Q4 2019 Earnings Call

Good morning, My name is Carlo and I'll be your conference operator today.

Carlo: Good morning, my name is Carlo, and I will be your conference operator today. At this time, I would like to welcome everyone to the Merck & Co. Quarter 4 Sales and Earnings Conference. All lines have been placed on mute to prevent any background noise.

Five I would like to welcome everyone to the Merck and company order for sales and earnings conference call.

All lines have been placed on mute to prevent any background noise.

Unknown Attendee: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and then the number 1 on your telephone keypad. To withdraw your question, press the pound. I would now like to turn the call over to Peter Dannenbaum, VP of Investor Relations. Thank you, Carlo. And good morning.

After the speaker's remarks, there will be a question and answer session. If you would like to ask the question. During this time it seems your per store and then the number one on your telephone keypad withdraw your question first it bounty please limit your questions just one or two thank you.

I'd like to trying to call over to beat that emblem VP of Investor Relations. Please go ahead.

So I do Carlo and good morning, welcome to Merck fourth quarter 2019 conference call today, I'm joined by Ken Frazier or Chairman and Chief Executive Officer, Rob Davis, Our Chief Financial Officer, Dr., Robert Perlmutter Crescent, Merck Research Labs, and Kevin I'll leave it to be named Chief Executive Officer, or the New company, we have announced today.

Peter Dannenbaum: Welcome to Merck's fourth quarter 2019 conference call. Today, I'm joined by Ken Frazier, our Chairman and Chief Executive Officer, Rob Davis, our Chief Financial Officer, Dr. Roger Perlmutter, President of Merck Research Labs, and Kevin Ali, who will be named Chief Executive Officer of the new company we have announced today. Each will have prepared remarks. In addition, I'm also joined by Frank Clyburn, our Chief Commercial Officer, and Mike Nally, our Chief Marketing 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. You will see that we have items in our gap result.

Each will have prepared remarks. In addition, I'm also joined by Frank Cliburn, Our Chief commercial officer, and Mcnally, Our Chief marketing Officer, who will be available for the Q1 I portion of the cool.

Before I turn the call over to kinda I'd like to point out a few items you will see that we have items in our GAAP results, which is 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 reconciliation of our press release.

Peter Dannenbaum: You should note that we have 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. Private Securities Litigation Reform Act of 1995.

We've also provided the table Hopper 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 we make during today's call maybe considered forward looking statements within the meaning of the safe Harbor provision of U.S. Private Securities Litigation Reform Act at 1994.

Peter Dannenbaum: 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 findings, 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've also posted a presentation in the investors section of Merck.com, which includes some of the highlights from our results and announcement. With that, I'd like to turn the call over to Ken.

Such statements are made based on the current beliefs of Merck's management and are subject to significant risks and uncertainties, if our underlying assumptions prove inaccurate or uncertainties materialize actual results may differ materially from no supporting the forward looking statements.

Do you see farms, including I didn't want to you on 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 and any of our forward looking statements made this morning.

Work undertakes no obligation to publicly update any forward looking statements you can see our FTC filings as well today's earnings release on Merck Dot com.

Balkan posted a presentation to the Investor section at Merck Dot Com, which include so the highlights from our results at announcement with that I'd like to turn the call over to come.

Unknown Attendee: Thank you, Peter. We're very pleased to speak with you this morning as we close out what we consider to be an exceptional year for Merck. And we're excited to announce our intention to create two leading growth companies through the spinoff of our women's health, legacy brands, and biosimilar products into a new company. As you can see from our results and our 2020 guidance, Merck had an extraordinary year and is in a position of operational and financial strength driven by strong execution of our strategy and focus on our key growth drivers and innovative pipelines. It is this position of strength, born of that focus, that gives us the confidence to do what we believe will best position us to deliver even greater value to patients in shared hope.

Thank you Peter.

We're very pleased to speak with you. This morning. After we close out what we consider to be an exceptional year from Merck and we're excited to announce our intention to create two leading growth company and the spin off of our women's health legacy brands and bio similar product into a new company.

As you can see form results and our 2020 gardens Merck had an extraordinary year is there not every now and is in a position of operational and financial strength driven by strong execution of our strategy and focus on on key growth drivers in innovative pipeline.

It is this position of strength more of that focus that gives us the confidence do what we believe will best position us to deliver even greater value to patients and shareholders.

Throughout my entire tenure as CEO, we have consistently focused on science as core to wash strategy not only benefit the most patients but also as a means of creating the most value.

Unknown Attendee: Throughout my entire tenure as CEO, we have consistently focused on science as core to our strategy to not only benefit the most patients but also as a means of creating the most value. As you've seen, Merck's portfolio has evolved from one focused largely on primary care products to one focused on oncology, vaccines, hospital, and animal health. It is this purposeful shift, coupled with greater prioritization and focus on key growth drivers, that has led to the unprecedented growth that we are now experiencing. Going forward, we see even greater opportunities to invest behind our innovative growth strategy. In placing greater focus and priority on these products, we must also think carefully about how to make the best possible use of the remainder of our expansive human health portfolio, which is comprised of more than 160 products in total.

You've seen merck's portfolio have evolved from one focused largely on primary care products to one focused on oncology vaccines hospital and animal health.

[laughter] purposeful ship, coupled with greater prioritization and focus on key growth drivers that has led to the unprecedented growth that we're now experiencing.

Going forward, we see even greater opportunities to invest behind all the innovative growth drivers.

Placing greater focus and prioritization be highlands contacts we must also think Chelsea about how to make the best possible use of the remainder of our expansive human health portfolio, which is comprised of more than 160 product in total.

Our responsibility for patients and shareholders has let us to thinking about how we can maximize impacted this vast array of human health products.

Unknown Attendee: Our responsibility to patients and shareholders has led us to think about how we can maximize the impact of this vast array of human health products. Therefore, after careful consideration over time, we've made the decision to separate into two companies, one a research-intensive biopharmaceutical leader, and the other a new company focused on becoming a leader in women's health with the capability to realize the full potential of a portfolio of trusted and medically important legacy products and a rapidly expanding biosimilars business. By spinning off NUCO as a distinct business, we can better prioritize and support a set of products that no longer fit in Merck's strategic framework but which remain important to public health and the patients who rely on them, and which, if managed and resourced appropriately, present real opportunities for growth.

Therefore, after careful consideration overtime, we've made the decision to separated into two companies Juana research impressive biopharmaceutical leader younger a new company focused on becoming a leader in women's health with the capability to realize the full potential of a portfolio of trust.

And medically important legacy products and a rapidly expanding bio similars business.

By spending all newco acid distinct business, we can better prioritize and support a set of products that no longer [laughter], Merck strategic framework, which remains important to public health and the patients who rely on them.

Yeah, Rich Masterson, resourced appropriately present real opportunities for growth.

We're also mindful of the changing industry landscape and believe that evolving all operating model in this way well Merck could benefit from an even more intense focus on breakthrough science immunization.

Unknown Attendee: We're also mindful of the changing industry landscape and believe that evolving our operating model in this way will allow Merck to benefit from an even more intense focus on breakthrough science and innovation. As I stated on Investor Day in June, our mission and rich legacy of inventing to save and improve lives is the foundation of our company. The separation of NUCO will help us in our aspiration to be the premier research-intensive biopharmaceutical company by allowing us to focus on innovations that prevent and treat diseases. And over the past few years, we have seen how more focus and more prioritization lead to more growth, more efficiency, and more value creation. The spinoff will also create significant opportunities for NUCO. As an independent company, NUCO will pursue a strategic intent of becoming a global leader in women's health, an area where future opportunities are significant.

As I stated at our Investor Day in June our mission enriched legacy of inventing to say even improve velocity is the foundation of our company.

[laughter] frustration of Newco will help us and our aspiration to be the Premier research intensive biopharmaceutical company by allowing us to focus on innovation that forget in threeq diseases and over the past few years, we have seen how are more focused and more prioritization leads to more growth more efficiency and more.

Value creation.

The spinoff will also create significant opportunities for new coal as an independent company Newco will pursue a strategic intent of becoming a global leader women's health and area, where the future opportunity saw significant.

In addition to the growth potential in women's health Nucor's growth will be fueled by more fully realizing the full potential of a portfolio of trusted legacy brands and pain, dermatology cardiovascular and other areas as well as its rapidly expanding bio similars business.

Unknown Attendee: In addition to the growth potential in women's health, NUCO's growth will be fueled by more fully realizing the full potential of a portfolio of trusted legacy brands in pain, dermatology, cardiovascular, and other areas, as well as its rapidly expanding biosimilars business. This new company will have the strategic freedom to pursue additional growth opportunities through life cycle management and targeted acquisitions and partnerships in women's health, dermatology, and other fields. NewCo will be led by a highly experienced leadership team, including Kevin Ali, who has been named Chief Executive Officer. Ali has a proven track record of leadership at Merck and deep experience in global pharmaceutical markets and diverse therapeutic areas. In addition, NUCO's board will be chaired by Carrie Cox, who has extensive experience in pharmaceutical commercialization, particularly in women's health, as well as broad leadership and board experience, including as former chairman and CEO of Humacyte, former chairman of Array Biopharma, and as president of Global Pharmaceuticals at Sherwin-Plow prior to its merger with Merck.

No company will have the strategic freedom to pursue additional growth opportunities through lifecycle management and targeted acquisitions and partnerships and women's health dermatology and other fields.

Newco will be led by a highly experienced leadership team, including Kevin I'll eat who has been named Chief Executive Officer.

Kevin has a proven track record of leadership at Merck with deep experience in global pharmaceutical markets and diverse therapeutic areas.

In addition, Yukos board will be shared by carry cost.

His extensive experience in pharmaceutical commercialization, particularly in women's health as well as broad leadership and board experience, including US former chairman and CEO of humor site, former chairman of array biopharma to sort of Biopharma and as president of global Pharmaceuticals that show in cloud prior to its merger.

With Merck.

We're confident that newco will be an experienced and capable hands with this leadership team.

Unknown Attendee: We're confident that NUCO will be an experience in capable hands with this leadership team. Our industry faces emerging challenges such as the rising cost of innovation and increasing pressures around pricing and market access. In this environment, we must maximize our opportunities to act with greater operational agility, efficiency, and productivity.

Our industry faces emerging challenges such as the rise in cost innovation, and increasing pressures around pricing and market access.

And this environment, we must maximize our opportunities to ask with greater operational agility efficiency and productivity.

That's somewhat more focused companies with more optimal resource allocation, both mark and newco will be better position to continue to positively impact the lives of patients improved global public health and achieve faster growth.

Unknown Attendee: As separate, more focused companies with more optimal resource allocations, both Merck and NUCCA will be better positioned to continue to positively impact the lives of patients, improve global public health, and achieve faster growth. As a result, we expect Merck shareholders to benefit through ownership of two focused companies, each with attractive financial characteristics and growth profiles. In summary, we are seeing the benefit of focusing our organization on its best growth opportunity. As we look out to 2024, we believe the strength of our business is underappreciated. We are more confident than consensus on every key financial metric, including revenue, operating margins, and EPS growth. Our commitment to maintaining and growing the Merck dividend is evidence of the confidence we have in the long-term prospects for our business.

As a result, we expect Merck shareholders to benefit through ownership of true focused companies, each with attractive financial characteristics and growth profiles.

In summary, we are freezing the benefit of focusing our organization on its best growth opportunities.

Got to 2024, we believe the strength of our business is under appreciated.

We're more confident than consensus on every key financial metrics, including revenue.

Operating margin and EPS growth.

Our commitment to maintaining and growing the mark given that youve evidence of the confidence we have in the long term prospects fraud business.

Unknown Attendee: Our fundamental operating and financial strengths allow us to take bold steps to stay ahead of the curve by reshaping our operating structure, focusing, and streamlining Merck, enabling Merck to become an even stronger, more agile, and faster growing company. I strongly believe that this is the right thing for patients, for public health, and for shareholders. With that, I'll now pass it on to Rob to discuss our results and provide more details on the spinoff. Rob?

Our fundamental operating and financial strength allow us to take bold steps to stay ahead of the curve body shaping our operating structure, focusing and streamlining month, enabling birth to become an even stronger more agile and faster growing company.

I strongly believe that this is the right thing for patients.

Macau and for shareholders with that I'll now pass it onto dropped to discuss our results and provide more details on the spinoff Rob.

Rob Davis: Thanks, Ken, and good morning, everyone. I'm excited to speak to you this morning about our 2019 results, as well as our decision to spin off a portion of our human health business, a decision that will enhance the value of both Merck and NUCO. 2019 was a year of exceptional growth for our business, with revenues increasing 13% and non-GAAP EPS increasing 21%, excluding the impact of foreign exchange. Our strong performance reflects the continued execution of our science-led strategy. And we expect our business momentum to continue, particularly as we enhance our focus on our key growth drivers through this spinoff. I'll start by highlighting our strong fourth-quarter results before providing more details on the transaction and 2020 guidance.

Thanks, Ken and good morning, everyone.

I'm excited to speak to this morning about our 2019 results.

Well as our decision to spin off a portion of our human health business decision that will enhance the value both Merck and newco.

