement in all of the major European markets, Spain, just came on board with reimbursement this past quarter and we now.

Now have added Italy for reimbursement, which is Jeff taking place this month as well as France. So we are in early innings in some of the markets with regards to 189 as I mentioned, Germany in mid Europe , we've had that renewed.

Our product in combination reimburse now four wall.

And Roger right David.

Look certainly.

The major opportunity in lung cancers in non small cell lung cancer, but.

Small cell lung cancer is important as well and so we are encouraged to think the breadth of activity of Keytruda is on ambiguous and we're encouraged to two believed that there will be.

Meaningful opportunity in small cell lung cancer as well based on the six afford trial for triple negative breast cancer, I mean, again I would highlight that the by two to date.

Frank Clyburn: Sure. Good morning, David.

Frank Clyburn: With regard to Europe, in 189, we received reimbursement in Germany and mid-Europe. That was approximately last year. It's almost been a year since we launched in Germany and got reimbursement. We are now very pleased that we have reimbursement in all of the major European markets. Spain just came on board with reimbursement this past quarter, and we now have added Italy for reimbursement, which is just taking place this month, as well as France. So we are in the early innings in some of the markets with regard to 189. As I mentioned, in Germany and mid-Europe, we've had that product in combination reimbursed.

Demonstrate.

A really quite dramatic improvement in pathologic complete response rate.

Under circumstances, where optimal neoadjuvant therapy is given.

And the trend is really quite impressive I mean, it has a 27% roughly improvement and has allowed to complete response to the.

The event free survival data had a hazard ratio 0.63, that's really quite remarkable and although we had set a extremely high bar there and Didnt meet our statistical test at that point as I said, it certainly augurs well for what the subsequent outcome measures will look like overtime I think that will.

Unknown Attendee: And Roger. Right, David. Well, clearly, you know, the major opportunity in lung cancer is in non-small cell lung cancer, but small cell lung cancer is important as well. And so we are encouraged to think that the breadth of activity of Key Crude is unambiguous, and we're encouraged to believe that there will be meaningful opportunities in small cell lung cancer as well, based on the 604 trial. For triple negative breast cancer, I mean, again, I would highlight that the Genome 522 data demonstrate a really quite dramatic improvement in pathologic complete response rate under circumstances where optimal neoadjuvant therapy is given, and the trend is really quite impressive. I mean, there's a 27% roughly improvement in pathologic complete response. The event-free survival data had a hazard ratio of 0.63.

That will really.

A big effect on how triple negative breast cancer is treated in those individuals who are.

Who are not treated with the neoadjuvant.

Kind of regimen.

Five offers real opportunity obviously, we have to wait for the data that we're looking forward to seeing that at some point in the future.

Greg next question drove.

Your next question comes from the line as Chris Shopped with JP Morgan you May ask your question.

Great. Thanks, very much and congrats on the quarter I guess my first question was just on operating margin expansion I know you'd previously moderated some near term operating margin expectations based on investments, you're making et cetera, but we are seeing strong year over year improvements. So can we think about continued strong margin improvements as we look out into 2000.

20, and 2021, assuming solid topline trends or is there another step up investments made to be keeping in mind, just think about margins over the next year or two.

Unknown Attendee: That's really quite remarkable, and although we had set an extremely high bar there and didn't meet our statistical test at that point, as I said, that certainly augurs well for what the subsequent outcome measures will look like in patients who are not treated with a neoadjuvant kind of regimen. Keno355 offers a real opportunity. Obviously, we have to wait for the data, and we're looking forward to seeing it at some point in the future. Great. Next question.

Second question was on Gardasil capacity at this point I think you noted that growth may moderate in 2020, just give us a bit more color on how much capacity you have left at this point as we think about shut I'd kind of quantify that slow down and as a follow up to that longer term just give us an update of when we should think about more expense substantial excess.

Pension of Gardasil capacity. Thank you.

Chris Schott: Great. Next question, Jerome. All right, your next question comes from the line of Chris Schott with J.P. Morgan. You may ask your question.

Great. Thanks, Rob you want to startup of margin good morning, Chris to your question about operating margin I think what you're looking at as you see the results year to date in the third quarter 2019 is really just the power of what happens when you get accelerated revenue growth.

Chris Schott: Thanks very much and congratulations on the quarter. I guess my first question was just on operating margin expansion. I know you'd previously moderated some near-term operating margin expectations based on the investments you're making, etc., but we are seeing strong year-over-year improvements. So can we think about continued strong margin improvements as we look out into 2020?

And frankly, we've seen the revenue growth as you've seen from the way we've been raising guidance of your is outpacing even our own expectation. So as result of that we have actually seen stronger operating margin improvement in 2019 than we expected as we look forward, we continue to see increases.

Operating margin every year, but our view really hasnt changed those we looked at 2020, but it's still a year of investment where we do expect to continue to to make sure. We fully invest behind what is a growing in exciting pipeline of opportunities.

unknown: The Emancipation Support Committee. 2013.

unknown: My second question was on Gardasil capacity at this point. I think you noted that growth may moderate in 2020. Can you just give us a bit more of an overview of what's going on with Gardasil at this point?

Both in oncology and vaccines and other areas that Rogers touched upon and then we really do expect to see operating margin them to be more meaningful.

unknown: https://www.youtube.com

As we look.

2021, and beyond as we see the rate of R&D growth slowed to a rate slower than sale. So our overall view hasn't changed.

unknown: You should think about it more.

unknown: Substantial Expansion of Gardasil Capacity

unknown: The Bulletproof Executive, 2013

20, my team is really exceptional because of the strength, we're seeing the topline.

Rob Davis: Great, thanks. Rob, do you want to start off on margins?

Frank on Gardasil capacity sure Chris and so we are seeing continued strong underlying demand, which was highlighted once again for gardasil this quarter growing 27% and.

Rob Davis: Good morning, Chris. To your question about operating margin, I think what you're looking at as you see the results year-to-date in the third quarter of 2019 is really just the power of what happens when you get accelerated revenue growth. And frankly, we've seen that revenue growth, as you've seen from the way we've been raising guidance through the year, is outpacing even our own expectations. So as a result of that, we have actually seen stronger operating margin improvement in 2019 than we expected. As we look forward, we continue to see increases in operating margin every year, but our view really hasn't changed. As we look at 2020, that is still a year of investment where we do expect to continue to make sure we fully invest behind what is a growing and exciting pipeline of opportunities, both in oncology and vaccines and other areas that Roger has touched upon. And then we really do expect operating margin then to be more meaningful as we look in 2021 and beyond as we see the rate of R&D growth slow to a rate slower than sales. So our overall view hasn't changed. 2019 is just really exceptional because of the strength we're seeing on the top line.

And significant growth outside the us what we have.

Done and put in place as we are increasing our production from our existing plants and as we mentioned on Investor day, we commissioned the construction of two new bulk gardasil manufacturing facilities, which we hope to bring online in 2023. So in 2023 that is when we will expect to be.

