Q1 2020 Earnings Call

My name is Jerome and that will be or conference operator today.

Gerald: My name is Gerald, and I will be your conference operator today. At this time, I would like to welcome everyone to the Merck & Co. first quarter sales and earnings conference call. All lines have been placed on mute to prevent any background noise.

Hi, I would want to welcome everyone to the Merck its company first quarter sales and earnings conference call.

Wanting to be placed on mute the for that same recycled noise. After the speaker's remarks, there will be a question answer session. If you looked like I was a question. During this time simply breast bar that's number one on yourself. So keep that so we draw. Your question passed the Penske. Thank you I would now let's turn to.

Jerome: 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, then the number one on your telephone keypad. Thank you, Jerome. Good morning. Welcome to Merck's first quarter 2020 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, Frank Clyburn, our Chief Commercial Officer, and Mike Nally, our Chief Marketing Officer. 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 GAAP results such as acquisition-related charges, restructuring costs, and certain other items. You should note that we have excluded these from our non-GAAP results and provided a reconciliation in our press release.

All over it to beat or thought as Bob Vice President Investor Relations. Please go ahead.

Thank you Jerome good morning, welcome to Merck's first quarter 2020 conference call today, I'm joined by kind of Frazier, Our chairman and Chief Executive Officer, Rob Davis, Our Chief Financial Officer, Dr., Roger promoter precedent Merck Research lab.

Why Burns, our Chief commercial officer, Mike not only our chief marketing officer.

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

We'll see that we have items on our GAAP results, which is acquisition related charges restructuring costs and certain other items you should note that we have excluded these from our non-GAAP results and provide a reconciliation in our press release. We've also provided the table in our press release to help you understand the sales in the quarter for the business units and products.

Peter: We've also provided a table in our press release to help you understand the sales in the quarter for the business units and products. I would like to remind you that some of the statements 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.

Like to remind you that some of those statements we make during today's call maybe considered forward looking statements within the meaning of the safe Harbor provision of the U.S. Private Securities Litigation Reform Act at 1995.

Peter: Such statements are made based on the current beliefs of Merck's management and are subject to significant risks and uncertainty. If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statement. Our SEC filings, including Item 1A and the 2019 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. Our SEC filings, today's earnings release, and an investor presentation with some highlights of our results are all posted on Merck.com. With that, I'd like to turn the call over to Ken.

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

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

RCC farms completing item one and the 2019 10-K identify certain risk factors and cautionary statements that could cause the company's actual results could differ materially from those projected in any of our forward looking statements made this morning.

Merck undertakes no obligation to publicly update any forward looking statements.

SEC filings today's earnings release at an Investor presentation with some highlights of our results for all posted on Merck Dot com.

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

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

Unknown Attendee: Thank you, Peter. Good morning, and thank you all for joining today's call. In this challenging and unprecedented time, our first quarter performance reflects strong demand for our portfolio of innovative products, continued commercial and clinical execution, and the dedication and resilience of our employees around the world. The fundamentals of our business remain strong.

In this challenging and unprecedented times, our first quarter performance reflects strong demand for our portfolio of innovative products.

<unk> commercial and clinical execution.

And the dedication and resilience of our employees around the world.

The fundamentals of our business remains strong.

Unknown Attendee: The COVID-19 global pandemic poses extraordinary challenges to all of us, including serious threats to the health of people, businesses, and economies around the world. Without question, our industry and our company have a unique ability and responsibility to help the world respond to this global pandemic by working collaboratively to deliver solutions for the coronavirus infection, while also maintaining the supply of medically important products to those who need them. Amidst this crisis, we at Merck are focused on protecting the health and safety of our employees and their families, while also ensuring that our essential medicines and vaccines continue to reach the patients we serve. Importantly, the majority of Merck's manufacturing plants and clinical supply sites remain fully operational. We have seen little impact on the production, supply, or distribution of our medicines, vaccines, and animal health products.

The coldest 19 global pandemic poses extraordinary challenges to all about including theorist threats to the health of the people businesses.

Economies around the world.

Without question our industry in our companies have a unique ability and responsibility to help the world respond to this global pandemic by working collaboratively to deliver solution to Corona virus infection, while also maintaining the supply of medically important product to those who need them.

I've missed this crisis with Merck are focused on protecting the health and safety of our employees and their families.

Also ensuring that our central medicines and vaccines continue to reach the patients we serve.

Importantly, the majority of merck's manufacturing plants and clinical supply sites remain fully operational we have seen little impact to the production supply for distribution of our medicines vaccines.

And animal health products.

In many markets around the world, including the U.S.