2019, once a year of exceptional growth for our business with revenues, increasing 13% and non-GAAP EPS, increasing 21%, excluding the impact of foreign exchange.

Our strong performance reflects the continued execution of our science one strategy.

And we expect our business momentum to continue, particularly as we enhance our focus on our key growth drivers through the spinoff.

I'll start by highlighting our strong fourth quarter results before providing more details on the transaction and 2020 gardens.

Rob Davis: Total company revenues were $11.9 billion in the quarter, an increase of 8% year-over-year or 9% 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 $11.9 billion in the quarter, an increase of 8% year over year or 9%, 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 on an ex exchange basis.

Rob Davis: Our human health revenues grew 8%, led by products in oncology and hospitals. In oncology, Keytruda fourth-quarter sales were $3.1 billion, and for the full year, sales exceeded $11 billion, representing 58% growth versus 2018. In the U.S., growth was driven by strong demand across all indications. Petruda continues to lead across many indications, including lung, bladder, and head and neck cancers, with strong momentum in adjuvant melanoma and renal cell carcinoma, where we are seeing strong uptake across all patient subgroups.

Our human health revenues grew 8% led by products in oncology and hospital.

In oncology Keytruda fourth quarter sales were $3.1 billion and for the full year sales exceeded $11 billion.

Representing 58% growth versus 2018.

And the U.S. growth was driven by strong demand across all indications contributor continues to lead across many indications, including long wider and having that cancers with strong momentum and hadramut melanoma and renal cell carcinoma.

We're seeing strong uptake across all patient subgroups.

Rob Davis: Outside the U.S., Katrina sales in the quarter grew 50%, driven by lung globally, with reimbursement per keynote 189 now secured across all major markets in the EU, and strong uptake in lung following approvals in Japan and China. We are also seeing positive uptake from early launches in both renal cell carcinoma and adjuvant melanoma in the EU and expect to see strong global growth as these and other new indications continue to roll out. Our results also reflect continued strength for both Lymparza and Lymvema, important products from our collaborations with AstraZeneca and Ethi, respectively. Lymparza continues to show strong growth in ovarian cancer and maintains a greater than 60% total patient share in the PARP inhibitor class in the United States.

Outside of U.S. country to sales in the quarter grew 50% driven by loan globally with reimbursement for keynote 189 now secured across all major markets in new you and strong uptake and lung following approvals in Japan and China.

We're also seeing positive uptake from early launches are both renal cell carcinoma and adds about melanoma ended June and expect to see strong global growth.

These and other new indications continued rollout.

Our results also reflect continued strength for both one bars and one bema important products from our collaborations with Astra Zeneca and you start respectively.

Lynparza continues to have strong growth in ovarian cancer and maintains a greater than 60% total patient share and the PARP inhibitor class in the United States.

Growth in Poland PMO benefited from the launch of the endometrial carcinoma indication in combination with Keytruda and continued strong demand first wanted to kind of cellular carcinoma Roland beam as now the leading treatment agent.

Rob Davis: Growth of Lendema has benefited from the launch of the Endometrial Carcinoma indication in combination with Keytruda and continued strong demand for first-line hepatocellular carcinoma, where Lendema is now the leading treatment agent. Our vaccines business declined this quarter due to the impact of the replenishment of Gardasil to the CDC stockpile in 2018 and our borrowing from the stockpile in the fourth quarter of 2019, which negatively impacted the year-over-year comparison of Gardasil revenues by $245 million on a combined basis. Excluding these impacts, Garda's revenues still grew 16% driven by continued strong underlying global demand. Our hospitals business benefited from 24% growth in Brinion, which reached $1 billion in annual sales for the first time this quarter. Growth was largely driven by an increased share in the U.S. reversal market For the full year, we achieved strong growth of 14% in our human health business. Driven by our growth pillars across most geography

Our vaccines business declined this quarter due to the impact from the replenishment of Gardasil to the CDC stockpile in 2018, and our borrowing from the stockpile in the fourth quarter of 2019, which negatively impacted the year over year comparison of Gardasil revenues by 240 part.

Billion dollars on a combined basis.

Excluding these impacts Gardasil revenue grew 16% driven by continued strong underlying global demand.

Our hospital business benefited from 24% broken Bridion, which reached $1 billion in annual sales for the first time this quarter.

Growth was largely driven by increased share in the us reversal market.

For the full year, we achieved strong growth of 14% in our human health business, driven by our growth pillars across most geographies.

Animal health revenues increased 10% this quarter to $1.1 billion growth for the quarter was driven largely by the products acquired in the until like acquisition.

Now turning to the rest of RPL my comments will be on a non-GAAP basis.

Rob Davis: Animal health revenues increased 10% this quarter to $1.1 billion. Growth for the quarter was driven largely by the products acquired in the Antelic Acquisition. Now, turning to the rest of our P&L, my comments will be on a non-GAAP basis. Gross margin was 72.6% in the quarter, a decrease of 240 basis points year-over-year, primarily reflecting the impact of unfavorable manufacturing variants and Higher Inventory Write-off

Gross margin was 72.6% in the quarter.

Increase of 240 basis points year over year, primarily reflecting the impact of unfavorable manufacturing variances and higher inventory write offs.

Operating expenses of $5.2 billion increased 10% year over year.

Administrative and promotional expenses drove higher SGN any costs in the quarter, well clinical development spend and cost associated with our discovery efforts responsible for the increase in R&D expense.

Other income and expense was positively impacted by income or equity securities portfolio, partially offset by higher net interest expense.

Rob Davis: Operating expenses of $5.2 billion increased 10% year over; administrative and promotional expenses drove higher SG&A costs in the quarter, while clinical development spend and costs associated with our discovery efforts were responsible for the increase in R&D expenses. Other income and expense was positively impacted by income from our equity securities portfolio, partially offset by higher net interest expense. Our effective tax rate for the quarter was 16.9% driven by lower by lower and favorable earnings.

Our effective tax rate for the quarter was 16.9% driven by lower but by lower and favorable earnings mix.

Taken together, we earned $1.16 cents per share an increase of 12% excluding exchange.

Now turning to our announced spin off.

As Ken noted by further involving our operating model and separating into two simpler more focused and agile companies, both will be better position to respond to the changing external landscape.

Improve efficiency and accelerate growth, creating greater value for patients and shareholders than would be achieved as a single company.

Rob Davis: Taken together, we earned $1.16 per share, an increase of 12% excluding exchange. Now, turning to our announced spin-off. As Ken noted, by further evolving our operating model and separating into two simpler, more focused, and agile companies, both will be better positioned to respond to the changing external landscape, improve efficiency, and accelerate growth, creating greater value for patients and shareholders than would be achieved as a single company. Spending off NUCO accelerates Merck's revenue growth by up to 1 percentage point on a compounded average basis through 2024, but more importantly, it allows Merck to enhance focus on its key growth drivers and robust pipeline, giving us confidence that Merck will realize even greater incremental revenue growth over time. We will also benefit from more streamlined processes and operations, enabling further operating model efficiencies across the value chain.

Spending off Newco accelerates merck's revenue growth by up to one percentage point on a compounded average basis through 2024, but more importantly, it allows merchants sounds focus on its key growth drivers and robust pipeline.

This gives us confidence that merkel will realize greater incremental revenue growth over time.

We will also benefit from more streamlined processes and operations, enabling further operating model efficiencies across the value chain.

For context, the products to be spun off into neutral represent about 15% of merck's human health revenues based on 2020 forecasts.

Welcome sending a much larger share of our operations in resources in fact, separating newco will reduce merck's human health manufacturing footprint by about 25%.

The number of products by 50% and the number of skews by 60%.

As a result will be more optimized operating model Merck will achieve even higher operating margins overtime, creating additional headroom to invest in innovation, which we continue to believe is the key to our long term growth and value creation as Ken has referenced.

Rob Davis: For context, the products to be spun off into NUCCO represent about 15% of Merck's human health revenues based on 2020 forecasts, while consuming a much larger share of our operations and resources. In fact, separating NUCCO will reduce Merck's human health manufacturing footprint by about 25%, the number of products by 50%, and the number of SKUs by 60%.

Mark will continue to benefit from broad commercial scale driven by its key growth pillars in oncology vaccines hospital and animal health as well as our diabetes franchise.

Merck will continue to have a strong balance sheet with significant cash flows and financial flexibility, which will allow for investments in innovation and meaningful business development to augment thats the pipeline and portfolio, while continuing to return capital to shareholders.

We expect to complete the transaction in the first half of 2021 until then we will remain focused on continuing to successfully execute our strategy and maintaining our strong financial and operational performance.

Rob Davis: As a result of a more optimized operating model, Merck will achieve even higher operating margins over time, creating additional headroom to invest in innovation, which we continue to believe is the key to our long-term growth and value creation, as Ken has referenced. Merck will continue to benefit from broad commercial scale driven by its key growth pillars in oncology, vaccines, hospital, and animal health, as well as its diabetes franchise. Merck will continue to have a strong balance sheet with significant cash flows and financial flexibility, which will allow for investments in innovation and meaningful business development to augment its pipeline and portfolio while continuing to return capital to shareholders. We expect to complete the transaction in the first half of 2021.

Now, let's move to our outlook for 2020 year, and which we continue to operate as a combined entity.

My remaining comments will be on a non-GAAP basis.

We expect full year 2020 revenue to be between $48.8 billion and $50.3 billion, which represents 4% to 7% growth versus 2019.

This range assumes a negative impact from foreign exchange of less than one percentage point using mid January rates.

Our gross margin will be roughly 75.5%.

We expect operating expenses to increase by low single digit rate year over year due to higher R&D spending as we remain committed to fully funding the meaningful opportunities in our pipeline.

Best unit expenses will remain tightly managed.

Rob Davis: Until then, we will remain focused on continuing to successfully execute our strategy and maintaining our strong financial and operational performance. Now, let's move to our outlook for 2020, the year in which we continue to operate as a combined entity. My remaining comments will be on a non-GAAP basis. We expect full year 2020 revenue to be between $48.8 billion and $50.3 billion, which represents 4 to 7% growth versus 2019. This range assumes a negative impact from foreign exchange of less than one percentage point using mid-January rates.

We expect other expense of roughly $200 million driven by higher net interest expense.

We expect our tax rate to be roughly 17 and a half.

100% for the year.

We project average diluted shares to be 2.54 billion for 2020, and we expect yes to be between $5.62 and $5.77, which represents growth of 8% to 11%, including a roughly 1.5 percentage point negative impact from foreign exchange.

Using mid January rigs.

Longer term Merck continues to expect strong revenue growth driven by growing demand for innovative products.

When looking out to 2024, we believe our revenue growth potential is under appreciated even more so as we begin to realize the benefits of this transaction.

Rob Davis: Our gross margin will be roughly 75.5%. We expect operating expenses to increase by a low single-digit rate year-over-year due to higher R&D spending as we remain committed to fully funding the meaningful opportunities in our pipeline. SG&A expenses will remain tightly managed.

We continue to expect meaningful operating margin expansion over time.

A separation a new co enables $1.5 billion and pre tax operating efficiencies ratable over three years.

While initially merck's operating margins will decline slightly we expect to achieve operating margins of greater than 40% in 2024 higher than Merck would have achieved as a combined company.

Rob Davis: We expect other expenses of roughly $200 million, driven by higher net interest expense. We expect our tax rate to be roughly 17.5% to 18.5% for the year. We project average diluted shares to be $2.54 billion for 2020, and we expect EPS to be between $5.62 and $5.77, which represents growth of 8 to 11 percent, including a roughly 1.5 percentage point negative impact from foreign exchange using mid-January rates. In the longer term, Merck continues to expect strong revenue growth driven by growing demand for innovative products. When looking out to 2024, we believe our revenue growth potential is underappreciated, even more so as we begin to realize the benefits of this transaction. We continue to expect meaningful operating margin expansion over time. This separation of NUCO enables $1.5 billion in pre-tax operating efficiency over three years.

The transaction is expected to result in $8 billion to $9 billion of proceeds from a special tax free dividend from Newco.

Merck's capital allocation priorities remain unchanged and we expect to maintain and very solid financial and credit profile.

First and foremost we will fund our best growth opportunities through investments in R&D.

Arctic launches in capacity expansion.

And we believe the spinoff allows us to better focus on these activities.

Marks dividend will be unaffected by this transaction and we anticipate future dividend increases from the current 2020 dividend of $2.44 per share post separation with the goal of achieving a 47% to 50% payout ratio over time.

We will continue to have ample capacity for value enhancing business development and finally, we will continue to repurchase shares as a way to return excess cash to shareholders.

Turning now to Nucor's financial profile.

The products represented by the New company portfolio are expected to achieve 2020 revenue of approximately $6.5 billion with an operating margin of approximately 45% as part of Mark.

Rob Davis: While initially Merck's operating margins will decline slightly, we expect to achieve operating margins of greater than 40% in 2024, higher than Merck would have achieved as a combined company. The transaction is expected to result in $8-9 billion of proceeds from a special tax-free dividend from NUCCO. Merck's capital allocation priorities remain unchanged, and we expect to maintain a very solid financial and credit profile. First and foremost, we will fund our best growth opportunities through investments in R&D, product launches, and capacity expansion. And we believe the spinoff allows us to better focus on these activities.