Able to ramp power supply up to meet the ex us demand.

We decided to bar from the stockpile as Rob mentioned in his comments really to support routine vaccinations in the us as well as the free up some manufacturing capacity to make doses for other parts of the world. So anticipate additional supply coming on board significantly in 2020.

Three we do believe we can still grow gardasil over the next several years as we continue to match and move supply to match our demand around the world.

Rob Davis: and Frank Ungard of Silk Capacity.

Great. Thank you next question Jerome.

Frank Clyburn: Sure, Chris. And so we are seeing continued strong underlying demand, which was highlighted once again for Gardasil this quarter, growing 27% and significant growth outside the U.S. What we have done and put in place is we are increasing our production from our existing plants. And as we mentioned on Investor Day, we commissioned the construction of two new bulk Gardasil manufacturing facilities, which we hope to bring online in 2023. So in 2023, that is when we expect to be able to ramp our supply up to meet the ex-U.S. demand. We decided to borrow from the stockpile, as Rob mentioned in his comments, really to support routine vaccinations in the U.S., as well as to free up some manufacturing capacity to make doses for other parts of the world. So we anticipate additional supply coming on board significantly in 2023. We do believe we can still grow Gardasil over the next several years as we continue to match and move supply to match our demand around the world.

Your next question comes from the line Kayne Anderson with Wolfe Research you May ask your question.

Thank you a couple of questions. The first is on.

Tax rate.

You mentioned favorable product mix impacting the tax rate guidance for the year and the quarter is keytruda one of those favorable mix drivers and specifically is it set up in a tax advantage ways such that as this product continues to do very well the tax rate for Merck.

Continue to drift lower.

Beyond where it is in 2019.

Second question is.

On Keytruda dataset starting to roll in.

Showing to see tell a four has activity in lung.

Do you sense like check may nine a law and Poseidon.

You have a program in this area.

When can we expect phase three data from Merck on Keytruda plus yervoy in young in lung and then more broadly can you just kind of comment on the market's perception and fears that we've got competitive threats coming to keytruda in frontline long, Oh from Bristol and Astra and whether that some.

Rob Davis: Great. Thank you. Next question, Jerome. Your next question comes from the line of Tim Anderson, Red Wolf Research. Can you ask your question? Thank you.

Timothy Minton Anderson: A couple of questions. The first is on your tax rate. You mentioned favorable product mix impacting the tax rate guidance for the year and in the quarter. Is Q-TRU one of those favorable mix drivers?

Thing that.

Analyst models accurate accurately capture in your view.

Thank you Tim Rob will start off of the tax rate. Good morning, Tim with regard to your question actually I think the comment I made in the prepared remarks. The is due to favorable earnings mix and the reason I just clarify that is it's both a based on product mix as well as geographic mix. So.

Timothy Minton Anderson: And specifically, is it set up in a tax-advantaged way such that as this product continues to do very well, the tax rate for Merck could continue to drift lower beyond where it is in 2019? Second question is... On Keytruda, datasets are starting to roll in, you know, showing that CTLA-4 has activity in the lung, data sets like Checkmate 9LA and Poseidon. You have a program in this area. When can we expect phase three data from Merck on Keytruda plus Yervoy & Young & Lung? And then more broadly, can you just kind of comment on the market's perception and fears that we've got competitive threats coming to Keytruda and Frontline Lung from Bristol and Astra?

It's both and it's more than just.

What you see with Keytruda, although the true to is.

Produced and attacks favor jurisdictions, so we do get benefit from seeing growth and keytruda, but that's not the only thing driving that I would highlight as you look at this year's tax rate.

Just to remind you that in the first quarter, we did have some discrete items the drove our rates.

A couple points lower so.

We are benefiting from that as well.

And as we look forward into 2020, we have not finalized our plants are willing to give official guidance, but I would just make sure you kind of keep that view in your mind is in balance your thinking around positive trend forward relative to where we are and where we've been.

Rob Davis: And whether that's something that, you know, the analyst models accurately capture in your. Thank you, Tim. Rob, we'll start off with the tax rate.

And Roger on CECO, two CPLP before and maybe the Frank on the competitive dynamics yeah. So so.

Rob Davis: And I want to just clarify that it's both based on product mix as well as geographic mix. So it's both, and it's more than just what you see with Ketruda, although Ketruda is produced in a tax-favored jurisdiction. So we do get a benefit from seeing growth in Ketruda, but it's not the only thing driving it. I would highlight, as you look at this year's tax rate, and just to remind you that in the first quarter, we did have some discreet items that drove our rates a couple points lower. So we are benefiting from that as well. And as we look forward into 2020, we have not finalized our plan, so I don't want to give official guidance. But I would just make sure you kind of keep that view in your mind as you balance your thinking around a positive trend forward relative to where we are and where we've been.

Of course, we do expect that over time, there will be many.

Many different programs that will try and address.

Non small cell lung cancer, and it's important that happen.

I should point out that the set of studies that we have already performed provide an enormously strong foundation for treatment of non small cell lung cancer.

Look at monotherapy Vo, two for data and PDL one.

Greater than 50%.

That's an extremely strong data center similarly, with 189 similarly with four seven so the platform is enormously strong and Thats, what we see reflected in the market.

I think all of us are eager to understand whether anything else could be added two keytruda, but thus far we don't have any data that really supports that our own study fivenine each study with keytruda.

Rob Davis: and Roger on CTLA-4 and maybe to Frank on competitive dynamics.

If the Lin on that will provide we hope definitive information on whether the addition of Nivolumab seating for directed monoclonal antibody actually improves results as compared to what is seen with keytruda alone and thus far it's kind of a mixed bag from what we can see of course, we don't have the data to.

Unknown Attendee: Yeah.

Unknown Attendee: So, of course, we do expect that over time there will be many, many different programs that will try and address non-small cell lung cancer, and it's important that that happens. I should point out that the set of studies that we have already performed provide an enormously strong foundation for the treatment of non-small cell lung cancer.

I really look at.

With respect to nine L.A. or Poseidon.

And so we'll have a chance to look at those data and on the basis of that to make a judgment about benefit risk profile and how best to treat these patients.

Unknown Attendee: If you look at monotherapy, the O2-4 data in PD-L1 is greater than 50%. That's an extremely strong data set, similarly with Keynote 189, and similarly with 407; so the platform is enormously strong, and that's what you see reflected in the market.

Right.

And what I'll add is in the marketplace right now and I'll separate a couple of things in the us.

We have established could shoot a very strongly as a standard of care in first line non small cell lung cancer approximately eight out of every 10 eligible patients.

Unknown Attendee: You know, I think all of us are eager to understand whether anything else could be added to Keytruda, but thus far, we don't have any data that really support that. Our own study, a 598 study with Keytruda and ipilimumab, will provide, we hope, definitive information on whether the addition of ipilimumab, a CTLA-4-directed monoclonal antibody, actually Thus far, it's kind of a mixed bag from what we can see. Of course, we don't have the data to really look at with respect to 9LA or Poseidon, and so we'll have a chance to look at those data and, on the basis of that, make a judgment about the benefit-risk profile and how best to treat these patients. Right?