Unknown Attendee: In many markets around the world, including the U.S., while our offices and laboratories remain open, our colleagues are primarily working from home. And for patients currently enrolled in our clinical trials, we're making every effort to ensure that patients in affected areas are able to continue their treatment and receive appropriate care and monitoring. Conditions are fluid and evolving, but as conditions allow, we are enrolling patients in ongoing studies, and we are starting new studies. Of course, there is great interest in what we're doing to address COVID-19 from a scientific perspective. Roger Perlmutter will speak to the totality of our efforts in more detail, but I will mention that we have deep scientific experience and expertise in both antivirals and vaccines, and our research colleagues are actively engaged in efforts to combat COVID-19.

While our offices and laboratories remain open our colleagues are primarily working from home.

And for patients currently enrolled in our clinical trials, we're making every effort to ensure that patients get affected areas are able to continue their treatment and receive appropriate care and monitoring.

Conditions are fluid and evolving but if conditions allow we're enrolling patients in ongoing studies and we're starting new studies.

Of course, there is great interest and what we're doing to address Colgate 19 from a scientific perspective.

Roger Pro matter will speak to the totality of our efforts in more detail, but I will mention that we have deep scientific experience and expertise and both anti viral vaccine.

And our research colleagues are actively engaged in efforts to combat coated Nike.

We have teams decisive with certain cobot 19 itself.

Unknown Attendee: We have teams of scientists researching COVID-19 itself and assessing antiviral and vaccine candidates for their potential to impact the disease. In addition, we've been working extensively with the broader scientific community to assess different assets and have been engaging with a range of research organizations in collaborative efforts. We know from our experience with viral epidemics like HIV and Ebola that scientific collaborations are essential to develop medicines and vaccines in a global public health emergency like the one we are facing now. But we also know that the path to a new medicine or vaccine is rarely short, nor is it easy.

Assessing anti viral vaccine candidate.

Actual to attack.

In addition, we've been working extensively with the broader scientific community to assess different asset that happened engaging with a range of research organization on collaborative effort.

We know from our experience with bio epidemics like H. I agree that Ebola scientific collaboration so essential to develop medicines and vaccines and a global public health emergency like the one we are facing now.

We also know there's a path to a new medicine or vaccine is rarely short nor is it easy.

Unknown Attendee: But we are optimistic that our industry's efforts will create new tools to combat this coronavirus, and Merck is committed to playing its part in responding to this global pandemic for the patients that depend on our medicines and vaccines, the global community, and those directly impacted by COVID-19. The underlying demand for our innovative portfolio of products remains strong, and our business remains fundamentally sound. However, the pandemic is impacting patients' ability to access hospitals and physician offices, particularly for many of our products, which require physician administration. And social distancing measures are also impacting customer access to and demand for our animal health products.

But we're optimistic that our industry efforts will create new tools to combat Corona virus.

And Mark is committed to played its part in response to this global pandemic the patients get dependent on medicines and vaccines, the global community and those directly impacted by Cobot Nike.

The underlying demand for our innovative portfolio of products remain strong and our business remains fundamentally Sal.

However, the pandemic is impacting patients ability to access hospital and physician offices.

Finally for many of our product which require physician administration.

And social distancing measures also impacting customer access and demand for animal health products.

Robin Frank will speak to the near term impact to our business in a minute, but on a longer term basis remit we remain confident.

Rob Davis: Robin Frank will speak to the near-term impact on our business in a minute, but on a longer-term basis, we remain confident in our outlook for strong growth once people adjust and find ways to address the needs of health and healthcare beyond COVID-19. Importantly, our financial strength and strong balance sheet allow us to continue with our capital allocation priorities, including investing in R&D and in our growth drivers. Investing in Manufacturing Capacity Expansion, paying our dividend, and continuing our search for value-enhancing business development, which remains a top priority. We also remain fully committed to our spinoff transaction, and we believe we are on track for completion in the first half of 2021. We completed several important milestones in the quarter, including the naming of the new company Organon & Co. Inc., a name that has strong brand equity and engenders trust among health care professionals for its dedication and innovation in women's health.

Our outlook for strong growth once people adjust and find ways to address the needs of health and health care YOD cope ignite chain.

Importantly.

Okay natural strength and strong balance sheet allow us to continue with our capital allocation priorities, including investing in R&D and our growth drivers.

Best second manufacturing capacity extent expansion.

Hang on dividends and continuing our search for value enhancing business development, which remains a top priority.

We also remain fully committed to us spin off transaction and we believe we're on track for completion in the first half of 2021.

We completed several important milestones in the quarter, including the naming of the new company or get on in coach Inc., a name, which has strong brand equity.

And this trust among healthcare professionals.

Works dedication and innovation in women's health.

We've also winning several members of the Organon leadership team.