As an independent company Newco as expected shoot to achieve low single digit revenue growth off of a 2021 base of 6 billion to six and a half billion dollars.

Taking into consideration to costs to operate as an independent company.

Operating margins for Newco are expected to be in the mid 30% range and increase overtime.

And finally, we anticipate EBITDA margins to be in the low to mid 40% range in 2021 and also increase overtime.

Newco will have strong cash flows and the balance sheet position to invest in growth opportunities and expects to pay a meaningful dividend, which will be at least as competitive as any likely peer company and entirely incremental to merge dividend.

Rob Davis: Merck's dividend will be unaffected by this transaction, and we anticipate future dividend increases from the current 2020 dividend of $2.44 per share post separation with the goal of achieving a 47 to 50 percent payout ratio over time. We will continue to have ample capacity for value-enhancing business development. And, finally, we will continue to repurchase shares as a way to return excess cash to shareholders.

In total we expect combined EPS of Newco and Merck together to initially be nominally lower than what Merck would have achieved without the spinoff.

As a result of the incremental growth that newco will achieve stand alone.

Combined with the benefit of the operating efficiencies that Merck will realize.

We expect that shareholders owning both companies were realized higher EPS within 12 to 24 months.

Rob Davis: Turning now to NUCO's financial profile, the products represented by the new company portfolio are expected to achieve revenue of approximately $6.5 billion in 2020 with an operating margin of approximately 45% as part of Merck. As an independent company, Duco is expected to achieve low single-digit revenue growth off of a 2021 base of $6 billion to $6.5 billion, taking into consideration the cost to operate as an independent company. Operating margins for NUCO are expected to be in the mid-30% range and increase over time. And finally, we anticipate EBITDA margins to be in the low to mid 40% range in 2021 and also to increase over time.

In summary, we are confident that through the spinoff both companies will have strong prospects for future success and sustainable profitable growth given the clear benefits future will realize as independently operated entities, including.

Enhanced strategic and operational focus on their key drivers to accelerate growth.

Improved agility to anticipate and responding to customer needs and evolving market dynamics.

Simplified operating models with reduce complexity and approved efficiencies.

Optimize capital structures and resource allocation to pursue their distinct strategic has joined us and improved financial profiles, making for unique and compelling investment cases.

We are excited by this opportunity to create two patient focused growth companies and look forward to continue to deliver significant long term value to our patients and shareholders.

Roger: NewCo will have strong cash flows and a balance sheet positioned to invest in growth opportunities and expects to pay a meaningful dividend, which will be at least as competitive as any likely peer company and entirely incremental to Merck's dividend. In total, we expect combined EPS of NUCO and Merck together to initially be nominally lower than what Merck would have achieved without the spinoff. But as a result of the incremental growth that NewCo will achieve standalone, combined with the benefit of the operating efficiencies that Merck will realize, we expect that shareholders owning both companies will realize higher EPS within 12 to 24 months. In summary, we are confident that through the spinoff, both companies will have strong prospects for future success and sustainable, profitable growth, given the clear benefits each will realize as independently operating entities, including enhanced strategic and operational focus on their key drivers to accelerate growth. We have improved agility to anticipate and respond to customer needs and evolving market dynamics.

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

Thanks, Rob.

Looking back on 2019 and in particular on our fourth quarter results there as much to celebrate.

Hey in December our keynote five seven data were reviewed at Ftn Ecologic drugs Advisory Committee meeting, which was part of the three weeks later by FDA approval of Keytruda as monotherapy for the treatment of certain patients with high risk non muscle invasive bladder cancer. This represents the 20 Threerd FDA approved indication for Keith.

Yes.

I think still further the benefit that can be expected from the use of keytruda in the urologic setting.

Sure to also gained three new approvals depend during the fourth quarter as combination therapy in the first line treatment of advanced renal cell carcinoma based on the four to six study.

And for the first line treatment of metastatic squamous cell carcinoma, the head and neck, either as monotherapy or when combined with chemotherapy based on results of the keynote or a trial. The keynote <unk> four eight data also committed approval of Keytruda in Europe with a similar indication.

Finally, we gained approval of Keytruda in China for the treatment of metastatic squamous cell carcinoma lung in combination with chemotherapy based on data obtained in the keynote <unk> four seven study.

Roger: Simplified Operating Models with Reduced Complexity and Approved Efficiency, Optimized capital structures and resource allocation to pursue their distinct strategic agendas, and improved financial profiles, making for unique and compelling investments. We are excited by this opportunity to create two patient-focused growth companies and look forward to continuing to deliver significant long-term value to our patients and shareholders. With that, I'd like to turn the call over to Roger.

Substantial progress has also made in the registration of Lynparza, our leading PARP inhibitors that we are developing in collaboration with colleagues at Astra Zeneca.

The December Ft, Analogic drugs Advisory Committee, a majority of committee members supported the use of Lynparza as first line maintenance therapy for patients with Germline BRC, a mutated metastatic pancreatic cancer, whose disease has not progressed. After these 16 weeks of first time platinum based chemotherapy.

Roger: Thanks, well, looking back on 2019. And in particular, on our fourth quarter results, there's much to be excited about. In December, our Keynote 057 data were reviewed at an FDA Oncologic Drugs Advisory Committee meeting, which was followed three weeks later by FDA approval of Keytruda as monotherapy for the treatment of certain patients with high-risk, non-muscle-invasive bladder cancer. This represents the 23rd FDA-approved indication for Keytruda, broadening Keytruda also gained three new approvals in Japan during the fourth quarter as combination therapy and the first-line treatment of advanced renal cell carcinoma, based on the keynote 426. And for the first-line treatment of metastatic squamous cell carcinoma of the head and neck.

All based on data from the phase three pivotal trial, which demonstrated a 47% reduction in the risk of disease progression or death in the lynparza treatment arm.

At FDA granted approval from in part as a in this setting at the end of 2019.

I should also note that data from oncology one trial Lynparza were accepted by the FDA for priority review the PDUFA date of the second quarter of this year in power one maintenance Lynparza plus bevacizumab treatment of women with advanced ovarian cancer that had responded to first line platinum based chemotherapy plus bevacizumab reduced the risk of.

Disease progression or debt by 41%.

Additional five supporting the use of than parts in the treatment of men with mutation selected metastatic castrate resistant prostate cancer based on the results of the phase III profound study was also accepted by the FDA or priority review the PDUFA date for the second quarter Twentytwenty.

While we are clearly very active advancing new cancer treatments during the fourth quarter. We also made important progress in other areas. For example in the management of highly resistant bacterial infections. The committee for medicinal products for human use of the European Medicines agency adopted the concept of opinion for recovery of our novel combination of independence. So this time envelop back.

Roger: The Keynote-048 data also permitted approval of Keytrud in Europe with a similar indication. Finally, we gained approval of Keytruda in China for the treatment of metastatic squamous cell carcinoma of the lungs in combination with chemotherapy based on data obtained at Keynote 407. Substantial progress was also made in the registration of Lintarza, our leading PARP inhibitor that we are developing in collaboration with colleagues at AstraZeneca. At the December FDA Oncologic Drugs Advisory Committee, a majority of committee members supported the use of LINPARSA as first-line maintenance therapy for patients with germline BRCA-mutated metastatic pancreatic cancer whose disease had not progressed after at least 16 weeks of first All based on data from the Phase III POLO trial, which demonstrated a 47% reduction in the risk of disease progression or death with Lymphorza treatment.

For the treatment of infections to erode the Gram negative bacteria, we've demonstrated resistance other age.

The car Reos also under priority review by the FDA for the treatment of adult patients with hospital acquired or ventilator associated bacterial pneumonia caused by susceptible organisms with the PDUFA date of June 4th.

Important progress has also made in cardiovascular medicine with the completion of the phase two victorious study in which the risk request a novel one healing cyclase activator being developed in collaboration colleagues at failure was found to reduce the composite risk apart.

Station or cardiovascular mortality as compared with placebo in patients with worsening heart failure, but the reduced ejection fraction, who were receiving standard heart failure therapy.

Roger: FDA grant approval for Lymparza in this setting at the end of 2020. I should also note that data from our PALA-1 trial of Lymparza were accepted by the FDA for priority review with a PDUFA date in the second quarter of this year. In PALA-1, maintenance Lymparza plus betacizumab treatment of women with advanced ovarian cancer that had responded to first-line platinum-based chemotherapy plus betacizumab reduced the risk of disease progression or death by 41%.

Time does not permit me to list than many other regulatory and clinical milestones that we achieved in the fourth quarter.

However, I cannot failed to note that our veeva. The first effective vaccine against that Boulevard was approved by the FDA and received conditional approval from the.

Mentioned that disease caused by year it'll buyers.

We have now provided more than 275000 doses of this vaccine by experiment with these protocols to support the efforts of the World Health organization than other agencies attempting to halt the spreads and boulevard disease in the Democratic Republic of the condo.

Roger: Additional files supporting the use of lympharism in the treatment of men would be patient-selected, metastatic, cascade-resistant prostate cancer, based on the results of the Phase III Crook Bound Study, was also accepted by the FDA for priority review with the PDUPA data in the second quarter of 2020. While we were clearly very active in advancing new cancer treatments, during the fourth quarter, we also made important progress in other areas. For example, in the management of highly resistant bacterial infections, the Committee for Medicinal Products for Human Use of the European Medicines Basin adopted a positive opinion for Recarbio, our novel combination of imipenem, psilostatin, and relapactam for the treatment of infections due to aerobic gram- The CARB-REO is also under priority review by the FDA for the treatment of adult patients with hospital-acquired or ventilator-associated bacterial pneumonia caused by susceptible organisms with a PEDUCID-A date of June 4.

Approvals have also been obtained in certain African nations, including Burundi, Zambia, and the Democratic Republic of the Congo itself, which should greatly improve the process whereby individuals at high risk can be immunized.

It is taken many years to reach this important moment my colleagues and I feel privileged to have contributed in this way in the control of an otherwise fatal disease caused by this year the goal virus.

Lastly, I wish to comment on the spin up of the New company that we have announced this morning.

Again with a deep believes in the power of simplification to enhance productivity my colleagues and I have important objectives over the next few years that will evolve improve treatment for malignant disease in heart failure and provide vaccines that reduce suffering from infectious diseases.

Simplification of our corporate structure can only sharpen our focus on these critically important programs I am confident we can achieve this increased focus internally, while providing the near term support necessary to implement new codes established itself as a highly effective separate entity.

Now turn the call back to Ken.

Thank you Roger and before turning the call over to Kevin.

I'd like to take a few minutes to share with you. Some details on his background, Kevin brings a wealth of knowledge to new co based on three decades of pharmaceutical and commercial experience at Merck.

Roger: Important progress was also made in cardiovascular medicine with the completion of the Phase III Victoria study in which Verisiquat, a novel 1-LA-encyclase activator being developed in collaboration with colleagues at Bayer, was found to reduce the composite risk of heart failure hospitalization or cardiovascular mortality as compared with placebo in patients with worsening heart failure with a reduced ejection fraction who were receiving standard heart failure therapy. Time does not permit me to list the many other regulatory and clinical milestones that we achieved in the fourth quarter.

His experience ranges from leading different regions, including our entire international human health business and the emerging markets region to leading markets such as Germany in Turkey. Most recently, Kevin has been instrumental in evaluating merck's options to optimize the entire human health portfolio.

Envisioning what success looks like for Newco, while providing invaluable council to me in the rest of the senior management team.

Im confident that on to Kevin's leadership, Newco will reach its full potential and drive greater value for patients shareholders and employees and whatnot I'd like to turn the call over to Kevin.

Roger: However, I cannot fail to note that Ariba, the first effective vaccine against an Ebola virus, was approved by the FDA and received conditional approval from the EMA for the prevention of disease caused by the Zaire Ebola virus. We have now provided more than 275,000 doses of this vaccine under experimental use protocols to support the efforts of the World Health Organization and other agencies attempting to halt the spread of the Ebola virus disease in the Democratic Republic of the Congo. Approvals have also been obtained in certain African nations, including Burundi, Zambia, and the Democratic Republic of the Congo itself, which should greatly improve the process whereby individuals at high risk can be immunized.

Thanks, Ken and good morning.

I'm excited to share with you today, the creation of our new company.

Which we believe as a remarkable opportunity to unleash the potential of the leading portfolio of assets in women's health.

A rapidly growing biostimulants business and a portfolio of trusted and medically important legacy brands.

Newco revenue was expected to be flat to declining through 2024 within Merck due to limited investment focus. However, we believe that by allocating the appropriate resources and by focusing management attention newco will achieve sustainable growth and create value outside of Merck.

Although revenues are expected to decline in 2021 versus 2022, a base of approximately $6 billion to $6.5 billion largely due to the loss of exclusivity that that you got in Japan, and new bringing the U.S. the new company will be well positioned to achieve low single digit revenue growth off of that base.