Receiving a keytruda regiment, either monotherapy or in combination and what we're hearing from both the academic community or academic physicians I should say in the community physicians is that they really believe Keytruda now has established itself as a standard of care in loan I think also importantly, we have to.

If there is significant real world experience based on our first mover advantage with Keytruda in lung so while we know it to be eventually competitive in this space, we feel very confident on our position if I look outside the US I think it's important to note not only the significant regulatory approvals we received.

I would also be H.T.A. reimbursements, we now have and that takes time and it also is.

Frank Clyburn: And what I'll add is that in the marketplace right now, and I'll separate a couple of things, in the U.S., we have established Keytruda very strongly as a standard of care in first-line non-small cell lung cancer. Approximately eight out of every ten eligible patients are receiving a Keytruda regimen, either monotherapy or in combination. And what we're hearing from both the academic community, or academic physicians, I should say, and the community physicians is that they really believe Keytruda now has established itself as a standard of care in the lung. I think, also importantly, we have to note that there is significant real-world experience based on our first-mover advantage with Keytruda in the lung. So while we know it will eventually be competitive in this space, we feel very confident in our position. If I look outside the U.S., I think it's important to note not only the significant regulatory approvals we received but also the HTA reimbursements we now have. And that takes time.

Important to note that each HTA bodies really do look at the magnitude of the effect of the data that you're bringing compared to other standards of care and we have done extremely well from a reimbursement perspective and positioned well as I mentioned in Europe . China. We also are very well position was our first mover advantage and long based off of 180.

Nine and keynote 42, now monotherapy and also were very well established in Japan. So as I look around the world I feel very confident about our overall long position clearly as Roger mentioned, we'll have to wait and see some of the additional data sets, but going forward, we're very confident in our ability to continue.

To grow Keytruda and continue to grow in lung cancer.

Next question please.

Your next question comes from the line F. Seamus Fernandez with Guggenheim. Please ask your question.

Oh, great. Thanks for the question so.

I was hoping Roger might be able to give us some thoughts on data that were presented at ESMO in combination with an antibody drug conjugate in bladder cancer.

Frank Clyburn: And it is also important to note that HTA bodies really do look at the magnitude of the effect of the data that you're bringing compared to other standards of care. And we have done extremely well from a reimbursement perspective and are positioned well, as I mentioned, in Europe. In China, we also are very well positioned with our first-mover advantage in lung based on 189 and Keynote 42 now in monotherapy. And also, we're very well established in Japan. So as I look around the world, I feel very confident about our overall lung position. Clearly, as Roger mentioned, we'll have to wait and see some of the additional data sets. But going forward, we're very confident in our ability to continue to grow Keytruda and grow it in lung cancer.

Specifically, Roger just love to get your thoughts on how you think about ADC technology at this at this point in time.

And just sort of your broader thoughts on the ability of 80 sees which historically have been a little bit difficult to to manage as linkers have improved as data has improved along those lines just wondering what your thoughts are on.

The how validated AIDC technology as I know, it's not an area where Merck.

Jerome: Great. Next question, please. Your next question comes from the line of Seamus Fernandez with Guggenheim. Let me ask your question. Oh, great.

Has a and hobbyist presence. So just wondering what other work might be might Merck might be doing there.

And then the second question.

Seamus Fernandez: Thanks for the question. I was hoping Roger might be able to give us some thoughts on data that were presented at ESMO in combination with an antibody drug conjugate in bladder cancer. Specifically, you know, Roger, I would just love to get your thoughts on how you think about ADC technology at this point in time, and just sort of your broader thoughts on the ability of ADCs, which, you know, historically have been a little bit difficult to manage as linkers have improved, as data has improved along those lines. Just wondering what your thoughts are on how validated ADC technology is.

You know as we see the numbers continue to expand.

I have to imagine that the cash on the balance sheet that continues to accumulate.

Hi.

Need to have some thoughts around capital deployment.

Can you just give us your thoughts on where Merck is most focused in terms of deploying that building cash forward.

In the context of sort of the concentration that we're starting to see increasing and keytruda and Garda so going forward. It we certainly had a very narrow conversation.

Seamus Fernandez: I know it's not an area where Merck has an obvious presence, so I was just wondering what other work Merck might be doing there. And then the second question, Rob, you know, as we see the numbers continue to expand, I have to imagine that, you know, the cash on the balance sheet that continues to accumulate, it needs to have some thoughts around capital deployment. Can you just give us your thoughts on where Merck is most focused in terms of deploying that building cash forward in the context of, you know, sort of the concentration that we're starting to see increasing in Keytruda and Gar We've certainly had a very narrow conversation around Merck and the future of Merck on the call so far today. Thanks. Roger.

Around Merck and the future of Merck on the call so far today. Thanks.

Roger.

Same as sub with respect to AIDC technology, well as you pointed out there's a long disagree here.

The attempt to couple toxins to antibodies with the idea in mind that one could selectively delivered toxins to tumor cells goes back nearly 50 years to work for example done at Texas southwestern by jobs in Northern Ireland Teta over a period of decades now refinements of.

Unknown Attendee: I'm Seamus. So with respect to ADC technology, well, as you point out, there's a long history here. The attempt to couple toxins to antibodies, with the idea in mind that one could selectively deliver toxins to tumor cells, goes back nearly 50 years, to work, for example, done at Texas Southwestern by Jonathan Orr and Ellen Beteta, over a period of decades now, refinements have taken place, first with the substitution of the more selective monoclonal antibodies, a better linker technology, as you point out, initially hydrolyzable, then non-hydrolyzable, then back, and the choice of toxins, you know, it started out with ricin and then more conventional toxins were used, and I think we're beginning to see some evidence of selectivity, I think there are a few points to make.

Taken place first with the substitution of more selective monoclonal antibodies better linker technology as you pointed out initially hydrolyzed double than non hydrolyzed holding back.

And and the choice of of toxins that started out with rice and.

More convention toxin, where conventional toxicities and I think we're beginning to see some evidence of selectivity I think there are few points to make first it's worth keeping in mind that when you're administrating the stocks and conjugate theres still is a pretty significant body burden of toxin and so.

The benefit risk profile speeds and very carefully settings.

And second is that what we've learned overtime is that the choice of the antibody target really matters a lot.

And finding selective tumor targets is extremely important with that as background I would say that the data that.

Unknown Attendee: First, it's worth keeping in mind that when you're administering this toxin conjugate, there still is a pretty significant body burden of toxin, and so the benefit-risk profile has to be examined very carefully. And second, what we've learned over time is that the choice of the antibody target really matters a lot, and finding selective tumor targets is extremely important. With that as a background, I would say that the data that we obtained in collaboration with our colleagues at Seattle Genetics using the EV, I'll abbreviate it that way, that they've developed really were very impressive. They had monotherapy results, which they presented, and the combination with Keytruda looked really quite impressive on a first pass, which certainly is intriguing. And we were looking at all of those kinds of things and asking ourselves, are those areas where additional leverage can be made and gained in combination with Keytruda?