Rob Davis: We've also named several members of the Organon leadership team. We continue to believe that two more focused companies will allow us to reach more patients, drive stronger growth, and unlock longer-term value for shareholders. To conclude, we recognize now more than ever the importance of our investment in R&D and the value of our science-based approach. We remain dedicated to our mission to save and improve lives through the discovery of innovative new medicines and vaccines to treat and protect patients in the midst of the pandemic and in the future. With that, I'll now pass it over to Rob Davis to review the details of our performance and output.

We continue to believe that to more focused companies will allow us to reach more patients drive stronger growth.

Longer term value for shareholders.

To conclude we recognize now more than ever the importance of our investment in R&D and the value of our science based approach.

We remain dedicated to our mission to say even improve lies the discovery of innovative new medicines and vaccines to treat and protect patient in the mix of the pandemic and in the future.

With that I'll now pass it over to Rod Davis to review the details of our performance and outlook.

Thanks, Ken good morning, everyone.

Rob Davis: Thanks Ken and good morning everyone. As Ken stated, while we are operating in a challenging time, our first quarter results demonstrate the strong underlying fundamentals of our business, as well as successful planning and execution that is allowing us to maintain the continuous supply of our medicines and vaccines to the patients we serve. We remain confident in our long-term growth prospects, driven by the strong underlying demand for our products, though we are now seeing that COVID-19 will impact our near-term results, due mostly to patient access challenges. In this environment, our strong financial position and conservatively positioned balance sheet is allowing us to maintain strong liquidity and very healthy access to the capital markets, and our capital allocation priorities remain largely uninterrupted.

As Ken stated, while we were operating in a challenging time for first quarter results demonstrate the strong underlying fundamentals of our business.

As well as successful planning and execution says, allowing us to maintain to continuous supply of or medicines and vaccines to the patients we serve.

Strong liquidity and very healthy access to the capital markets and or a capital allocation and priorities remain largely uninterrupted now turning to our first quarter results.

Rob Davis: Now turning to our first quarter results. Total company revenues were $12.1 billion, an increase of 11% year-over-year, or 13%, excluding the negative impact from foreign currency. Both our human health and animal health businesses contributed to the growth this quarter. COVID-19 had an immaterial impact on our business in the first quarter, with both pushes and pulls across our divisions and regions.

Total company revenues were $12.1 billion, an increase of 11% year over year for 13%, excluding the negative impact from foreign currency.

Both are human health and animal health businesses contributed to the growth this quarter.

Probing 19 had an immaterial impact on our business in the first quarter with both pushes and pulls across our divisions in regions.

The remainder my comments pertaining to sales will be on an x. exchange pieces.

Rob Davis: The remainder of my comments pertaining to sales will be on an ex-exchange basis. Our human health revenues grew 12%, led by key products in our oncology, vaccines, and hospital business. In Oncology, Katrina sales increased 46% year-over-year, reaching $3.3 billion. In the United States, growth was driven by all key tumor types, and we continue to strengthen our overall leadership position in the I.O. market, including across indications for lung, bladder, and head and neck cancers. Our launches in renal cell carcinoma and endometrial and first-line head and neck cancers continue to fuel momentum, and we are excited about the prospects for our application for a six-week dosing regimen across all indications, which is currently under review by the FDA. Outside the United States, lung cancer indications continue to drive growth.

Or human health revenues grew 12% led by key products in our ontology vaccines in hospital businesses.

You know <unk> Katrina sales increased 46% year over year, reaching $3.3 billion.

And the United States growth was driven by all key tumor types and we continue to strengthen our overall leadership position in the aisle market, including across indications for a long bladder and had the net cancers are launches and renal cell carcinoma and into me drill and first line had an that cancers continue to fuel momentum and we were excited about.

The prospects for application for a six week six week dosing regiment across all indications, which is currently under review by the F.D.A.

Outside the United States lung cancer indications continue to drive to to to growth.

<unk> you wrote continues to be driven by the uptake Aquino 189 was secured reimbursement across all major markets and we are encouraged by early uptake in the adamant melanoma hadn't neck and renal cell carcinoma launches.

Rob Davis: In the EU, growth continues to be driven by the uptake of Keynote 189, with secured reimbursement across all major markets, and we are encouraged by early uptake in the adjuvant melanoma, head and neck, and renal cell carcinoma launches. In Japan, Katrina showed growth driven by new launches and continued strength in lung. Despite the implementation of the Huge Seller Price Adjustment in February, our oncology portfolio continues to benefit from both our products in Lamparza and Lenvema, with Lenvema continuing to lead the PARP class in the United States with over 60% share, while Lenvema maintains market leadership in first-line hepatocellular carcinoma and benefits from the launch in combination with Keytruda in endometrial carcinoma. Turning now to vaccines.