Roger: It has taken many years to reach this important moment, and my colleagues and I feel privileged to have contributed in this way to the control of an otherwise fatal disease caused by the Zaire Bernoulli virus. Lastly, I wish to comment on the spin-off of the new company that we announced this morning. I begin with a deep belief in the power of simplification to enhance productivity. My colleagues and I have important objectives over the next few years that will, we hope, improve treatment for malignant diseases and heart failure and provide vaccines that reduce suffering from infectious diseases. Simplification of our corporate structure can only sharpen our focus on these critically important programs. I have confidence that we can achieve this increased focus internally while providing the near-term support necessary to implement new code to establish itself as a highly effective, separate entity. I will now turn the call back to Cathy.

As no new Elouise Loon, and we have identified lifecycle management and commercial investment opportunities some already underway.

Newco will have a strong global scale and geographic diversification.

And as a standalone entity will be better position to capitalize on attractive opportunities across this portfolio.

Go we'll pursue global leadership and sustainable growth in women's health through its growing contraceptive and fertility business, including net split on which grew 14% in 2019 ended the leading implantable long acting reversible contraceptive worldwide with U.S. patent protection through 2027.

In fact, we expect an excellent onto the our first billion dollar women's health product.

The growing 40 billion dollar women's health market is highly fragmented.

With over 400 products in development interest industrywide, newco will be well positioned to capitalize on this attractive market opportunity to become an industry leader through investments in both organic growth and business development opportunities and to deliver better and more innovative and holistic care to women.

Cathy: Thank you, Roger. And before turning the call over to Kevin, I'd like to take a few minutes to share with you some details on his background. Kevin brings a wealth of knowledge to NUCO based on three decades of pharmaceutical and commercial experience at Merck. His experience ranges from leading different regions, including our entire international human health business and the emerging markets region, to leading markets such as Germany and Turkey. Most recently, Kevin has been instrumental in evaluating Merck's options to optimize the entire human health portfolio and in envisioning what success looks like for NUCO while providing invaluable counsel to me and the rest of the senior managers. I'm confident that under Kevin's leadership, NUCO will reach its full potential and drive greater value for patients, shareholders, and employees. And with that, I'd like to turn the call over to Kevin.

Nucor growth will also be driven by by buyer bio buyout biostimulants business and the early stages of a long term growth opportunity with three products currently on the market through its partnership with Samsung Bioepis.

Revenues of the three currently marketed products are expanding rapidly and our and were approximately $250 million in 2019.

Nucor is well positioned to benefit from increased biosimilar demand as markets around the world continue to seek health care cost savings through greater biosimilar adoption in a growing market.

The women's health and Biosimilar businesses will represent a larger proportion of nucor's revenues over time and are expected to account for more than 50% of sales by 2024.

Newco will also have the opportunity to realize the full potential of its portfolio of globally trusted legacy brands to increased focus and targeted investment.

Importantly, the infrastructure and cash generation.

Within this broad portfolio provides a scale geographic reach and capital to support the growth opportunities that the women's health and Biosimilar businesses present.

In addition to its strong product portfolio Nucor's global scale in geographic reach will serve as an important competitive advantage.

Kevin: Thanks, Ken, and good morning. I'm excited to share with you today the creation of our new company, which we believe has a remarkable opportunity to unleash the potential of a leading portfolio of assets in women's health, a rapidly growing biosimilars business, and a portfolio of trusted and medically important legacy brands. Newco revenue was expected to be flat to declining through 2024 within Merck due to limited investment and focus. However, we believe that by allocating the appropriate resources and by focusing management's attention, NUCCO will achieve sustainable growth and create value outside of MERC. Although revenues are expected to decline in 2021 versus 2020 to a base of approximately $6 to $6.5 billion, largely due to the loss of exclusivities of Zetya in Japan and Nubaring in the U.S., the new company will be well positioned to achieve low single-digit revenue growth off of that base. As no new LOEs loom, and we have identified life cycle management and commercial investment opportunities, some already underway.

The company will have the capability to potentially commercialized and distribute for other innovative industry players.

Finally, newco will be a highly profitable with stable and strong cash flows as a standalone company it will be able to make the capital allocation decisions. The best suit its long term interest, including organic and inorganic growth opportunities.

Paying a meaningful dividend.

Debt pay down while returning cash to shareholders through share repurchase.

In summary, I'm very excited about the future up new co and the opportunity work with carry Cox.

This company will have a distinct opportunity.

To address the health needs the women around the world and to build off of important growth pillars, such as next but on pain and dermatology and Biosimilars.

As a focused company with dedicated resources, a strong global footprint.

Talented and experienced employees, who in body the shared values of the Merck culture, newco will be better position to create value for patients and shareholders.

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

Thank you, Kevin we recognize todays upfront comments ran longer than normal. So we're prepared to extend the call beyond nine am if necessary. So Carlo will you. Please lineup the queue for QNX.

Thank you, Sir ladies and gentlemen May will now begin to question answer session again to ask your question you will need to press star one of your telephone keypad metrics. Our first question is from Chris caught their from JP Morgan. Please go ahead.

Kevin: NewCo will have a strong global scale and geographic diversification. And as a standalone entity, we'll be better positioned to capitalize on attractive opportunities across its portfolio. NUCCO will pursue global leadership and sustainable growth in women's health through its growing contraceptive and fertility business, including Nexplanon, which grew 14% in 2019 and is the leading implantable, long-acting, reversible contraceptive worldwide with U.S. patent protection through 2027. In fact, we expect Nexplanon to be our first billion-dollar women's health product. The growing $40 billion women's health market is highly fragmented, with over 400 products in development industry-wide.

Great. Thanks, very much further questions, obviously on a new set today I said to really both related to the spin I guess first on on on this if you mentioned you've been considering deal like this or some structure for these assets for quite some time.

I guess why now and the timing is there something that see that happened with the business or the pipeline that made this make particular sense now versus I guess when you looked at this in the past and my second question is that want to make sure I'm understanding the 1.5 billion an operating synergies correctly should we think about that as a net reduction in opex relative to what.

The combined company would have spent.

Or is that savings that goes to remain cone should be balanced against some of the stand up costs that were you referring to with with the newco. Thanks very much.

Kevin: NewCo will be well positioned to capitalize on this attractive market opportunity to become an industry leader through investments in both organic growth and business development opportunities and to deliver better and more innovative and holistic care to women. NewCo Growth will also be driven by a similar business in the early stages of a long-term growth opportunity, with three products currently on the market through its partnership with Samsung Bioweapon. Revenues from the three currently marketed products are expanding rapidly and were approximately $250 million in 2019.

Okay Thats just this is Ken Frazier, let me start with the wide now.

The reason why we're doing this now is that our fundamental and financial strength, which is being driven by the focus on our best opportunities for growth allows us now to do what strategically correct for the company in a long time. This is about taking actions today that will assure the long term growth in viability of mark as well.

Now as allowing the products that no longer fit into our strategic framework to prosper in a new organizational structure. So from our standpoint. This is the right time, a few years ago. When we were looking at yes, we solve the opportunity but for example, the cash flow generation of our legacy products was being employed at that time.

Kevin: NUCCO is well positioned to benefit from increased biosimilar demand as markets around the world continue to seek health care cost savings through greater biosimilar adoption in a growing market. The women's health and biosimilar businesses will represent a larger proportion of Nucleus revenues over time and are expected to account for more than 50% of sales by 2020. NUCCA will also have the opportunity to realize the full potential of its portfolio of globally trusted legacy brands through increased focus and targeted investment, including, importantly, the infrastructure and cash generation.

In standing up our oncology business from which we grew from the ground up and as you know has been extremely successful that success has been due to our ability to allocate capital to a business that we didn't have before and getting the entire organization focused and aligned around an opportunity that we had around Q.

Through the in other compounds behind Keytruda. So that is why we can do it now and I said before we are confident about our long term growth prospects and one of the ways in which we try to manifest that is by saying, we will maintain and grow the dividend on the Merck side irrespective of losing these brands.

Okay, Rob on the efficiencies Morin, Chris on your question. So the way you should think about is the one and a half a billion dollars of operating efficiencies are incremental cost savings in Merck. After the spin off is completed the stand up costs that are required to support the new.

Kevin: Within this broad portfolio, NewCo provides a scale, geographic reach, and capital to support the growth opportunities that the women's health and biosimilar businesses present, in addition to its strong product portfolio. NewCo's global scale and geographic reach will serve as an important competitive advantage; the company will have the capability to potentially commercialize and distribute for other innovative industry players. And finally, NUCCO will be highly profitable with stable and strong cash. As a standalone company, it will be able to make the capital allocation decisions that best suit its long-term interests, including organic and inorganic growth opportunities, paying a meaningful dividend, debt paydown, or returning cash to shareholders through share repurchase. In summary, I'm very excited about the future of NUCO and the opportunity to work with Cary Collins.

Company are really contemplated it if you.

Take the fact that we commented that there's 45% operating margin for the new company.

Within Merck and it goes to 35% roughly mid Thirtys.

After the stand up that 10 percentage point Delta is really the standup costs. So those are not goes or separate and independent from the doing and a half of net benefits net synergies that will be joined by Merck going forward in its operating results.

Next question please call.

Next question is from Tim Anderson from Wolfe Research go ahead. Please.

Thank you a couple of questions on spin and then a science question.

On the on the new company to be spun out will that be doing real R&D and have its own R&D engine when you're talking about sustainable growth Im just wondering if part of that's going to come from genuine R&D.

Kevin: This company will have a distinct opportunity to address the health needs of women around the world and to build off of important growth pillars such as Nexplanon, pain, and dermatology, and biosimilars. As a focus company with dedicated resources, a strong global presence, and talented and experienced employees who embody the shared values of the Merck culture, NUCCO will be better positioned to create value for patients and shareholders.

And then on Remainco updated views on animal health should we assume that this new split means that the remaining parent Merck company is even more likely than ever to keep animal health in perpetuity.

Then last question is on the edge of in I O opportunity for Roger in my past discussions with you you've been highly confident.

Kevin: With that, I'd like to turn the call back over to Kevin. We recognize today's upfront comments ran longer than usual. So we're prepared to extend the call beyond 9am if necessary. So Carlo, will you please line up the queue for Q&A? Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Again, to ask your question, you will need to press star 1 on your telephone. Our first question is from Chris Cott from J.P. Morgan. Please go ahead. Great, thanks very much for...

PD ones will work in management setting recently, we saw Roche fill them bladder theres been some timelines slippage, we haven't seen any adjuvant trial timelines pulled forward no trial stopped at an interim unlike we have with metastatic disease and the PD ones. So my question to you is are you still highly confident the Pete.

The ones are going to work broadly across tumor types and management.

Thanks, Kevin on the research and development capabilities of Luca Thanks, and good morning, Tim Yes, Newco will have a high quality development capability, and it's really well position to the partner of choice for other biopharmaceutical innovators, who are looking to realize commercial growth through our global scale and presence and select as.

Unknown Attendee: https://www.youtube.com.uk

Unknown Attendee: I guess, why now on the timing? Is there something that's either happened with the business or the

Unknown Attendee: 1.5 billion operating synergies correctly should we think about?

From market to increase patient access over time, Newco will build a research capability in selected therapeutic areas, starting with women's health as a core pillar of its business development strategy and then we'll move up move further from there.

Unknown Attendee: I thought that was a net reduction in OPEX relative to what the combined company would have spent.

Unknown Attendee: Or is that savings that goes to RemainCo and should be balanced against some of the stand-up costs that we're referring to with the new company? Thanks very much.

I wanted to your question about animal health I'll start by saying, we never say, what's going to happen in perpetuity, because we regularly review our entire portfolio and make decisions about which parts of that portfolio belong in our portfolio, which ones will be better off as we look at animal health. We believe if you look at its growth.

Unknown Attendee: Okay, thanks. This is Ken Frazier. Let me start with the why now. The reason why we're doing this now is that our fundamental and financial strength, which is being driven by the focus on our best opportunities for growth, allows us now to do what's strategically correct for the company in the long term. This is about taking actions today that will assure the long-term growth and viability of Merck, as well as allowing products that no longer fit into our strategic framework to prosper in a new organizational structure. So from our standpoint, this is the right time. A few years ago when we were looking at this, we saw the opportunity, but, for example, the cash flow generation of our legacy products was being employed at that time and building up our oncology business, which we grew from the ground up, and as you know, has been extremely successful.

Okay. Its profitability, we continue to believe that we are in effect advantage owners that business going forward. We also believe that that is an important key growth pillar that actually helps us in the long run as you know there are ups and downs in the pharmaceutical business and having a business like vaccines having.

Business like animal health gives us the long term stability that actually allows us to confidently pursue our R&D mission.

Thanks, Roger on that Tim on the on the question of immuno oncology and he has been setting I can't speak generally about PDL, one PD, one antagonist, but you're talking about Keytruda first of all of course Keytruda is already effective and yasmin setting as we've shown melanoma and we also showed effects in the neoadjuvant.

Unknown Attendee: Regarding your question, the way you should think about it, the 1.5 trillion dollars of operating efficiency.

Setting in breast cancer in the us by two study and as well in the five to two studies most recently in that as a combined Neoadjuvant management.