We obtained in collaboration with our colleagues at Seattle genetics, using the EDI abbreviated that way.

Toxin contract that they've developed.

Really were very impressive.

Monotherapy results, which they presented in the combination with Keytruda.

Really quite impressive on the first pass.

It's certainly is intriguing and we're looking at all of those kinds of things and asking ourselves are those areas, where additional leverage can be made in gains in combination with keytruda.

Thanks Seamus.

So the question on successfully Youre correct. The businesses is doing quite a nice job to generating cash flow really which is a testament to the overall strength we've seen the business as you look at our capital allocation strategy going forward, it's really unchanged in first and foremost we will continue to fund the operations as you know we can.

Due to best meaningfully with within or.

Rob Davis: Thanks, Seamus. To the question on cash flow, you are correct; the businesses are doing quite a nice job of generating cash flow, really, which is a testament. The overall strength we see in the business. As you look at our capital allocation strategy going forward, it's really unchanged. First and foremost, we will continue to fund the operations. As you know, we continue to invest meaningfully within our growing R&D portfolio of opportunities. We are investing meaningfully in capacity expansion to address the growth we see in our vaccines business, our oncology business, and our animal health business. And so we will continue to do that.

Growing R&D portfolio of opportunities, we are investing meaningfully in the past expansion to address the growth we see in our vaccines business oncology business and our animal health business.

And so we will continue to do that beyond that.

We are still very committed to our dividend, but as you look at the excess cash flow beyond that our goal continues to be to invest in business development I would point out to your one comment about the coal being there are we focused on Keytruda I do think it's important that people continue to realize will contribute as truly.

Foundational product we are a lot more than just the true, though we have growing excitement about the broader oncology pipeline, we have with lynparza lend bema. The over 20 mechanisms we have in development.

Rob Davis: Beyond that, we are still very committed to our dividend, but as you look at the excess cash flow beyond that, our goal continues to be to invest in business development. I would point out your one comment about the call being narrowly focused on Katruda.

I just talked about in the past.

Vaccine portfolio continues to grow very nicely I think overall vaccines grew 18% in the in the quarter.

And you saw obviously good growth with the Gardasil or pediatric vaccines, and we are very pipeline with the Dengate RSV.

Rob Davis: I do think it's important that people continue to realize while Katruda is truly a foundational product, we are a lot more than just Katruda. We have growing excitement about the broader oncology pipeline we have with Lamparza and Lenvima, the over 20 mechanisms we have in development that Roger talked about in the past. Our vaccines portfolio continues to grow very nicely. I think overall, vaccines grew 18% in the quarter. And you saw, obviously, good growth with Gardasil, our pediatric vaccines, and then we have a great pipeline with CMV, Dengue, RSV, a lot of excitement around our HIV portfolio we have that Roger touched upon in his prepared comments, and broader in our antibiotic space, and then obviously animal health. So, you know, we have a lot internally to be excited about. But with that said, we are looking to continue to augment that through business development, and that's our hope to deploy the cash flow we'll generate to that. And then, obviously, to the extent we have any cash left over after those efforts, we will return it to shareholders. So that is our strategy and pretty consistent with where we've been.

A lot of excitement around our HIV portfolio, we have the Roger touched upon in his prepared comments.

In broader in our antibiotic space and then obviously animal health. So we'd have a lot internally to be excited about but with that said we are looking to continue to augment up through business development and that's our hope to deploy the cash flow will generate to that and then obviously to the set we have any.

Cash.

Left over after those efforts, we will return to shareholders. So those are our strategy and pretty consistent with where with them right next question. Please.

Your next question comes from the line as Amy Greene Posh with S&P Leary, Let me ask your questions.

Yes. Thank you for the question I have appeal on the early stage setting and how.

Hi, Alan could should have made it may evolve there.

You have several different studies have been neoadjuvant component like keynote tenants like six and keynote 7671.

Among others. The first question is do you expect these to release the Neoadjuvant results from the interim analyses.

Jerome: Next question, please. Your next question comes from the line of Daina Graybosch with FVB Lyric. Can we ask your question? Hi, yes, thank you for the question.

Second question is what do you think will be required for regulatory approval and neoadjuvant setting.

Daina Michelle Graybosch: I have a few on the early stage setting and how. You have several adjuvant studies that have a neoadjuvant component, like Keynote 756 and Keynote 671, among others. The first question is do you expect these to release the neoadjuvant results from the interim analyses? The second question is what do you think will be required for regulatory approval in neoadjuvant studies?

And breast cancer Triple negative thoughts hormone positive and other indications and then finally what are your expectations. If you do get approval for Keytruda Neoadjuvant setting.

Physicians will also use keytruda in the AD you've been setting or will they wait for address that data for that.

Unknown Attendee: and Breast Cancer Triple Negative as well as Hormone Positive and other indications. And then, finally, what are your expectations if you do get approval for Keytruda in neoadjuvant settings? Do you think physicians will also use Keytruda in the adjuvant setting, or will they wait for adjuvant data for that use?

Well.

Lots of questions there, let me try and break them out.

First of all.

We do have a lot of studies in Neoadjuvant and and.

Those those studies are are driven by fundamental observations.

I think what we've come to recognize is that Keytruda works well in settings, where there is a.

Unknown Attendee: Well, Daina, there are lots of questions there. Let me try and break them down.

Inflammatory response in the tumor and tumor cell death. However, it's caused whether that's the result of radio therapy or the result of chemotherapy or potentially even the result of of surgical wounds that inflammation that takes place.

Unknown Attendee: First of all, we do have a lot of studies in neoadjuvant, and those studies are driven by fundamental observations. I think what we've come to recognize is that t-TRUDA works well in settings where there is an inflammatory response in the tumor. And tumor cell death, however it's caused, whether that's the result of radiotherapy or the result of chemotherapy or potentially even the result of surgical wounds, the inflammation that takes place is augmented by the presence of t-TRUDA, which improves responsiveness. And we see that in preclinical models, and it's played out in the clinic as well, and has driven a lot of our thinking about combination studies. And so that naturally led us to perform the Eisenman studies, and we began these some time ago.

That is augmented by the presence of Keytruda, which improves responsiveness and we see that in preclinical models on its kind out into the clinic as well in our has driven a lot of our thinking about combination studies and so that naturally led us to perform some studies and we began the some time ago.

And we're beginning to see results in early stage and even in phase three studies and I've talked about the keynote five to two neoadjuvant eisman data in triple negative breast cancer, which of course were built on the I spy data that we had earlier all of which suggests that neoadjuvant can provide good responses you specifically ask though about.