And Japan Katrina showed growth driven by new launches and continued strengthen long.

Bite the implementation of the huge cell or price adjustment in February.

Our own code you portfolio continues to benefit from both our products in one part of the endless <unk> with one bema continuing to lead depart class and the United States with over 60% share Wallin, well and Bema maintains market leadership in first line Hepatocellular carcinoma and benefits from the launch in combination with could.

True to the end Dimitrius carcinoma.

Turning out of vaccines.

<unk> reflects continued positive underlined demand globally as well as the timing of shipments in China, which contributed roughly $120 million in growth to the quarter and the timing of public sector purchases in the U.S., which benefited revenue by approximately $70 million.

Rob Davis: Gardasil growth reflects continued positive underlying demand globally, as well as the timing of shipments in China, which contributed roughly $120 million in growth to the quarter, and the timing of public sector purchases in the U.S., which benefited revenue by approximately $70 million. Pneumovax also contributed to growth this quarter, in part due to increased demand related to heightened interest in pneumococcal vaccination given the COVID-19 pandemic The hospital business benefited from growth in Britain, reflecting strong performance across all major regions, and in Prevemis, reflecting demand and the benefit of launches globally. Animal health revenue increased 21% this quarter to $1.2 billion. Livestock grew 24% largely due to the contribution of the Antelic acquisition and COVID-19 related buy-in. Companion Animal grew 17% driven by demand for Brevecto, as well as the COVID-19 related buy-in. Turning to the rest of our P&L, my comments will be on a non-GAP basis... Gross margin was 75.5% in the quarter, a decrease of 40 basis points year over year. Operating expenses of $4.4 billion were roughly flat year-over-year.

Pneumovax also contributed to growth this quarter in part due to increased demand related to heightened interest and pneumococcal vaccination give them. The coven 19 pandemic in the United States in Europe.

A hospital business benefited from growth in Bridion, reflecting strong performance across all major regions and in <unk>, reflecting demand and the benefit of launches globally.

Animal health revenue increased 21% this quarter to $1.2 billion.

Livestock grew 24%.

Due to the contribution of the Antolik acquisition and Cove, It 19 related by hand.

Companion animal grew 17% driven by demand for Bravecto.

As well as the cobin 19 related by hand.

Turning to the rest of R.P.N.L. my comments will be on a non got basis.

Gross margin was 75.5% and the for a decrease of 40 basis points year over year.

Operating expenses of $4.4 billion were roughly flat year over year.

<unk> spend decreased 7% driven by lower promotion and selling costs due in part to cope with 19.

Well, r. and D. spend increased 10%, reflecting higher clinical development and research costs as well as higher licensing costs.

In total are operating expenses were favorably impacted by $100 million in reduce spending due to covert 19, largely driven by lower promotional in selling costs and delayed spending on her clinical trials.

Rob Davis: SG&A spend decreased 7% driven by lower promotion and selling costs due in part to COVID-19, while R&D spend increased 10%, reflecting higher clinical development and research costs, as well as higher licensing costs. In total, our operating expenses were favorably impacted by $100 million in reduced spending due to COVID-19, largely driven by lower promotional and selling costs and delayed spending on our clinical trials. The year-over-year increase in other expense was driven by higher net interest expense due to reduced cash balances partially offset by net gains on our security holdings, predominantly reflecting our investment in Moderna. Our effective tax rate for the quarter was 17%. Taken together, we earn $1.50 per share, an increase of 26% excluding exchange.

The year over your increase in other expense was driven by higher net interest expense due to reduce cash balances, partially offset by net gains our security holdings predominantly reflecting our investment in <unk>.

Are effective tax rate for the quarter was 17%.

Huh.

Taken together, we earn one dollar and 50 cents per share an increase of 26% excluding exchange.

In summary, the underlying demand for our products in the first quarter, even after adjusting for timing and covert 19 impacts.

Delivered very strong growth and demonstrates to continue to underlying strength.

And operational momentum in our business.

As we move through the year and eventually put the impact of Coven 19 behind US. This demand will be the foundation upon which we expect to deliver strong and sustained growth into the future.

Now turning Torah outlook for the remainder of the year.

As we head into the second quarter, we are seeing decrease patient visits due to reduced access to hospitals and other health care providers as well as social distancing recommendations I'd like to pass the call. It a frank to provide additional color on the dynamics we are seeing.

Frank Clyburn: In summary, the underlying demand for our products in the first quarter, even after adjusting for timing and COVID-19 impacts, delivered very strong growth and demonstrates the continued underlying strength and operational momentum in our business as we move through the year and eventually put the impact of COVID-19 behind us. This demand will be the foundation upon which we expect to deliver strong and sustained growth into the future. Now, turning to our outlook for the remainder of the year. As we head into the second quarter, we are seeing decreased patient visits due to reduced access to hospitals and other health care providers, as well as social distancing recommendations. I'd like to pass the call to Frank to provide additional color on the dynamics we are seeing.