Unknown Attendee: These are incremental cost savings in Merck after the spin-off is completed. The stand-up costs that are required to support the new company are not really contemplated. If you take the fact that we commented that there was a 45% operating margin for the new company within Merck and it went to 35%, roughly mid-30s after the stand-up, that 10 percentage point delta is really the stand-up cost. Those are separate and independent from the $1.5 billion of net benefits, and net synergies that will be enjoyed by Merck going forward in its operating results.

And we'll be seeing yasmin data not too long time.

When you shouldn't really expect to add shipment data to be pulled forward because by definition patients who are receiving aspirin therapy for patients who have better overall survival over a longer period of time. So one expects to see goes as of end result rollout was that you more defined cadence and I think thats exactly what we'll see and I'm.

Based on our success in two prior settings, I would think keytruda should be a successful in these settings as well in general it works better when user.

Unknown Attendee: Next question, please, Carla. The next question is from Tim Anderson from Wolf Research. Go ahead, please. Thank you. A couple of questions on spin-offs and then a science question on the new company to be spun out. Will that be doing real R&D and have its own R&D and

Great next question please Carla.

Next question is from Steve Kayla Colin go ahead. Please.

Thank you very much what are the concerns investors have with Merck is the view that its outlook is heavily dependent on keytruda and formation of Newco would seem to increase this risk and concern. Some merck appears to not agree that this is a concern and I'm wondering if you can elaborate on why and then second what was the.

Unknown Attendee: When you talk about sustainable growth, I'm

Unknown Attendee: I'm just wondering if part of that's going to come from genuine R&D. And then on RemainCo, updated views on animal health. Should we assume that this new split means that the remaining parent Merck company is even more likely than ever to keep animal health in perpetuity? And then last question is on the adjuvant I.O. opportunity for Rod.

Rationale for leaving Januvia within Merck as opposed to newco. It seems placing januvia within new co would have made merck's outlook appreciably clear going forward. Thank you very much.

Unknown Attendee: In my past discussions,

Unknown Attendee: Thank you for joining us for today's sessions with you. You've been highly confident that PD-1s will work in the adjuvant setting. Recently we saw Roche fail in the bladder. There's been some timeline slippage. We haven't seen any adjuvant trial timelines pulled forward, nor have any trials stopped at an interim, unlike we have with metastatic disease in the PD-1s. So my question to you is, are you still highly confident that PD-1s are going to work broadly across tumor types and in adjuvant settings?

Well, let me start on no Januvia question, we continue to believe that our diabetes franchise is going to be an important contributor going there now and into the future. We're also continuing to do significant risk research and the whole cardio metabolic area. So that's an area of focus for us going forward.

Right.

In terms of the issue around Keytruda concentration risks, we are mindful of that we think keytruda revenues as a proportion of total revenues only increase.

By small amount because of this I think the most important thing that I would say about keytruda is that right now we continue to see.

Kevin: Thanks, Tim. Kevin on the research and development capabilities of NUCCO. Thanks, and good morning, Tim.

The benefits of our focus both on terms of R&D and commercial execution going forward, we see it as driving more growth going forward for the company, but we also see the benefits of our other opportunities and oncology you know we have more than Keytruda, we have been bauxite Lynn out of the minima and.

Kevin: Yes, NUCCO will have a high-quality development capability and is really well-positioned as a partner of choice for other biopharmaceutical innovators who are looking to realize commercial growth through our global scale and presence in selected international markets to increase patient access. Over time... NUCCA will build a research capability in selected therapeutic areas, starting with women's health as a core pillar of its business development strategy, and then we'll move further. Tim, on your question about animal health, I'll start by saying we never say what's going to happen in perpetuity because we regularly review our plans. As we look at animal health, we believe, if you look at its growth, if you look at We also believe that that is an important, key growth pillar that will help us in the long run. As you know, there are ups and downs in the pharmaceutical business, and having a business like vaccines, having a business like animal health, gives us the long-term stability that actually allows us to confidently

Hi, Good we also swanee molecules behind that we also have more vaccines business our hospital.

Specialty business. So we're looking to optimize our entire portfolio and augment our pipeline through business development. That's how we see our future growth not so much these brands, which as Kevin said that to the around would probably declined more steeply then they are in the new Cup.

Great.

Rob anything that yes, Steve just to kind of build on your point about a.

Why ingenuity and Merck as opposed to new grow as we looked at it clearly we continued to benefit from the fundamental cash flow and strength that that business gives while it's not a growing business facility generating a lot of cash flow, but in the near term as we approach. When we will continue to be important for Mark. This is an important brand for us and frankly.

If you look at the new co company, while the loss of exclusivity to Merck.

Frankly does not affect our ability to deliver growth as we've already commented even through the loss of exclusivity in 2023 2024, we grow.

Unknown Attendee: Roger and Tim on the question

Roger: I can't speak generally about PD-L1 and PD-1 antagonists, but I can talk about Keytruda. First of all, of course, Keytruda is already effective in the adjuvant setting, as we've shown in melanoma. And we also showed effects in the neoadjuvant setting in breast cancer in the I-SPI2 study and as well in the 522 study most recently, which is a combined neoadjuvant-adjuvant study, and we'll be seeing the adjuvant data in there.

Each and every year through that period, so we're able to absorb the loss of exclusivity benefit from the cash now that type of cliff would be insurmountable to the new company and then finally and Roger can comment on it in more detail, but we continue to do some pretty interesting science and the cardio metabolic area until exciting.

Opportunities are there and so continued to see from a scientific and perspective, the fit as well for all of those reasons, we felt keeping it within American made more sense and delivery met over to the newco great.

Roger: Not too long in time, and you shouldn't really expect to add to

Thanks next question please Carla.

Next question is from Andrew Baum Citi go ahead. Please.

Unknown Attendee: http://www.cdc.gov.au

Thank you couple of questions. Please.

Unknown Attendee: Next question, please, Carla.

Firstly, you initiated fuel and it's natural that jewel oral combination trials.

Unknown Attendee: Thank you.

Steve Scala: The next question is from Steve Scala of Coen. Go ahead. Thank you very much.

Is there any possibility within that and being able to differentiate your combination versus big coffee on the back of less weight gain given the absence of an integrated inhibitor and wants to waiting for the long acting trials to complete does that provide any kind of commercial advantage.

Unknown Attendee: One of the concerns investors have with Merck is the view that its outlook is heavily dependent on Keytruda, and the formation of NuCo would seem to increase this.

Unknown Attendee: What was the rationale for leaving Genuvia within Merck as opposed to Nuko? Well, let me start with the Genuvia question.

Rob Davis: We continue to believe that our diabetes franchise is going to be an important contributor to Merck now and into the future. We're also continuing to do significant research in the whole cardiometabolic area, so that's an area of focus for us going forward. In terms of the issue around Keytruda concentration risks, we are mindful of that, but we think Keytruda revenues as a proportion of total revenues only increase by a small amount because of this. I think the most important thing that I would say about Keytruda is that right now, we continue to see the benefits of our focus, both in terms of R&D and commercial execution going forward. We see it as driving more growth for the company, but we also see the benefits of our other opportunities in oncology.

And the second question relates to teach it.

One of your past is Roche had indicated that would make that phase three program.

Do you run a head to head teacher in and in combination with that PDL. One in non small cell lung I know you have a program on cutting and have had for some time could you talk fuel relative levels of excitement with them on the kill them, perhaps give us and timelines and when it may be able to answer registration trials. Thank you.

Roger.

Right.

Thank you Andrew first of all with respect to the as entrepreneur comp combination.

The reality is we really have to wait for the data I think that that you know we're very confident in the behavior of there's lots of year, which we've demonstrated through our.

Rob Davis: We have more than Keytruda. We have Lenvima and Lenparza. We also have 20 molecules behind that. We also have our vaccines business, our hospital, and specialty business, so we're looking to optimize our entire portfolio and augment our pipeline through business development. That's how we see our future growth, not so much these brands, which, as Kevin said, left to their own would probably decline more steeply than they are in the new cup. Great.

Reasonably large phase two studies and also.

By the builders, it's a terrific molecule and behaves extremely well.

How it will behave assist in combination studies.

Our we have pretty good evidence that indicates to us that it will be a leading combination and especially valuable and treatment. We also noticed from your either by itself will potentially in combination is a good preventive regimen, but we need to see the data from all of those and that's what we'll be getting and with regard to what I call ticket, but maybe competition.

Rob Davis: Yeah, Steve, just to kind of build on your point about Genuvia and Merck as opposed to Nuco, as we looked at it, clearly, we continue to benefit from the fundamental cash flow and strength that that business brings. While it's not a growing business, it's still generating a lot of cash flow that, in the near term, as we approach LOE, will continue to be important for Merck. This is an important brand for us, and frankly, if you look at the Nuco company, while the loss of exclusivity to Merck does not affect our ability to deliver growth, as we've already commented, even through the loss of exclusivity in 2023-2024, we grow each and every year through that period. So we're able to absorb the loss of exclusivity, and benefit from the cash now.

We do have a program we have been working on this for some time we have.

Studies going on where we tried to ask the question of whether.

This.

Molecule in combination with Keytruda behaves better than Keytruda alone and is there any circumstances under which it can be used.

Recognize that Keytruda is is a very impressive compound in the whole body different settings that we have to find the right place in which to use it but we're enthusiastic about it and we're moving forward.

Rob Davis: And then finally, and Roger can comment on it in more detail, but we continue to do some pretty interesting science in the cardiometabolic area and feel exciting opportunities are there, and so we continue to see from a scientific perspective a fit as well. For all of those reasons, we felt keeping it within Merck made more sense to move that over to Nuco.

Thank you Roger next question please Carla.

Our next question is from Louise Chen of Kantar go ahead. Please.

Hi, Thanks for taking my question. So my first question to you that you noted in the call that you're more confident than consensus on every metric through 2024. So wondering if you can elaborate more on what you think the street missing here and then second question is just on Keytruda and Japan curious what kind of impact you assume for price cuts this year for Keytruda in Japan.

Rob Davis: Thanks. Next question, please? Carla.

Andrew S. Baum: The next question is from Andrew Baum of Citi. Go ahead, please. Thank you. A couple of questions, please. Firstly, you initiated your Islatrovir dual oral combination trials. Is there any possibility within that and being able to differentiate your combination versus BicTavi on the back of lesser weight gain, given the absence of an integrase inhibitor? And whilst you're waiting for the long-acting trials to complete, does that provide any kind of commercial advantage? And the second question relates to TIGIT.

Dan and is there another potential price cut coming thank you.

Rob Yes lose this is a this is rob. Thanks for the question. This really if you look at the comments to 10 10 made you said, we feel confident that the street under appreciates our revenue.

Operating margin and our NPS growth as we look forward through time, and if you look at into components clearly on revenue. We continue to believe all of our growth pillars have meaningful growth opportunity and in most cases continued to be underappreciated across oncology platform within the vaccines platform given guard.

Muscle and animal health just to name a few so that story, which we've been talking to you about over the last several quarters continues and then as you look beyond beyond that crude clearly with the spinoff getting up to one percentage point.

Andrew S. Baum: One of your competitors, Roche, has indicated that they're opening a phase three program. They've already run head-to-head data in combination with their PD-L1 and small cell lung. I know that you have a program ongoing and have had for some time. Could you talk to us about your relative levels of excitement with the molecule and perhaps give us some timelines for when it may be able to enter registration trials? Thank you.

Improvement in our growth rate as a result of the spend itself. That's even further growth is not appreciated not to mention the fact that we think through core focus and really directed efforts by our leadership team. We can drive even faster growth. So that is an important.

Pardon as well and then as you look at.

Roger: Right.

Roger: Right. Thank you, Andrew.

An operating margin today Weve indicated that by 2024 or in 2024, we expect operating margins now as a result of what this spend enables which enabling one of the half a billion dollars of incremental cost efficiency on top of the already improving natural mix, we've been benefiting from in our business.

Roger: First of all, the perspective is that your combination. You know, the reality is we really have to wait for the data. I think that, you know, we're very confident in the behavior of this latrevir, which we've demonstrated through our. This is a reasonably large phase 2 study. It's a terrific molecule. It behaves extremely well.

We're going to achieve an operating margin of greater than 40% in 2024, and if you take that acceleration in operating margin combining it with potentially accelerated EPS. When you think about us deploying to $8 billion to $9 billion of proceeds from this transaction. If you put that to share repurchase for instance.

Roger: How will it behave in combination studies? We have pretty good evidence that indicates to us that it will be a leading combination, and especially valuable in treatment. We also know that either biotelphile or, potentially, a combination is a good preventive regimen, but we need to see the data from all of those. And that's what we'll be getting.

He didn't give further acceleration so as you look out to 2024, that's why across those select factors. We believe the street Undepreciated revenue underappreciated operating margin Underappreciate Dps growth.

Roger: Again, with regard to what I call TIGIT, we do have a program. We have been working on this for some time. We have studies going on where we try to ask the question of whether this molecule, in combination with Keytruda, behaves better than Keytruda alone, and is there any circumstance under which it could be used? We recognize that Keytruda is a very impressive compound in a whole variety of different settings, so we have to find the right place in which to use it. But We're enthusiastic about it, and we're moving forward.

And Frank on the Japanese price cuts Halloween as it's Frank in Japan, We did see or we will be saying I should say in February of this year, a huge sales repricing of 17.5% we've seen significant.