Unknown Attendee: And we're beginning to see results in early stage and even in phase three studies. And I've talked about the Keynote 522 neoadjuvant data in triple negative breast cancer, which, of course, were built on the iSPI data that we had earlier, all of which suggest that neoadjuvant therapy can provide good responses. You specifically asked, though, about the release of data from interim analyses, and clearly we will release those data as those data are important and that people need to hear about them. So it's really just a function of what data we get, and generally we tend to see these as important results that we want to present at scientific meetings. So we generally don't provide detailed information in the context of an investor presentation, but we tend to present it in a scientific setting, as we did at the European Society meeting in September.

Release of data from interim analyses and and clearly we will release those data as those data are important and that we can people need to hear about them. So it's really just a function of.

That what data, we get and generally we tend to see these as important results that we want to present and scientific meetings. So we generally don't provide detailed information in the context of an investor presentation, but we tend to present. These in the scientific setting as we did at the European Society meeting in September there.

Acquirements for regulatory approval are the traditional requirements here.

That is that.

But the agency is going to be interested either in evidence of a favorable benefit risk profile in the outcomes of treatment.

Unknown Attendee: The requirements for regulatory approval are the traditional requirements here, and that is that the agency is going to be interested either in evidence of a favorable benefit-risk profile in the outcomes of treatment, or they're going to want to have a surrogate that they believe is validated with respect to those kinds of endpoints. And I think that that will be true for neoadjuvant studies and adjuvant studies, as we've seen in the past. And our expectations are, as I've indicated, that this is going to prove to be an extremely important area, which is why we have so many neoadjuvant and adjuvant studies currently underway. We have something on the order of a hundred of them in various different settings. So it's really quite an important area for us.

Or they're going to want to have a surrogate that they believe is validated with respect to those kinds of endpoints and I think that that will be true for the Neoadjuvant studies and Thats been studies as we've seen in the past and our expectations are as I've indicated that this is going to prove to be an extremely important.

Area, which is why we have so many neoadjuvant in management studies currently underway.

We have something on the order of 100000 them altogether.

So it's it's really quite an important area for us.

We're hoping to get to everyone's questions today, so I'd like to ask if everyone could limits limited to one or two that'd be great next question. Please Jerome.

Your next question comes from the line as a merger rough Hot with Evercore you May ask your question hi, Thanks, So much Rob I actually wanted to touch up on operating margin a little more specifically and by my math I'm seeing 37.1% operating margin this quarter, which is materially higher than where consensus as in 2020.

Jerome: Great. We're hoping to get to everyone's questions today, so I'd like to ask if everyone can limit them to one or two. That would be great.

Umer Raffat: Next question, please, Jerome. Your next question comes from the line of Umer Raffat with Evercore. Can we ask your question? Hi, thanks so much.

And 2021 as well and my question is do you expect operating margin to be lower in the next couple of years versus where it stood in Threeq you 19, and then second E Mail difference.

Umer Raffat: Rob, I actually wanted to touch on operating margin a little more specifically. And by my math, I'm seeing 37.1% operating margin this quarter, which is materially higher than where consensus is for 2020 and 2021 as well. And my question is, do you expect operating margin to be lower in the next couple of years versus where it stood in 3Q19? And then, secondly, maybe on different animal health for a second. It seems like Breveto has been a very strong driver over the last several years. And my question is, how do you expect your reported animal health revenues to change now going into the next couple of years with Zoetis launching their trio? And what's your timing for a potential trio filing? Thank you very much.

Ill health for a second.

It seems like the vector has been a very strong driver over the last several years and my question is how do you expect your reported animal health revenues to change now going into next a couple of years, which led us launching their trio and what's your timing of potential trio filing. Thank you very much.

Yes, I appreciate the questions on the operating margin.

I don't want to get into specific guidance.

As I said I think as you look at this year.

The growth we had been operating margin is exceptional.

Because of the fact that sales outpaced.

Our expectations and frankly outpaced our spend so.

That's really driven by the power of the of what the revenue one can give.

Beyond that I would wait till we get to our 2020 guidance to give more specifics as we look forward.

Rob Davis: Yeah, I appreciate the question. So on the operating margin, I don't want to get into specific guidance. You know, as I said, I think as you look at this year, the growth we had in operating margin is exceptional because of the fact that sales outpaced our expectations and frankly outpaced our spend. So that's really driven by the power of what the revenue line can give. You know, beyond that, I would wait till we get to our 2020 guidance to get more specific as we look forward.

With regard to animal health and what we're seeing there. So youre correct Bravecto has been an important growth driver for that business Ross actually now also dosing good growth overall coming from.

Production side of the business as well you sold the livestock group.

12%.

Quarter, driven by the benefits of the until it products, we bought into the company as well as.

Good growth in companion animal as we look forward, we continue to believe that the animal health business will grow at a rate faster than the overall market driven by the innovative products. We have both in companion animal as well as across the broader vaccines and portfolio and other portfolio of products we have.

Rob Davis: With regard to animal health and what we're seeing there, so you are correct, Vervecto has been an important growth driver for that business. We're actually now also seeing good growth overall coming from the production side of the business as well. You saw that livestock grew 12% in the quarter, driven by the benefits of the Antelic products we brought into the company, as well as good growth in companion animals. As we look forward, we continue to believe that the animal health business will grow at a rate faster than the overall market, driven by the innovative products we have, both in companion animals, as well as across the broader vaccines and portfolio and other portfolio of products we have. So our view of the strength of the growth in that business hasn't changed over the long term.

So our view of the strength of the growth in that business hasn't changed long term.

As we look to the triple combo, that's coming from competitors, we actually have some programs in development.

Commented specifically on those let's say to say.

We're aware of that and work is underway in our own portfolio, but I'd bring you back to the benefits received from our Bravecto product. It is the only 12 week.

Oral therapy in the marketplace today.

And we continue to see that and very good demand and frankly believed that that would be a competitive product even in light of an evolving.

Competitive set through innovation, which we will eventually mounts through our own development efforts.

Greg next question please.

Rob Davis: As we look at the triple combo that's coming from competitors, we actually have some programs in development. We haven't really commented specifically on those, but it's safe to say we're aware of that, and work is underway in our own portfolio, but I bring you back to the benefits we see from our Vervecto product. It is the only 12-week oral therapy in the marketplace today, and we continue to see it in very good demand and frankly believe that it will be a competitive product, even in light of an evolving competitive set through innovation, which we will eventually match through our own development efforts.

Next question comes from the line if traffic Chung with Bank of America Merrill Lynch, Let me ask your question.

Hi, Good morning, guys. Thanks, so much of the question just have a couple of quick ones.

Rubber Frank when you talk about the opportunity in China broadly can you talk about the pricing strategy at a high level Im just trying to understand given the size of the population the upcoming competitive backdrop. When you think about companies in the region.

And the second ones for Roger I know five to two questions had been asked I wanted to ask you more broadly given the results in triple negative breast is this indicator of success and the bigger segments of the market in cold tumors.