Thanks, Rob and good morning, everyone.

As you've heard from Kent in Rob the impact to our business from the ongoing pandemic is largely driven by a reduction in health care provider and patient interactions as hospitals redirect resources toward covert 19, impatience avoid health care facility visits and postpone preventive care.

To better understand the impact Mark it is important to highlight that our portfolio is heavily weighted towards products administered by a physician.

In fact, roughly two thirds of our global human health revenue is comprised of physician administered products.

Taking this a level deeper we've seen updated guidelines and recommendations from the C.D.C. and various professional associations further enforce social distancing measures via delays and wellness visits and the postponement of treatment.

Frank Clyburn: Thanks, Rob, and good morning, everyone. As you've heard from Ken and Rob, the impact on our business from the ongoing pandemic is largely driven by a reduction in healthcare provider and patient interactions as hospitals redirect resources toward COVID-19 and patients avoid healthcare facility visits and postpone preventive care. To better understand the impact on Merck, it is important to highlight that our portfolio is heavily weighted toward products administered by a physician. In fact, roughly two-thirds of our global human health revenue is comprised of physician-administered products. Taking this a level deeper, we've seen updated guidelines and recommendations from the CDC and various professional associations further enforce social distancing measures via delays in wellness visits and the postponement of treatment. For example, based on recommendations from the American Academy of Pediatrics and the CDC, most pediatricians have pushed out the routine immunization of all children except for those under 24 months in the United States.

For example, based on recommendations from the American Academy up Pediatrics, and C.D.C., most pediatricians it pushed out the routine immunisation of all children, except for those under 24 months in the United States.

And in the United States physician office visits across various areas of medicine are currently running down in the neighborhood of 70% versus three Cove. It 19 levels. As a result of these measures we are seeing impacts tour vaccine portfolio, including the Gardasil Pneumovax and R.P.D. and.

Strict vaccines and tour women's health products in both are facility medicines as well as implemented nexplanars up physician administered implantable.

Urgent elective procedures have also been postponed or cancelled in most major markets in order to slow the spread of disease and enable hospital prioritization of covert 19 patients.

Many sources are reporting current declines in elective procedures over 70% with urges procedure volumes also being affected though to a much lesser degree.

Frank Clyburn: And in the United States, physician office visits across various areas of medicine are currently running down in the neighborhood of 70% versus pre-COVID-19 levels. As a result of these measures, we are seeing impacts on our vaccine portfolio, including Negardasil, Pneumovax, and our pediatric vaccines, and on our women's health products, including both our fertility medicines, as well as Implanon Nexplanon, a physician-ad Non-urgent elective procedures have also been postponed or canceled in most major markets in order to slow the spread of the disease and enable hospital prioritization of COVID-19 patients. Many sources are reporting current declines in elective procedures of over 70%, with urgent procedure volumes also being affected, though to a much lesser degree. These declines impact a product like Brition, which is used across many surgery settings. And even oncologists are delaying appointments and procedures as they prioritize patients based on severity and the immediate needs of different tumor types, resulting in extended dosing schedules for existing patients, as well as delays in the start of therapy for newly diagnosed patients.

These declines impact a product like Brady on which is used across many surgeries settings.

And even on colleges are delaying appointments and procedures as they prioritize patients based on severity and the immediate needs of different tumor types, resulting in extended dosing schedules for existing patients as well as delays and the start of therapy for newly diagnosed patients.

As Rob will outline in a minute however, based on our overall assumption with respect to the timeline for return to a more normal environment as well as our experience in China, a market, which was impacted earlier by the pandemic, but which is now recovering we expect to be most heavily EM.

Acted in the second quarter.

Most importantly, we believe the underlying demand for our portfolio products remains strong based on the substantial medical benefits they bring to patients.

As the peak of the pandemic passes we believe providers and patience will move quickly to find ways to safely provide and seek treatment and is a more normal environment for patient accesses reestablish we believe our portfolio will be will again be well positioned to achieve strong.

Frank Clyburn: As Rob will outline in a minute, however, based on our overall assumption with respect to the timeline for return to a more normal environment, as well as our experience in China, a market that was impacted earlier by the pandemic but which is now recovering, we expect to be most heavily impacted in the second quarter. Most importantly, we believe the underlying demand for our portfolio of products remains strong based on the substantial medical benefits they bring to patients. As the peak of the pandemic passes, we believe providers and patients will move quickly to find ways to safely provide and seek treatment. And as a more normal environment for patient access is re-established, we believe our portfolio will again be well positioned to achieve strong long-term growth. With that, I will turn it back to Rob.