Strong performance based so for a lung cancer indications in Japan, and because of the sales projection February we'll see the price reduce 17 half percent. It's also important to note that we will facing now there is significant reduction in April that significant reduction is going to be within the same range.

Roger: Thank you, Roger. Next question, please, Carla. Our next question is from Louie Chen of Cantor. Go ahead.

The first cut in February.

Louise Chen: Hi, thanks for taking my questions. So my first question is that you noted in the call that you're more confident than consensus on every metric through 2024. I was wondering if you could elaborate more on what you think the street is missing here.

Important to note that will have an impact likely our Q1 results in Japan, but also as we take a step back when you look at the rollout of renal cell carcinoma at our other indications in Japan, we do believe despite the price cuts overtime, we will be able to grow in Japan, and then I want to reinforce.

Louise Chen: And then second question is just on Keytruda in Japan. Curious, what kind of impact do you assume for price cuts this year for Keytruda in Japan? And is there another potential price cut coming? Thank you.

For us that if we elevate outside of Japan, we still see very significant growth.

In 2020 beyond as we continue to roll out many indications globally.

Rob Davis: Yeah, Louise, this is Rob.

Very strong uptake was continuing to see in Europe, and as Roger mentioned, we now have 23 indications in the U.S. So we feel very good about our outlook for Keytruda clearly the Japan repricing will have the near term impact in Japan, but confident as we go forward.

Rob Davis: Thanks for the question. You know, really, if you look at the comments that Ken made. He said, we feel confident that the street under-appreciates our revenue, our operating margin, and our EPS growth as we look forward through time. And if you look at it in the components, clearly on revenue, we continue to believe all of our growth pillars have meaningful growth opportunities and, in most cases, continue to be under-appreciated across the immunology platform, within the vaccines platform, given Gardasil, and animal health, just to name a few. So that story, which we've been talking to you about over the last several quarters, continues. And then, as you look beyond that, clearly, with the spin-off, getting up to 1 percentage point improvement in our growth rate as a result of the spin itself, that's even further growth that's not appreciated, not to mention the fact that we think through core focus and really directed efforts by our leadership team, we can drive even faster growth. So that is an important part as well.

Great. Thanks next question please Carla.

The next one is from summer effect of Evercore go ahead. Please.

Hi, Thanks, so much for taking my questions and I'd. Appreciate you bear with me a little bit on it I guess, let me start with this simple one which is can you confirm that the standalone GPS goes down by about a dollar. That's first second if I add up women's health cardiology and diversified that's about $6 billion, which is.

Roughly what you're seeing is what's being divested to the newco, but what but if the goal is to focus on the innovative and pharma in the Remainco I noticed there's a $5 billion line for your other pharma, which is not being included and I'm I'm curious why that is and finally I think it's it's it's very interesting that you're not doing a split.

Rob Davis: And then, as you look at operating margin, today we've indicated that by 2024, or in 2024, we expect operating margins now as a result of what this spin enables, which enables $1.5 billion of incremental cost efficiency on top of the already improving natural mix we've been benefiting from in our business. We're going to achieve an operating margin of greater than 40% in 2024. And if you take that acceleration in operating margin, combine it with potentially accelerated EPS, when you think about us deploying the $8 to $9 billion of proceeds from this transaction, if you put that in share approaches, for instance, you can even get further acceleration. So as you look out to 2024, that's why across those select factors, we believe the street under-appreciates revenue, under-appreciates operating margin, under-appreciates EPS growth, and Frank on the Japanese.

You're doing a spin very specifically and I also noticed when you talk about the proceeds you are mentioning biz Dev before you mentioned share repurchase so it almost seems to me that there might possibly be interested replacing that last dollar. So my question is are you looking at a company, which is more on the pipeline side or is the focus more on a accretive.

Deal, which get to that dollar S back immediately thank you very much yeah.

Thanks for the question numerous so as you look at.

Thinking about what is the the subtraction. If you will go away from Merck by pointed out this business and I know the math, you're doing to get to roughly the dollar the only thing I would advise you on is.

I don't think you're giving any credit for the operating efficiencies the billion and a half, which we said.

We will get Ratably, which so that's 500 million even in 2021, the first year, which I think when you're mass coming from and you're not giving any credit to what we're doing with $8 billion to $9 billion.

Rob Davis: Price cuts

Frank Clyburn: Hi Louise, it's Frank. In Japan, we did see, or we will be seeing, I should say, in February of this year, a huge sales repricing of 17.5%. We've seen significant, strong performance based on our lung cancer indications in Japan. And because of the sales projection, February we'll see the price reduced by 17.5%. It's also important to note that we will face another significant reduction in April, and that significant reduction is going to be within the same range as the first cut in February.

Of the cash proceeds that if you deployed that to share repurchase.

In reality that dollar you're quoting then it goes down to 60 to 60 70 cents a in the range. So thinking of in terms of percentage or closer to 15% and we believe the answer is probably closer to 10%.

<unk>.

Yes, as well what's included in Newco, Yeah. So if you look at other line.

The other pharma line picks up a lot of our hospital and specialty products and picks up products like a zerbaxa, which are still early in its launch a product, which we are very excited about so as we looked at the portfolio.

Frank Clyburn: Important to note, that will likely have an impact on our Q1 results in Japan. But also, as we take a step back, when you look at the rollout of renal cell carcinoma and our other indications in Japan, we do believe, despite the price cuts, we will be able to grow in Japan. And then I want to reinforce that if we extend outside of Japan, we still see very significant growth in 2020 and beyond as we continue to roll out many indications globally. Very strong uptake we're continuing to see in Europe. And, as Roger mentioned, we now have 23 indications in the U.S., so we feel very good about our outlook for Keytruda. Clearly, the Japanese repricing will have a near-term impact in Japan, but we are confident as we go forward.

Those products that are sitting in the in the hospital specialty space are ones that we continue to believe long term create value for us and we wanted to maintain and then there was other to be launched revenue numbers sitting in there or products that are smaller in there as well so it's really as a profile products different than what we.

Put into the newco and or grew in line with the core growth drivers. The we've already identified and then I think tumors last question was capital allocation priorities combined with a question about what our interest and BD might be so let's start with Robin and turn it over to kinda. So if you look at the capital allocation priorities.

Frank Clyburn: Great. Thank you. Next question, please, Carla. This next one is from Umer Raffat of Evercore.

It really remain unchanged.

Umer Raffat: Go ahead, please. Hi, thanks so much for taking my questions. And I'd appreciate you bearing with me a little bit on it. I guess, let me start with this simple one, which is, can you confirm that the standalone EPS went down by about a dollar? That's first.

First and foremost we're going to ensure we appropriately front and research and development, we're going to fund the opportunity to launch new products.

And we're going to fund the capacity expansion that we have underway to ensure we love the capacity to meet what is very strong demand across all of our growth pillars in vaccines oncology and animal health, we will remain committed to the dividends.

Umer Raffat: Second, if I add up women's health, cardiology, and diversified, that's about $6 billion, which is roughly what you're saying is what's being divested to the new co. But what if the goal is to focus on the innovative and pharma in the remaining co? I noticed there's a $5 billion line for your other pharma, which is not being included. And I'm curious why that is. And finally, I think it's very interesting that you're not doing a split; you're doing a spin very specifically.

We've talked about that you heard today very importantly.

We are not lowering the dividend as a result of the spin out of Newco, we're going to hold or dividends in $2.44, which it isn't 2020, and then grow with off of that base with a goal to get to 47% to 50% as a payout ratio so you're actually going to see a maintained dividend growing over time and thank you.

Umer Raffat: And I also noticed when you talk about the proceeds, you mention business development before you mention share repurchase. So it almost seems to me that there might possibly be interest in replacing that last dollar. So my question is, are you looking at a company which is more on the pipeline side? Or is the focus more on an accretive deal which gets that dollar EPS back immediately?

The benefit of the incremental dividend that newco is going to have so all in all you should have overall more dividend. If you will go stocks and we do today and then finally.

As we've always said our goal to use as to use excess cash flow first and foremost for value, creating business development to the extent, though we can't find those are we don't find ones that bring us the combination of strategy and value.

Umer Raffat: Thank you very much.

Rob Davis: Thanks for the question, Umer. So as you look at, thinking about what is the subtraction, if you will, away from Merck by pulling out this business, and I know the math you're doing to get to roughly the dollar, the only thing I would advise you on is, I don't think you're giving any credit for the operating efficiencies, the billion and a half, which we said we will give rateably, so that's $500 million even in 2021, the first year, which is I think where your math's coming from, and you're not giving any credit to what we're doing with $8 to $9 billion of cash proceeds, that if you deploy that to share a purchase, in reality, that dollar you're quoting then goes down to 60 to 70 cents in the range, so thinking of it in terms of percentage, you're closer to 15%, and we believe the answer is probably closer to 10%. Great. Umer Raffat.

We will return excess cash to shareholders.

Moving forward and specifically as you look at the eight to 9 billion dollar.

Of special dividend, we're going to receive from new pro as results of this transaction.

We said in the comments it will be deployed either to business development or to share repurchase it will not be used for debt pay down and that's why I believe it will be accretive over time.

Can I think you also asked about spend versus split we chose spend because we thought that was a quick its path and a tax efficient way of doing this for our shareholders as it relates to business development I'll just say as we've always said, it's an important priority in first and foremost we are always looking for the best science and innovation that will drive long term growth and value for shareholders.

So we're still very much focused on those deals that augment our pipeline and you saw last year. We did a number of deals about 80 transaction spanning licensing technology deals and clinical collaboration will continue to.

So look for those opportunities to augment our pipeline with the best Science Greg.

Question. Please.

The next one is Geoff Meacham of Bank of America go ahead. Please.

Rob Davis: Yeah, so if you look at the other line, the other pharma line picks up a lot of our hospital and specialty products and picks up products like Zurbaxyl, which is still early in its launch but a product which we are very excited about. So, as we looked at the portfolio, you know, those products that are sitting in the hospital specialty space are ones that we continue to believe, long-term, create value for us and we wanted to maintain. And then there are other to-be-launched revenue numbers sitting in there, or products that are smaller in there as well. So, it really is a profile product different than what we put into the new company and is very aligned with the core growth drivers that we've already identified.

Good morning, everyone. Thanks for the question just have a few.

Rob on the spin I get the operating margin benefit to Merck longer term, but that did I hear your right the margins.

Could be lower this year in post spin initially.

And then with freed up capital does the spin effect, where you guys are pre leased as previously discussed on the moderation of R&D investments you know looking to 2021 point 22.

And then Frank Real quick you talked with the growth strategy in China for Io at this point with the and our deal decision in first line lung I know you guys just kind of approval in this indication November thank you.

Thanks for the question. So on your question about operating margin.

We look at watch.

Newco is within merchandising is about 45%. So it's obviously higher than good merck's operating margin. So there will be initially nominally dilutive when we pull it out in the first year, but importantly, because of the fact, we were getting.

Rob Davis: And then I think Umer's last question was capital allocation priorities combined with a question about what our interest in BD might be.

Rob Davis: So if you look at the capital allocation priorities, they really remain unchanged. First and foremost, we're going to ensure that we appropriately fund research and development, we're going to fund the opportunity to launch new products, and we're going to fund the capacity expansion that we have underway to ensure we have the capacity to meet what is very strong demand across all of our growth pillars in vaccines, oncology, and animal health.

Operating efficiencies so starting even in the first year of 500 million Dollarss and growing with an additional 500 million year to another 500 million. Your three so cumulative the threed and a half.

That offset a lot about dilution and something that when you looked at its only about one percentage point of dilution to our op margin in the first year and then very quickly you're going to see our operating margins continued to grow and by the time, we get to over 40% by two point in 2024, we will be at a rate higher than.

Rob Davis: We are not lowering the dividend as a result of the spin-out of NUCCO. We're going to hold our dividend at $2.44, which it will be in 2020, and then grow it off of that base with the goal to get to 47% to 50% as a payout ratio. So you're actually going to see a maintained dividend growing over time, and then you have the benefit of the incremental dividend that NUCCO is going to have. So all in all, you should have more dividends if you hold those stocks than you do today. And then finally, as we've always said, our goal is to use excess cash flow first and foremost for value-creating business development. To the extent, though, that we can't find those, or we don't find ones that bring us a combination of strategy and value, we will return excess cash to shareholders moving forward.

We would have achieved as a combined company largely as a result of that filling in the half operating efficiency.

And so and then that was I think first question. The second one was what's happening with I think R&D.

As we look at going forward so.

We have never been capital constrained and what we're doing R&D, what's driving the inflection point, we've talked about which was the slowdown of growth in R&D in 2021 as a percent of sales are still going to grow its going to grow its just going to grow slower than sales in 2021 that inflection point is driven more by.

Where we see the clinical programs at this time.

If we find opportunities to invest.

And I'm confident given the productivity of we've seen from the lapses, thus far but they very well might do that we will obviously increase our investment as those opportunities present themselves, but as of right now our expectation is that inflection point in continues to happen in 2021.