Geoffrey Meacham: Great. Next question, please. Your next question comes from the line of Geoff Meacham with Bank of America in Maryland. You may ask your question. Good morning, guys. Thanks so much for the question. I just have a couple quick ones. Rob or Frank, when you talk about the opportunity in China broadly, can you talk about the pricing strategy at a high level? I'm just trying to understand, given the size of the population, the upcoming competitive IO backdrop when you think about companies in the region.

I know you've gotta look at each study individually, but I am activity and cold tumors. Obviously is thus far been been pretty underwhelming. Thank you.

Great. Thanks, Frank on China.

Sure. So on on China, we feel very pleasing we mentioned this during investor day at our current growth rate. This quarter you see we grew 90% in year to date, we've seen very strong growth in China, It's really been driven by Keytruda gardasil.

Geoffrey Meacham: And the second one's for Roger. I know, you know, 522, his question's already been asked, but I wanted to ask you more broadly, given the results in triple negative breast cancer, is this an indicator of success in the bigger segments of the market in cold tumors? I know you've got to look at each study individually, but IO activity in cold tumors, obviously, has thus far been pretty underwhelming.

Lynparza FEMA and also Januvia when it was added to the NRG owned 27 team.

With regards to some of the pricing dynamics in China, We do anticipate based off of volume based pricing in the roll out two additional provinces that there will be some headwinds in pressure when some of our more mature brands in China as we mentioned even with that we're still very confident because the majority.

Frank Clyburn: Thank you. Great, thanks. Frank on China?

We have our portfolio is now pivoted to the innovation side and that is what is going to drive the growth going forward.

Unknown Attendee: Sure. So on China, we feel very pleased, and we mentioned this to an investor today at our current growth rate. This quarter, you see we grew 90%. And year to date, we've seen very strong growth in China. It's really been driven by Katruda, Gardasil, Limparza, Limfima, and also Genuvia when it was added to the NRDL in 2017.

As far as NRG L and access we are still working we're actually working through the entered deal process right now in China, we have to wait and see how that plays out but we're encouraged about China, both today and the self pay marketing and obviously, if we do receive and our deal reimbursement it opens up a.

Significant amount of new patients that we could treat with keytruda as well as other parts of our portfolio.

Frank Clyburn: With regard to some of the pricing dynamics in China, we do anticipate, based on volume-based pricing and the rollout to additional provinces, that there will be some headwinds and pressure on some of our more mature brands in China. But, as we mentioned, even with that, we're still very confident because the majority of our portfolio is now pivoted to the innovation side. And that is what is going to drive growth going forward. As far as NRDL and access, we are still working; we are actually working through the NRDL process right now in China. We'll have to wait and see how all of that plays out, but we're encouraged about China both in the self-pay market today. And then obviously, if we do receive NRDL reimbursement, it opens up a significant number of new patients that we could treat with Katruda, as well as other parts of our portfolio.

Roger.

And Jeff Thanks to the question I think.

As you point out the two fundamental issue is that while we see terrific results with keytruda in a substantial fraction of cancer patients that still leads.

Substantial pressure on a very substantial traction in some tumor setting. So just don't respond to the question is why we've we've published data.

Which we presented to access plot of.

Inflammatory response versus tumor mutational burden, which are related but only weekly.

And it is the case that that tumors with higher mutational burden, especially very high mutational burden as you see Indiana side.

Relation respond extremely well the question that is that we are asking a whole variety of studies is how can we take these less responsive tumor populations and make them more recognizable and a better trigger for immune responsiveness.

I can involve combinations with other agents that can involve.

Unknown Attendee: [inaudible] And Geoff, thanks for the question. I think, as you point out, the fundamental issue is that while we see terrific results with Keytruda in a substantial fraction of cancer patients, that still leaves a substantial fraction, a very substantial fraction, in some tumor settings who just don't respond, and the question is why. We've published data in which we present a two-axis plot of an inflammatory response versus tumor mutational burden, which is related but only weakly, and it is the case that tumors with higher mutational burden, especially very high mutational burden, as you see in the MSI population, respond extremely well. So the question that we are asking in a whole variety of studies is how can we take these less responsive tumor populations and make them more recognizable We do see Keytruda as a foundation for that treatment, Keytruda plus other things that will enable us to gain access to these less responsive patient populations, but we're hard at work on it.

Interventions that caused mutations to become fix a whole variety of other things that we are we're pursuing.

Ultimately that will be an important frontier.

We do see Keytruda as a foundation for that treatment. It will be keytruda plus other things that will enable us to gain access to these less responsive patient populations, but we're hard at work on it.

Great next question please.

Turn next question comes from the line as a marriage Goldstein with Mizuho you May ask your question.

Great.

Okay Fair question [laughter] I recognized that our China has had a very good growth up 90 plus percent this quarter, but I'm just wondering.

Soccer around economic sensitivity should there be.

Type of protected protracted economic slowdown.

And I work out the question on just okay, and endometrial cancer study when artists in clinical trials Dot Gov.

Area growth like a lengthening our estimated completion and I'm wondering if this is a function of harvesters roll out and that ambition.

Frank on.

China, Yes on China, what is happening is with regards to the four plus seven pilots. So there are pilots that are underway in China that are looking at tendering processes for some of the more mature brands across the industry right now the impact to us is pretty much been kohl's aren't.

Jerome: Great, next question, please. Your next question comes from the line of Amara Goldstein with Mizzou Hall. You may ask your question, okay?

Singular or the two products however for us as we go forward in is that a process. We do anticipate will expand into the 31 provinces overtime in China. It really will put some additional pricing pressure on the power more mature portfolio as I mentioned just.

Mara Goldstein: Thanks so much for taking our questions. The first one is that China has had very good growth, up 90 plus percent this quarter, but I'm just wondering what the thoughts are around economic sensitivity. Should there be some type of protracted economic slowdown? And then I wanted to ask a question about Jeffa Pixent and the endometrial pain study. We noticed on clinicaltrials.gov that there is a slight lengthening of the estimated completion time, and I'm wondering if this is a function of Orlis's rollout in that indication.

To give you a perspective the reason why we're seeing the significant growth in China is because two thirds of our portfolio already is an innovative part of our business. So both products. We feel very confident will not be a part of the volume based procurement rollout, which we believe will allow us to confirm.

Frank Clyburn: Frank on China

Frank Clyburn: Yes, so in China, what is happening is with regard to the 4 plus 7 pilot. So there are pilots that are underway in China that are looking at tendering processes for some of the more mature brands across the industry. Right now, the impact on us has pretty much been Cozar and Singular, the two products.

Revenue to grow not only near term, but also over the next.

Several years of long term in China, and it's really being driven by the innovative portfolio of Keytruda Lynparza lymphedema, Gardasil should new via and some other additional launches that we plan. So while there will be headwinds to the older portion of the part for portfolio, we feel very good that our pivot to innovation is.