Long-term growth with that I will turn it back to Rob.

Can now turning to guidance.

We expect decreased volumes due to the reduced access and social distancing impacts the Frank described particularly in the second quarter, which we assume is the peak of the virus in the United States in Europe.

We expect to begin to see this dynamic subside as hospitals begin to normalize through the third quarter in a social distancing measures begin to lift across geography at which point, we would expect they phased return to more normal levels of volumes unencumbered by access concerns.

Well, we do expect to progress to normal pre cobin 19 volumes by the beginning of the fourth quarter, a large portion of the impact from two to will carry to the four year.

And animal health, we expect to experience or more protracted recovery time line given decreased demand for milk and protein due to the shut down of restaurants in schools reduce visits to veterinarians and the impact of reduced employment and incomes.

Rob Davis: Thanks Ken. Now, turning to guidance. We expect decreased volumes due to the reduced access and social distancing impacts that Frank described, particularly in the second quarter, which we assume is the peak of the virus in the United States and Europe. We expect to begin to see this dynamic subside as hospitals begin to normalize through the third quarter and as social distancing measures begin to lift across geographies, at which point we would expect a phased return to more normal levels of volumes unencumbered While we do expect to progress to normal pre-COVID-19 volumes by the beginning of the fourth quarter, a large portion of the impact from Q2 will carry to the full year. In animal health, we expect to experience a more protracted recovery timeline, given decreased demand for milk and protein due to the shutdown of restaurants and schools, reduced visits to veterinarians, and the impact of reduced employment and income.

Of course are actual results could vary based on how the disease progress is and how various countries respond.

We now expect revenues of $46.1 billion to $48.1 billion, which reflects a decrease of two and a half billion dollars from our previous midpoint.

This difference is comprised of approximately $2.1 billion that negative impact due to covert 19 on an x. exchange basis made up of approximately $1.7 billion from human health and $400 million an animal health.

We also now assume a negative impact from foreign exchange of roughly $750 million for two and a half percentage points using mid April rates.

Finally, human health operational strength of roughly $300 million, partially offsets the negative cobin 19, and foreign exchange in packs.

We now expect gross margin to be roughly 75%.

Operating expenses are expected to decline at a low single digit rate driven by lower S.G.N.A.R. updated assumption anticipates, lower promotion and selling expenses and <unk> clinical trial costs.

Rob Davis: Of course, our actual results could vary based on how the disease progresses and how various countries respond. We now expect revenues of $46.1 billion to $48.1 billion, which reflects a decrease of $2.5 billion from our previous midpoint. This difference is comprised of approximately $2.1 billion of negative impact due to COVID-19 on an ex-exchange basis, made up of approximately $1.7 billion from human health and $400 million from animal health. We also now assume a negative impact from foreign exchange of roughly $750 million for 2.5 percentage points using mid-April rates. Finally, human health operational strength of roughly $300 million partially offsets the negative COVID-19 and foreign exchange impact. We now expect gross margin to be roughly 75%. Operating expenses are expected to decline at a low single-digit rate driven by lower SG&A.

Now expect or for your tax rate to be in the range of 17% to 18%.

We continue to expect other expensive roughly $200 million, we continue to anticipate 2.5 or billion shares outstanding.

Given the current environment and the out an abundance of caution we have temporarily paused or share repurchase activity, which will help ensure that we preserve our strong financial position to pursue our capital allocation priorities of investment in the business.

And ongoing business development.

Taken together, we now expect or non gap E.P.S. to be between $5 in 17 cents to $5 in 37 cents, which reflects a decrease of 43 cents from our previous midpoint.

This range includes a roughly three and a half percentage point negative impact from foreign currency equating to and approximately 11 cents affects headwind versus our prior assumptions.

Importantly, the company's financial strength and conservatively position balance sheet is allowing us to execute or capital allocation priorities, which remain unchanged. Despite the currently challenging environment.

Rob Davis: Our updated assumption anticipates lower promotion and selling expenses and clinical trial costs. We now expect our full-year tax rate to be in the range of 17 to 18 percent. We continue to expect other expenses of roughly $200 million. Additionally, we continue to anticipate 2.54 billion shares outstanding. Given the current environment and out of an abundance of caution, we have temporarily paused our share repurchase activity, which will help ensure that we preserve our strong financial position to pursue our capital allocation priorities of investment in the business and ongoing business development. Taken together, we now expect our non-GAAP EPS to be between $5.17 and $5.37, which reflects a decrease of $0.43 from our previous mid-period. This range includes a roughly three and a half percentage point negative impact from foreign currency.