Correct, Jeff and your question on China, I first wanted to make sure that we do mentioned that our primary focuses on ensuring the safety of our employees families and supporting the people of China I think that's on all of our minds and also the continuity of supply of working in health medicines and vaccines.

Rob Davis: And specifically, as you look at the $8 to $9 billion special dividend we're going to receive from NUCCO as a result of this transaction, as we said in the comments, it will be deployed either to business development or to share repurchase and will not be used for debt paydown. And that's why I believe it will be accreted over time.

In products and we're gonna have to see how China evolves, we'll likely see some impact in Q1 too early to quantify as far as your specific question on I O. Our overall strategy as we've discussed.

Unknown Attendee: Umer, this is Ken. I think you also asked about SPIN versus SPLIT. We chose SPIN because we thought that was the quickest path and a tax-efficient way of doing this for our shareholders. As it relates to business development, I'll just say, as we've always said, it's an important priority. And, first and foremost, we are always looking for the best science and innovation that will drive long-term growth and value for shareholders. So we're still very much focused on those deals that augment our pipeline. And you know, last year, we did a number of deals, about 80 transactions spanning licensing, technology deals, and clinical collaborations. We'll continue to look for those opportunities to augment our pipeline with the best science. Next question, please. The next one is Geoff Meacham of Bank of America. Go ahead, please.

In particular, as we rollout into self pay market, we still feel very confident on our position.

We are still the only Io therapy, that's approved in non small cell lung cancer. We recently got approval for Q4 seven in the squamous cell carcinoma population and we feel as though we have a very significant opportunity into self pay market and we've also adjusted or patient assistance programs in China to increase.

The affordability for patients that we're trying to provide access to as we move forward. So we feel confident going forward and our growth prospects for Keytruda in China right next question. Please Carla.

Excellent and Siemens Fernandez of Guggenheim Your question. Please.

Oh, Thanks to the question. So maybe just a follow up on want to Steves question.

Geoffrey Meacham: Morning everyone. Thanks for the questions. Just have a few. Rob, on the spin, I get the operating margin benefit to Merck longer term, but did I hear you right, that operating margins......

The the concentration of the business Merck's business too.

Rob Davis: And then with freed up capital, does the spin affect what you guys have previously discussed on the moderation of R&D investments? You know, looking to 2021 and 2022. And then Frank, real quick, you talk about the growth strategy in China for IO at this point with the NRDL decision first line long. I know you guys just got approval.

It's really going forward.

Can you just talk a little bit about the the competitive pressure point that could emerge going forward, we've talked a little bit about China, but they're also our potential.

Chinese assets that could be introduced into the U.S. Following successful lung cancer clinical programs, just trying to get a better sense of or the the growth opportunity for Keytruda, and where you see potential pressure points and if you could also comment on some of the administration efforts around.

Frank Clyburn: Thanks for the question. So on your question about operating margin, if you look at what NUCCO is within Merck today, it's about 45%. So it's obviously higher than Merck's operating margin, so it will be initially nominally dilutive when we pull it out in the first year. But importantly, because of the fact we are getting the operating efficiency started even in the first year of $500 million and then growing with an additional $500 million in year two, another $500 million in year three, so cumulative $1.5 billion, that offsets a lot of that dilution. And so net, when you look at it, it's only about 1% point of dilution to our operating margin in the first year. And then very quickly, you're going to see our operating margins continue to grow. And by the time we get to over 40% in 2024, we will be at a rate higher than we would have achieved as a combined company, largely as a result of that billion and a half operating efficiency. And so, and then that was, I think, the first question.

International pricing again.

Central risk point for Keytruda that would be helpful. And then just as a follow up on a per for Roger Roger How quickly you know the company emphasized a lot of vaccines opportunities for the business.

You know going forward, but most of them are phase one how quickly could we see some of those programs advancing and potentially coming to market and maybe you could just tell us.

With one or two you're you're most excited to see in the near term. Thanks.

Great. Thanks footprint, so first Frank kind of the performance and outlook for Keytruda, yes, so on construed as far as.

We look back at 2019 were one very pleased with our growth of 58%, excluding exchange and almost $4 billion and eclipsing $11 billion themselves, but we feel very well positioned as we've been saying with regards to keytruda on not only with regards to our I'm.

Rob Davis: The second one was what's happening with R&D as we look forward. So, you know, we have never been capital constrained in what we're doing in R&D. What's driving the inflection point we've talked about, which is the slowdown of growth in R&D in 2021 as a percent of sales. But it's still gonna grow.

Again penetration in non small cell lung cancer within the U.S., but also other significant impact that we're having for patients with renal cell carcinoma answer that melanoma.

Rob Davis: It's gonna grow; it's just gonna grow slower than sales in 2021. That inflection point is driven more by where we see the clinical programs at this time. If we find opportunities to invest, and I'm confident, given the productivity that we've seen from the labs this far, that they very well might do that, we will obviously increase our investment as those opportunities present themselves. But as of right now, our expectation is that the inflection point continues to happen in 2021. Jeff, in your question on China, I first wanted to make sure that we do mention that our primary focus is on ensuring the safety of our employees' families and supporting the people of China. I think that's on all of our minds, and also the continuity of supply of our human health medicines, vaccines, and products.

Matt as you heard Roger mentioned, our recent approval in non muscle invasive bladder cancer, so the breadth of or indications and the strength of our data gives us a lot of confidence to continue to grow in particular not only in the U.S. split at U.S. and as expected, we as we rollout our broader indications and non.

Small cell lung cancer, and we're now reimbursed in Europe in all markets for long, which I see is an important aspect of our growth from 2020, the only thing I would add on the concentration piece too I think we tried to a highlight this not just about construed to this lynparza Islam bema.

Our pipeline oncology that we've discussed we also feel very good about vaccine performance. This year Gardasil. This year grew 21%.

Rob Davis: And we're going to have to see how China evolves. We'll likely see some impact in Q1, too early to quantify. We recently got approval for Keynote 407 in the squamous cell carcinoma population, and we feel as though we have a very significant opportunity in the self-pay market. And we've also adjusted our patient assistance programs in China to increase the affordability for patients that we're trying to provide access to as we move forward. So we feel confident going forward in our growth prospects for Keytruda in China.

As well as our hospital and specialty products. We continue to see good growth was pretty on so from a concentration perspective, we feel very confident on the portfolio not only keytruda, but the aggressive opportunities that we have going forward right kind on pricing, okay on the I've got questions before.

Particularly we understand the administration's concern that certain countries don't pay.

Fair share of the cost of innovation and we do keep continuing to make the point that incorporating additional price controls is not the solution to the problem. We continue to work with the administration. The congrats and other stakeholders to provide a perspective I think a patient groups are also providing very strong perspectives on these issues.

Frank Clyburn: Next question, please, Carla. Next one is Seamus Fernandez of Guggenheim. Your question, please. Oh, thanks for the question. So maybe just to follow up on one of Steve's questions, the concentration of Merck's business to Petruta going forward. Can you just talk a little bit about that?

Unknown Attendee: https://www.larryweaver.com

She is as it relates to that but if you take a step back and think about what we announced today. The reason why we're taking beef kinds of proactive steps now it's because we want to make sure that we positioned the company for long term growth and viability in the future environment, that's about being much more focused on it.

Unknown Attendee: that could emerge going forward. We've talked a little bit about China, but there are potential Chinese assets that could be introduced into the US following successful lung cancer clinical programs. Just trying to get a better sense of the growth opportunity for Katrina and where you see potential pressure points. And if you could also comment on some of the administration's efforts around international pricing, again, a potential risk point for Katrina, that would be helpful. And then just as a follow-up for Roger, Roger, how quickly the company emphasized a lot of vaccine opportunities for the business going forward, but most of them were phase one. How quickly could we see some of those programs advancing and potentially coming to market? And maybe you could just tell us which one or two you're most excited to see in the near term?

Basic and it's about driving efficiency within our operating model. So this is about staying ahead of the curve rather than waiting until something happens in the pricing environment that we have to react to Craig Roger on backing right Seamus. So thanks for the question.

I see them first of all as you recognize we have an enormously large program in pneumococcal conjugate vaccines with would be one word program, having 15 phase three studies that are rolling out over the next 18 24 months, we're going to see a lot of those studies coming this year and back then so you'll be hearing a lot of data from those.

Those studies, which was the permit filing so that's a very near term opportunity. We have a lot of enthusiasm about our dengue virus vaccine that vaccines and as Lisa we are collaborating with colleagues that tons on where they have a registration enabling studies ongoing as that studies will deliver.

Frank Clyburn: Thanks. Great, thanks. So first, Frank, kind of the performance analog for Keytruda. Yeah.

Frank Clyburn: Yeah, so on Keytruda, as far as we, if we look back at 2019, we're very pleased at our growth of 58% excluding exchange and almost $4 billion in eclipse and $11 billion in sales. We feel very well positioned, as we've been saying with regard to Keytruda, not only with regard to our significant penetration in non-small cell lung cancer within the US but also the significant impact that we're having for patients with renal cell carcinoma, adjuvant melanoma, head and neck, and as you heard Roger mention, our recent approval for non-muscle invasive bladder cancer. So the breadth of our indications and the strength of our data gives us a lot of confidence to continue to grow, in particular, not only in the US but outside the US, and especially as we roll out our broader indications in non-small cell lung cancer, and we're now reimbursed in Europe in all markets for lung, which I see as an important aspect of our growth in 2020. The other thing I would add to the concentration piece too is that I think we tried to highlight that it's not just about Keytruda.

Results at some point so that's a that's pretty exciting as well. An addition of course, we have our CMV vaccine. We have a lot of interesting things going on respiratory syncytial virus and those programs are actually fairly advanced so things are moving along quite well I can't failed to mention the fact that the demand.

Or gardasil Gardasil nine remains enormous and as we have invested a huge amount of capital together with our manufacturing colleagues and building the additional capabilities to meet that demand and that we'll be rolling out and that you want to time and it will be very important knows.

Greg we have several more questioners in Q, we're going to have a hard stop at night 15, but we're willing to keep going next question. Please.

Excellent and something on a gray bhatia of hasn't VB Leerink go ahead. Please.

Hi, Thanks for the question two of them first on new coal or what you see us the long term relationship between new Cowen Mark and then the next question for Roger as you reflect on all the internal and external immuno oncology data that came out in 2019. What novel mechanisms are you most excited about to add on top.

Frank Clyburn: On the IPI question specifically, we understand the administration's concern that certain countries don't pay their fair share of the cost of innovation. However, we do continue to make the point that incorporating additional price controls is not the solution to the problem. We continue to work with the administration, the Congress, and other stakeholders to provide a perspective. I think patient groups are also providing very strong voices on these issues as it relates to that. But if you take a step back and think about what we announced today, the reason why we're taking these kinds of proactive steps now is because we want to make sure that we position the company for long-term growth and viability in the future. That means being much more focused on innovation, and it means driving efficiency within our operating model. So this is about staying ahead of the curve rather than waiting until something happens in the pricing environment where we have to react. And Raj, you're on the back, please.

Contributed to provide further benefit for patients.

Well in terms of the long term relationship that's to be decided as both companies look to their future and decide how do you want to make sure that they optimize the best opportunities. So I can't say anything other than what we've announced today in terms of the products that are going over but obviously when I would say about new comes it makes me excited here I.

They will have many of the same standards and values at Merck has going forward.

Roger.

Yeah. Thanks, a question Dan.

The.

In many respects the things. We're most excited about you can tell by looking at the things that we're investing.

You can see that that quite remarkably the.

Lindeen in as it's been demonstrated in the endometrial cancer registration combination Keytruda. Most recently, but we've also seen really spectacular data in renal cell carcinoma, we presented those phase two data and we have ongoing phase three data demonstrate.

Roger: Right. Seamus, thanks for the question. On vaccines, I mean, first of all, as you...

The protein tyrosine kinase inhibitors.

With special characteristics and combined very effectively with Keytruda. We also have data, which we presented in combination with Lynparza that are very impressive. Let me have this very large set of new molecules.

Roger: [inaudible] This is a presentation on the Dengue virus vaccine. We are collaborating with colleagues at Butantan. We have a lot of interesting things going on. Those programs are fairly advanced. Things are moving along quite well. The demand for Gardasil 9 remains enormous. We have invested a huge amount of capital in our team to meet that demand.

Some of which we refer to already that include antibodies directed against other potential checkpoints leg three ticket.

In a whole bunch of other things and there really are quite provocative data available now already in those settings.

Unknown Attendee: Great. We have several more questioners in queue. We're going to have a hard stop at 9.15, but we're willing to keep going.

Hopeful that will begin to tease out how best to use those things in combination so lots of exciting things going on.

Next question please.

Daina Michelle Graybosch: Next question, please. The next one is from Daina Graybosch of SVB Learing. Go ahead. Hi, thanks for the question. There are two of them.

<unk> is from David garrison draw of Morgan Stanley Go ahead. Please.

David are you on the why.

Sorry, Yes can you hear me now yes.