Unknown Attendee: However, for us, as we go forward, and as that process, which we do anticipate will expand into the 31 provinces over time in China, really will put some additional pricing pressure on our more mature portfolio, as I mentioned. Just to give you a perspective, the reason why we're seeing such significant growth in China is because two-thirds of our portfolio already is in the innovative part of our business. So those products we feel very confident will not be a part of the volume-based procurement rollout, which we believe will allow us to continue to grow, not only in the near term, but also over the next several years and in China for the long term. And it's really being driven by the innovative portfolio of Katruda, Lamparza, Lembima, Gardasil, Genuvia, and some other additional launches that we plan. So while there'll be headwinds to the older portion of the portfolio, we feel very good that our pivot to innovation has really helped us, not only in the near term, but it will continue to help us in the long term.

Really helped us not only in the near term, but we'll continue to help us in the long term.

Roger on Jeff, Jeff, a fix and I mean, we as you indicated we're pursuing a set of of interesting indications would this be two X three antagonist that because we think it could turn out to be broadly useful beyond.

The product cough indication, where we are in phase three but I wouldn't read anything into the the timing of completion of studies, we update clinical trials on GVE as we get more information from clinical operations. When we started out particularly in these indications endometrial pain, another areas, where we're not 100%.

About feasibility we we make the gas on what we think the enrollment rates are going to be in sites and of course every study is different because the enrollment criteria different and as we prosecute these studies, we get better estimates of when.

Trials will actually complete we update clinical trials that doesn't it's not a it's not a tool that helps one resolve.

Mara Goldstein: I'm a PICC fan. As you indicated, Mara, we're pursuing a set of interesting indications with this P2X3 antagonist because we think it could turn out to be broadly useful beyond the chronic cough indication where we are in Phase 3. But I wouldn't read anything into the timing of the completion of studies. We update clinicaltrials.gov as we get more information from clinical operations. We start out particularly in these indications, endometrial pain, and other areas where we're not 100% sure about feasibility. We make a guess on what we think enrollment rates are going to be at sites. And, of course, every study is different because the enrollment criteria are different. And as we progress with these studies and we get better estimates of when trials will actually complete, we update clinicaltrials.gov. Great. Next question.

Specifically, what's going on in the marketplace for example.

Next question please.

Our next question comes from the line, if Niveen make Jacob where you'd be asking me ask your question.

Great. Thanks for taking my question two questions on Gardasil US was strong this quarter despite.

Tough comp.

From last year and wondering if.

That's partly.

What you're attributing the decline in Q4 two.

You are saying Q4, it will be down I think $150 million or there'll be a worked out of under $50 million is that part of just a push out of what we're supposed to happen this quarter on a relative basis or is there.

Growth.

This quarter.

And underlying demand above and beyond I think what any of US expected and then just maybe a question for Roger Roger wondering your thoughts on cell therapy, some of the new modalities, whether its tils or apc's as a means.

Jerome: Next question, please. Your next question comes from the line of Naveen Jacob with UBS. You may ask your question. Great. Thanks for taking my question. Two questions.

For targeting particularly.

Naveen Jacob: On Gardasil, the U.S. was strong this quarter despite a tough comp from last year. I'm wondering if that's partly what you're attributing the decline in Q4. You're saying Q4 will be down, I think $150 million, or there'll be a work down of $150 million. Is that part of just a push out of what was supposed to happen this quarter on a relative basis, or is there growth this quarter in underlying demand above and beyond, I think, what any of us expected?

You bet checkpoint inhibitor refractory patients. Thank you very much.

Greg Frank U.S. Garceau Garceau grew in the us approximately 3% if you exclude.

Or excluding FX underlying demand growth in price did drive growth, which was partially offset in Q3, but CDC purchase in timing so.

We did not see CDC purchases in Threeq too as we expected, which is why you saw 3% growth.

Frank Clyburn: And then just maybe a question for Roger. Roger, I was wondering your thoughts on cell therapy, some of the new modalities, whether it's TILs or APCs as a means for targeting particularly checkpoint inhibitor refractory patients? Thank you very much. Great. Frank, U.S. Gardasil grew in the U.S. approximately 3%.

Borrowings that we mentioned noted Rob mentioned earlier on in the call will be borrowing that will take place in the fourth quarter of this year, which will reduce our fourth quarter sales by approximately $120 million compared to Q4 of 18.

Frank Clyburn: If you exclude, or exclude FX, underlying demand growth and price did drive growth, which was partially offset in Q3 by CDC purchasing timing. So, we did not see CDC purchases in 3Q as we expected, which is why you saw 3% growth. The borrowing that we mentioned, or that Rob mentioned earlier in the call, will be borrowing that will take place in the fourth quarter of this year, which will reduce our fourth quarter sales by approximately $120 million compared to Q4 of 2018.

And Roger and cell therapy on cell therapy, and we love to date in hematologic malignancy.

And I.

I think a challenge is how to translate into that into solid tumors, where the tumor specific pathogens are less clear, obviously, if you're targeting cdnineteen and you get rid of all B lymphocytes will patients can live with the with the elimination of all the lymphocytes, including of course, the malignant ones, but normal ones too if you are.

Targeting on the other again.

Antigens, which are not sufficiently tumor specific in solid tumors than you potentially do enormous damage to normal structures and and Thats problematic I think there are some things on the horizon, which will improve that and we're watching carefully and clearly with the other areas you mentioned tumor infiltrating lymphocytes cetra better protocols are evolving.

Unknown Attendee: Roger, on cell therapy, we love the data on hematologic malignancies, and I think a challenge is how to translate that into solid tumors, where the tumor-specific antigens are less clear. Obviously, if you're targeting CD19 and you get rid of all B lymphocytes, well, patients can live with the elimination of all B lymphocytes, including, of course, the malignant ones, but normal ones, too. If you're targeting, on the other hand, antigens which are not sufficiently tumor-specific in solid tumors, then you potentially do enormous damage to normal structures, and that's problematic. I think there are some things on the horizon which will improve that, and we're watching them carefully. Clearly, with the other areas that you mentioned, tumor-infiltrating lymphocytes, et cetera, better protocols are evolving, so it's an area of great interest and clearly something that we would want to incorporate as time goes by and things get better.

So it's a it's an area of great interest and clearly something that we would want to incorporate as time goes buying things get better.

Great, we're going to try and get into more questions. Please next question.

Your next question comes from the line of Steve Scala with Cohen you May ask your question. Thank you first Roger as a medical Doctor. If you were carrying for a first line lung cancer patients where would you prescribe opdivo plus yervoy instead of Keytruda, plus chemo and how big is that.

Population and then one for Frank Pro caught caught pro Quad had a strong Q3, which followed a strong Q2, which in Q2.

Jerome: Great. We're going to try and get in two more questions, please. Next question. Your next question comes from the line of Steve Scala with Cohen. You may ask your question. Thank you. First, Roger, as a medical doctor, if you were caring for a first-line lung cancer patient, where would you prescribe Opdivo plus Urovoi instead of Keytruda plus Chemo, and how big is that population?