As of the end of the quarter, we held $8 billion in cash.

Securities and retain good access to the commercial paper markets.

In addition, our cash collections continue as expected with no significant disruption from the coven 19 pandemic in back to date.

As a reminder, our first priority is to invest in our existing r. and d. programs as well as to support new programs aimed at covert 19.

This pandemic underscores our commitment to R. and D. now more than ever.

We will continue to invest in manufacturing capacity expansion and we remain firmly committed to the payment of our dividend.

In addition, as can noted business development remains a priority and we will continue to look for the best external sources of science to augment our pipeline.

We will assess environment on an ongoing basis and consider reactivating they were purchased programs as warranted.

In summary, our first quarter results demonstrate the strong demand, we see for innovative portfolio and the underlying fundamental strengthen our business.

While the pandemic will impact us in the short term.

We are well position financially weather the storm and continue the investments were making a crossed our business to drive growth and importantly to bring additional innovations to the patients wieser.

Rob Davis: This equates to an approximately 11 cent FX headwind versus our prior assumption. Importantly, the company's financial strength and conservatively positioned balance sheet is allowing us to execute our capital allocation priorities, which remain unchanged despite the currently challenging environment. As of the end of the quarter, we held $8 billion in cash and digital securities and retained good access to the commercial paper market. In addition, our cash collections continued as expected with no significant disruption from the COVID-19 pandemic and back to date. As a reminder, our first priority is to invest in our existing R&D programs, as well as to support new programs aimed at COVID-19. This pandemic underscores our commitment to R&D now more than ever. We will continue to invest in manufacturing capacity expansion, and we remain firmly committed to the payment of our dividends.

We also remain competent and the underlying demand products based on their competitive position and the benefit that they provide and fully expect to see our growth return once patient access normalizes.

As a result, our expectations are unchanged regarding our ability to deliver sustainable long-term growth.

We believe all of those continues to be a source of significant and sustainable long term value for both our patients and our shareholders with that I'd like to turn the call over to Roger.

Thanks.

I will divide Mike commentary on our first quarter results into three parts first I will describe the current operations status at Merck Research laboratories, focusing in particular on critical research and on our interactions with regulatory agencies second time, a highlight some of the important results W.T. during the first quarter and <unk> outline.

<unk>, what we hope to achieve as B. or progressive finally, I will comment specifically on the actions that we hope.

Where we have taken <unk> address the curve at night.

So let me begin with our operational status at an early points are global clinical operations seem recognized the importance of the Sars coby to infections that were reported in blue on China and made advance preparations to manage what became the cobot 19 pandemic.

Rob Davis: In addition, as Ken noted, business development remains a priority, and we will continue to look for the best external sources of science to augment our pipeline. We will assess the environment on an ongoing basis and consider reactivating the repurchase program as warranted. In summary, our first quarter results demonstrate the strong demand we see for our innovative portfolio and the underlying fundamental strength in our business. While the pandemic will impact us in the short term,

These preparations included Prepositioning critical supplies strengthening our clinical supplies network, putting in place processes to enable virtual monitoring and overtime developing crosses to for a home delivery investigations.

Including in some cases developing alternative infusion sites operating virtually the clinical operations team, putting data management and our quality organization has been able to maintain our overall clinical trials schedule. We have in some cases reduce enrollment in certain jurisdictions, but we have not halted involvement and are continuing to.

Rob Davis: We are well positioned financially to weather this storm and continue the investments we are making across our business to drive growth and, importantly, to bring additional innovations to the patients we serve. We also remain confident in the underlying demand for our products based on their competitive positioning and the benefit that they provide, and fully expect to see our growth return once patient access normalizes. As a result, our expectations are unchanged regarding our ability to deliver sustainable, long-term growth. We believe all of this continues to be a source of significant and sustainable long-term value for both our patients and our shareholders. With that, I'd like to turn the call over to Roger.

Launch new clinical trials, a clause across most jurisdictions as examples are team process 36 database locks in the month of March and enrolled more than 700, new patients across our Europe Middle East Africa site. These numbers provide substantial reassurance that are clinical programs are moving forward. Indeed.

Although I cannot predict what the course of the pandemic will be in the future for now are 2020, M.R.L. objectives are knocking jeopardy.

Progress is loaded entirely to the extraordinary work teens across our organization Fanning five continents, and a very broad sense of government regulatory agencies with whom we attract.

Roger Perlmutter: Thanks Rob. I will divide my commentary on our first quarter results into three parts. First, I will describe the current operational status of Merck Research Laboratories, focusing in particular on clinical research and on our interactions with regulatory agencies. Second, I will highlight some of the important results that we achieved during the first quarter and will outline some of what we hope to achieve as the year progresses.