Unknown Attendee: First on NUCO. What do you see as the long-term relationship between NUCO and Merck? And then the next question for Roger, as you reflect on all the internal and external immuno-oncology data that came out in 2019, what novel mechanisms are you most excited about to add on top of Contruda to provide further benefits for patients? Well, in terms of a long-term relationship, that's to be decided as both companies look to the future and decide how they want to make sure that they optimize their best opportunities. So, I can't say anything other than what we've announced today in terms of the products that are going over. But, you know, obviously, what I would say about NewCo that makes me excited is that I think they will have many of the same standards and values that Merck has going forward. Great. Roger?

Great.

So I have a few questions first could you provide an update on where gardasil manufacturing supply stands and the gardasil revenue growth prospects and 2020.

And then Roger could you discuss potential proof of concept results for merck's early to mid stage pipeline to watch in 2020.

And in addition could you provide a framework for the timeline for the second pneumococcal vaccine that Merck is developing for infants, which would be added to be one one for to offer broader coverage longer term.

Thank you.

Roger: Yeah, thanks for the question, Daina. In many respects, the things we're most excited about, you can tell by looking at the things that we're investing in. You know, you can see that quite remarkably, Lendima, as it's been demonstrated in the Endometrial Cancer Registration combination with Keytruda most recently, but we've also seen really spectacular data in renal cell carcinoma. We presented those Phase II data, and we have ongoing Phase III data that demonstrate that protein tyrosine kinase inhibitors with special characteristics can combine very effectively with Keytruda. We also have data that we've presented in combination with Limparsa that are very impressive, and we have this very large set of new molecules, some of which we've referred to already, that include antibodies directed against other potential checkpoints like 3-TIGIT and a whole bunch of other things. And there really are quite provocative data available now in those settings. We're hopeful that we'll begin to tease out how best to use those things in combination, so lots of exciting things going on.

Great I think the first question is on Gardasil supply and outlook. So Frank Yeah, Dave So a with regards to Gardasil. We do continue see very strong demand around the world are currently our supply is not able to meet that demand as we mentioned that we saw growth from 21% this year.

The growth we do believe will continue in 2020 will be slightly tempered from the rates you've seen in 2019, and 2018 and were focus what our manufacturing colleagues to do everything we can with contract manufacturers in the near term to try to help our supply and then ultimately in 2023.

As we've been mentioning we'll be bringing on two new bulk manufacturing facilities that will really allow us to ramp our supply up to meet the strong demand that we're seeing globally.

Great.

It was on the on the early to mid stage pipeline. Both you know we had we've already discussed or in a lot of programs in oncology and combination keytruda.

But we have a lot of other areas as well that are moving forward of course, a building on the results with recent was in heart failure, the phase three data, which will be presented.

For the near future, which are quite interesting.

Actually I have a lot of other interesting things going on in and soluble Guanylate cyclase activators.

David Rissinger: Great. Next question, please. The next question is from David Rissinger of Morgan Stanley.

So that's that's an important area for us and something that we expect to see quite a lot of data on.

David Rissinger: Go ahead. David, are you on the line? Sorry, yes. Can you hear me now?

And we're going to be seeing a lot of data on on of course, our our vaccine programs that I mentioned, a just a few minutes ago. So there will be a lot of data coming forward in 2020 and speaking of vaccines you mentioned.

David Rissinger: Yes. Great. So I have a few questions.

David Rissinger: First, could you provide an update on where Gardasil manufacturing supply stands and the Gardasil revenue growth prospects in 2020? And then Roger, could you discuss potential proof of concept results for Merck's early to mid stage pipeline to watch in 2020? And, in addition, could you provide a framework for the timeline for the second pneumococcal vaccine that Merck is developing for infants, which would be added to V114 to offer broader coverage in the longer term? Thank you. Great, I think the first question is on Gardasil supply and outlook.

The additional vaccine program I think you're referring to be woman seven in the pediatric contacts.

Which which is not an add on but I separate and independent vaccine all by itself.

And that program, which we just given that name to we'll be moving forward. Shortly I just reemphasize that there'll be one month for program is very far advanced with lots of phase three data coming forward. This year and next year and will be a leading program in both the adult and pediatric settings ultimately be moments six and b.

Moments Evan will provide further coverage so more to discuss it right next question. Please.

Next let us from Terence Flynn of Goldman Sachs Go ahead. Please.

Frank Clyburn: So Frank.

Frank Clyburn: Yeah, Dave, so with regard to Gardasil, we do continue to see very strong demand around the world, but currently, our supply is not able to meet that demand. As we mentioned, we saw growth of 21% this year. The growth we do believe will continue in 2020, but it will be slightly tempered from the rates you've seen in 2019 and 2018. And we're working with our manufacturing colleagues to do everything we can with contract manufacturers in the near term to try to help our supply. And then, ultimately, in 2023, as we've been mentioning, we'll be bringing on two new bulk manufacturing facilities that will really allow us to ramp up our supply to meet the strong demand that we're seeing globally. Great

Hi, good morning, Thanks for taking the questions.

Just maybe a couple of on the spin as well does this change at all how you approach M&A and business development from a timing perspective, just wondering if we shouldn't expect any sizable bolt ons until after the spin is completed and then are there any tax rate implications that we need to consider.

And then any update on the path forward for Keytruda and Neoadjuvant breast cancer regarding discussions with FDA and then when can we expect your phase three frontline data in metastatic triple negative breast and is that important in terms of the conversations with regulators. Thank you.

Okay, I think we'll start with Ken on the timing of.

BB and our strategy around that I expect to see no change in our approach to be de from a timing or strategy standpoint, as we're set up to speed, we still feel the need to augment our pipeline going forward, we see opportunities and we're going to be very focused on them.

Roger: David, on the early to mid-stage pipeline, well, we've already discussed a lot of programs in oncology in combination with Keytruda, but we have a lot of other areas as well that are moving forward. Of course, building on the results of Terizoguat in heart failure, the phase 3 data, which will be presented in results in the near future, which are quite interesting. We actually have a lot of other interesting things going on in solubles, linoleic cyclase activators, so that's an important area for us and something that we expect to see quite a lot of data on.

I would add to that point and then I'll address detection question.

As I said in his prepared remarks, but it's worth Reemphasizing, we will have ample capital to do anything we want to do so this also in no way constrained just from a capital perspective, but with regards to the tax rate generally speaking you should not see any meaningful change to our tax rate as result of this transaction.

Right and the terms with respect to.

Neoadjuvant breast.

Breast cancer Triple negative breast cancer of course of five to two data.

We presented at ESMO, the effective neoadjuvant in that setting.

Roger: And we're going to be seeing a lot of data on, of course, our vaccine programs that I mentioned just a few minutes ago. So there will be a lot of data coming forward in 2020. And speaking of vaccines, you mentioned the additional vaccine program. I think you were referring to V117 in the pediatric context, which is not an add-on but a separate and independent vaccine all by itself. And that program, which we've just given a name to, will be moving forward shortly. I reemphasize that the V114 program is very far advanced with lots of Phase III data coming forward this year and next year and will be a leading program in both the adult and pediatric settings, ultimately V116 and V117.

Terms of Pathlogic complete response, very clear and we also had a very provocative event free survival data that we discussed there's more data that will be coming forward and that and we are we continue to have conversations with regulatory agencies about that study and you're right as we haven't.

And ongoing phase three study in triple negative breast cancer or 3.5 that could yield data in principle that would have an impact I'm thinking with regard to.

The attachment Neoadjuvant study, but of course, we have to wait to see the data so that should be coming forward. The sometime relatively soon as well. It's event driven of course, I I don't know exactly.

Great we're going to squeeze in one last question. Please Carla.

Last one as Marigold seen from Mizuho go ahead. Please great. Thanks, very much just a quick question on newco spin off and the targets around achieving and R&D organization and how should we think about that from a metric perspective, and then just quickly on China I know we've covered it.

Terence Flynn: 2016 University of Georgia College of Agricultural and Environmental Sciences Next one is from Terence Flynn of Goldman Sachs. Go ahead. Hi, good morning. Thanks for taking the questions. Just maybe a couple on the spin as well. Does this change at all how you approach M&A and business development from a timing perspective?

But you don't Marcus spoken to China is a component of growth strategy on a go forward basis and understanding that could treat it's been a part of that but mark has other portfolio of products in China. So I'm wondering how much of nuclear business is responsible for the growth in that region and how remainco, we'll be able to advance its growth initiative you know any absence of then I'd.

Unknown Attendee: [inaudible]

Unknown Attendee: Phase 3 Frontline Data & Metastatic Triple Negative

Listing, which didnt occur as expected.

Unknown Attendee: Okay, I think we'll start with Ken on the timing of BD and our strategy around that. I expect to see no change in our approach to BD from a timing or strategy standpoint as a result of this bid. We still see the need to augment our pipeline going forward. We see opportunities.

So the first question I believe was on R&D metrics around Newco rubber Kevin I don't think we have much to add there at this point.

Clearly I would just say that as we think about the 35% operating margin.

Growing over time that contemplates.

Unknown Attendee: And I would add to that point, and then I'll address the tax question. As I said in the prepared remarks, but it's worth re-emphasizing, we will have ample capital to do anything we want to do, so this also in no way constrains us from a capital perspective. With regard to the tax rate, generally speaking, you should not see any meaningful change to your tax rate as a result of this transaction.

Investments in research and development in the business and so it was fully covered there was an assumption that they will be doing R&D moving forward and we feel like it's been adequately covered in the way we resource the investments into business and golf, Kevin wanted to add anything about that on the other than what he said.

I think just to recap what we said earlier that overtime will build more of the research and development capabilities as we start to two meaningful business development and so the opportunities to start we won't do development right.

Rob Davis: Right. And Terence, with respect to neoadjuvant breast cancer and triple negative breast cancer, of course, the 522 data we presented at ESMO, the effect of neoadjuvant in that setting, in terms of pathologic complete response, was very clear, and we also had very provocative event-free survival data that we discussed. There's more data that will be coming forward in that.

In the second question, China, China growth has taken this is trying to with China as we discussed I'm, we're very pleased with the growth this year.

Oh, 58% in our growth to your point is very broad base. Its contributors carticel. This lynparza. It's one DEMA. It's our innovative portfolio has done very well januvia is on the R&D Els up a tour Zepatier was recently placed on the our deal. So we see our growth going forward.

Roger: An ongoing phase three study in triple negative breast cancer, 3.5, that could yield data in principle that would have an impact on thinking with regard to the Adjman-Neal-Adjman study, but of course, we have to wait to see the data. So that should be coming forward sometime relatively soon as well. It's event-driven, of course, so I don't know exactly when.

Word in China, and we see significant opportunities obviously as I mentioned, we're all thinking about the crossfire swept to see how that unfolds, but nothing has changed in the mid to long term about opportunities in China right. Okay. Thank you all for joining US today as I said in our third quarter call, we're confident that win.

Roger: Great. We're going to squeeze in one last question, please, Carla. This is last one is Mara Goldstein from Mizuho. Okay. Great. Thanks very much.

Mara Goldstein: Just a quick question on the NewCo spinoff and the targets around achieving an R&D organization, and how should we think about that from a metric perspective? And then just quickly on China, I know we've covered it, but you know, Merck has spoken to China as a component of its growth strategy on a go-forward basis, and understanding that Qutrute has been a part of that, but Merck has other portfolios So I'm wondering how much of NewCo's business is responsible for the growth in that region and how RemainCo will be able to advance its growth initiative, you know, in the absence of NRDL's listing, which didn't occur as expected. So the first question, I believe, was on R&D metrics around NUCO. Rob or Kevin, I don't think we have much to add to this at this point. Clearly, I would just say that as we think about the 35% operating margin...

Not complacent and the separation is evidence suggests that we're convinced that this decision is the right. Once the business that we believe that now is the right time to capitalize on a position of strength secure even stronger future from Merck as a more focused research intensive biopharmaceutical company will be better positioned to carry out on mission.

Turning to friends and improve lives and drive lasting value for the patients and shareholders. We exist to so thank you very much. Thank you off.

Thank you. This concludes today's conference call. Thank you all for attending you may now disconnect.

[music].

Rob Davis: [inaudible]

Frank Clyburn: And the second question, China's growth, yeah.

Frank Clyburn: This is Frank. With China, as we've discussed, we're very pleased with the growth this year of 58%. And our growth, to your point, is very broad-based. Its Qutrudis, Gardasil, Limparza, Lumbima, our innovative portfolio has done very well. Genuvia is on the NRDL. Zephyr was recently placed on the NRDL.

Frank Clyburn: So we see our growth going forward in China, and we see significant opportunities. Obviously, as I mentioned, we're all thinking about the coronavirus. We'll have to see how that unfolds. But nothing has changed in the mid- to long-term about our opportunities in China.

Unknown Attendee: Okay, thank you all for joining us today. As I said in our third quarter call, we're confident that we're not complacent, and the separation is evidence of just that. We're convinced that the decision is the right one for the business, and we believe that now is the right time to capitalize on a position of strength to secure an even stronger future for Merck. As a more focused research-intensive biopharmaceutical company, we'll be better positioned to carry out our mission of inventing to save and improve lives and drive lasting value for the patients and shareholders we exist to serve.

Unknown Attendee: Thank you very much. Thank you all. Thank you. This concludes today's conference call. Thank you all for attending.

Unknown Attendee: BF-WATCH TV 2021