You said was attributed in part to buying in the private sector. So how sustainable is the strength, we've now seen several quarters in a row. Thank you.

Great Roger.

Well, Steve with respect to first on non small cell lung cancer.

It is looking at the data that we've seen presented in some detail which is the two to seven data both.

Steve Scala: And then one for Frank, ProQuad had a strong Q3, which followed a strong Q2, which, you said, was attributed in part to buying in the private sector. So how sustainable is the strength we've now seen for several quarters in a row? Thank you.

In publication and presentation at ESMO.

It's difficult to identify the patient population in which a combination of in this case.

Tivo and Yervoy would be the right choice.

Unknown Attendee: Well, Steve, with respect to first-line non-small-cell lung cancer, it is, you know, looking at the data that we've seen presented in some detail, which is the 227 data, both in publication and presentation at ESMO, it's difficult to identify the patient population in which a combination of, in this case, Opdivo and Urovoi would be the right choice, but I think that the argument that has been made by our I think you'd have to look at those data very carefully because, of course, our data in PD-L1 negative patients in the chemo combo setting is, I think, really quite strong, and the safety profile, as we've rolled out the Keynote 189 data and as it's being used in the marketplace, is also very good.

But I think that that the argument that has been made.

By our colleagues at Bristol Myers is in particular, they're looking at those individuals in whom there is less PDL. One expression I think you'd have to look at those data very carefully because of course, our dividend PDL one negative.

Issuance in the chemo combo setting is I think really quite strong and the safety profile as we grow without that one ignite data and as it's being used in the marketplace is also very good. So I'm I'm, just not sure where I see a special needs for the use of a combination of seats.

Daily for antibody I'm I'm eager to see our own date as I indicated.

For the 598 study to to actually get a better sense of what.

It's aluminum and Yervoy will add to keytruda and that might help to refine that question, a little bit, but I can't really come up with a specific answer to it and Frank on pediatric vaccines yen. So we saw it to your point another very strong quarter of 19% growth in the U.S. The growth was about 12% ex us 52.

Unknown Attendee: So I'm just not sure where I see a special niche for the use of a combination of a CTLA-4 antibody and another antibody. I'm eager to see our own data, as I indicated for the 598 study, to actually get a better sense of what ipilimumab and Urovoi will add to Keytruda, and that might help to refine that question a little bit, but I can't really come up with a specific answer to it.

Percent the growth is being driven in the third quarter by increasing demand there were some price benefits and there is some offset by a buyout that did take place in Q2, we'll expect to see some additional buyout as we get into Q4, but overall the demand.

Frank Clyburn: and Frank on Pediatric Vaccines.

Frank Clyburn: Yeah, and so we saw, to your point, another very strong quarter of 19% growth in the US. The growth was about 12% x US 52%. The growth is being driven in the third quarter by an increase in demand; there were some price benefits, and there was some offset by a buyout that did take place in Q2. We'll expect to see some additional buyouts as we get into Q4. But overall, the demand for pediatric vaccines continues to remain strong.

For our pediatric vaccines continues to remain strong Greg last question. Please.

Your last question stems from the line as Terence Flynn with Goldman Sachs. You May ask your question.

Great. Thanks for taking the question.

Maybe to follow ups. Just wondering if you are planning to file for approval of Keytruda and Neoadjuvant Triple negative breast based on the PCR data from five to two or if youre going to wait for that Fs data and then Rob you mentioned pricing pressure in 2020 can you quantify the impact there relative to what you're seeing in 2019 and any particular.

Jerome: Great. Last question, please. Your last question comes from the line of Terence Flynn with Goldman Sachs. You may ask your question. Great, thanks for taking the question. Maybe two follow-ups. Just wondering if you are planning to file for approval of Keytruda in neoadjuvant triple negative breast cancer based on the PCR data from 522 or if you're going to wait for the EFS data. And then Rob, you mentioned pricing pressure in 2020. Can you quantify the impact there relative to what you're seeing in 2019 and any particular areas?

As to call out thank you.

Great Roger on Slide 20.5, 22, we are clear pull that data together and we're having discussions with regulatory agencies and we'll see exactly how that goes over time and of course. Meanwhile, additional data will accrue so we'll see where we get too great right, Yes, and Andrea question of pricing pressure really the.

Terence Flynn: Roger on 522. On 522, we have pulled the data together, and we're having discussions with regulatory agencies, and we'll see exactly how that goes over time, and, of course, in the meantime, additional data will be approved, so we'll see where we get to. Great.

The context in which I was commenting was just to make sure as we look at what is truly exceptional growth in revenue and earnings and.

The quarter of 20 million from third quarter 2019 wells.

Guided for the full year.

As we think about growth going into next year and as you think about your models to be cognizant of the fact that we do expect to see incremental.

Unknown Attendee: Yeah, and on the question of pricing pressure, really, the context in which I was commenting was just to make sure as we look at what is truly exceptional growth in revenue and earnings in both the quarter of 2019, the third quarter of 2019, as well as what we have guided for the full year, as we think about growth going into next year, and as you think about your models, be cognizant of the fact that we do expect to see incremental price pressure over and above where we have I'm not going to specifically quantify it, but it was really to give you directional thinking as you look at your growth models for next year.

Price pressure over and above where we have been in 2019, I'm not going to specifically quantify it but it was really to give you directional thinking as you look at your growth models for next year, great. Okay. Okay, and closing 2019 is shaping up to be a year of very exciting growth for our company and we're looking forward.

Great confidence in our ability to execute innovate with confidence, but we're not complacent.

Contrary to terminate use our strong client position as an opportunity to take the steps necessary to ensure merck's continued success long into the future, including pursuant to best avenues for inorganic and organic growth as well as involving our operating model to drive productivity and cost to operations and look forward.

Rob Davis: Great. Okay. Okay.

Unknown Attendee: In closing, 2019 is shaping up to be a year of very exciting growth for our company. And we're looking forward with great confidence in our ability to execute and innovate with confidence, but we're not complacent. To the contrary, we're determined to use our strong current position as an opportunity to take the steps necessary to ensure Merck's continued success long into the future, including pursuing the best avenues for inorganic and organic growth, as well as evolving our operating model to drive productivity across our operations and look for ways to optimize our human health portfolio, all in an effort to create sustainable growth for the long term. Thank you very much, and we look forward to updating you on our progress as we go forward.

Thanks to optimize our human health portfolio, all in an effort to create sustainable growth for the long term. Thank you very much and we look forward to updating you on our progress as we go forward Greg. Thank you all very much.

Thank you. This concludes Merck and company third quarter 2018 sales and earnings Conference call you may now disconnect.

Jerome: Great

Jerome: Thank you all very much.

Jerome: Thank you. This concludes Merck & Co.'s 3rd Quarter 2019 Sales & Earnings Conference Call. You may now disconnect. BF-WATCH TV 2021

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