Turning now too important research accomplishments as noted previously the first quarter began with F.D.A. approval of construed as monologue therapy for the treatment of certain patients with high risk non muscle invasive bladder cancer are 23rd Keytruda indication and we continue to generate important data related to the ability of <unk>.

Suited to improve cancer therapy.

An interim analysis of the pivotal phase three keynote pre five five studied demonstrated that keytruda in combination with standard chemotherapy improve progression pre survival versus chemotherapy alone in the first line treatment of patience with medicine addict triple negative breast cancer, whose tumors expressed P.D.L. one with combine <unk>.

Roger Perlmutter: Finally, I will comment specifically on the actions that we have taken to help address the COVID-19 pandemic. So, let me begin with our operational status. At an early point, our global clinical operations team recognized the importance of the SARS-CoV-2 infections that were reported in Wuhan, China, and made advanced preparations to manage what became the COVID-19 pandemic. These preparations included pre-positioning clinical supplies, strengthening our clinical supplies network, putting in place processes to enable virtual monitoring, and, over time, developing processes for home delivery of investigational agents, including, in some cases, developing alternative in Operating virtually, the clinical operations team, including data management and our quality organization, has been able to maintain our overall clinical trial schedule. We have, in some cases, reduced enrollment in certain jurisdictions, but we have not halted, and are continuing to launch new clinical trials across most jurisdictions.

Portion score a greater than or equal to 10.

This results complements the data from our you know try to to study in which a combination of secretive plus chemotherapy provided as neoadjuvant treatment versus chemotherapy alone improved the pathlogic complete response rate in patients undergoing surgery put triple negative breast cancer, we expect to describe these results in detail at an upcoming net.

Oh meeting.

We also announced the results of Artino too old for study, which demonstrated that Keytruda monitor therapy improved progressing pre survival and adult patients with relapsed or refractory classical hard can lymphoma as compared with Brent toxin them <unk>. These data strongly support our current indication and classical Hodgkin's lymphoma and the.

Study will continue to permit evaluation of the dual primary overall survival endpoint also during the quarter, we announced the results of art you know 177 trial, let's say three studying which motto therapy with concur to improve progression pre survival as compared with the standard chemotherapy in the first line treatment of patients with <unk>.

<unk> or medecins, colorectal cancer, whose tumors had demonstrated efficiency and mismatch D.N.A. repair or evidence of D.N.A. microsatellite instability. The so called M.S.I. high phenotype. The study will continue as is customary to permit evaluation of an overall survival employed once the data are mature.

Roger Perlmutter: As an example, our team processed 36 database locks in the month of March and enrolled more than 700 new patients across our Europe, Middle East, and Africa sites. These numbers provide substantial reassurance that our clinical programs are moving forward. Indeed, although I cannot predict what the course of the pandemic will be in the future, for now, our 2020 MRL objectives are not in jeopardy. This progress is owed entirely to the extraordinary work of teams across our organization spanning five continents and a very broad set of government regulatory agencies with whom we interact.

Most will recall that in 2017, we gained the very first approval of a tumor agnostic P.D. one directed therapy indication with the identification completed in collaboration with colleagues at Johns Hopkins University of M.S.I. high status as a biomarker for tumor responsiveness at the end of the first quarter. We also receive.

Roger Perlmutter: TURNING NOW TO IMPORTANT RESEARCH ACCOMPLISHMENTS, AS NOTED PREVIOUSLY, THE FIRST QUARTER BEGAN WITH FDA APPROVAL OF KEYTRUDA AS MONOTAPY FOR THE TREATMENT OF CERTAIN PATIENTS WITH HIGH-RISK, NON-MUSCLE-INVASIVE BLADDER. This is our 23rd indication An interim analysis of the pivotal Phase 3 Keynote 355 study demonstrated that Keytruda, in combination with standard chemotherapy, improved progression-free survival versus chemotherapy alone in the first-line treatment of patients with metastatic triple-negative breast cancer whose tumors expressed PD-L1 with a combined proportion score greater than or equal to 10. This result complements the data from our Keynote 522 study in which a combination of Keytruda plus chemotherapy, provided as neoadjuvant treatment versus chemotherapy alone, improved the pathologic complete response rate in patients undergoing surgery for triple-negative breast cancer.

Priority review from the F.T.A. for what we got we regard as a second potential tumor agnostic indication the use of keytruda in certain patients whose tumors have a highly takes no burden that is greater than equal to 10 mutations per megabytes of D.N.A. irrespective of tumor type.

We look forward to presenting all of these data it upcoming scientific meetings and peer review journals and I've indicated we are also engaged discussions regulatory agencies regarding these data finally, we announced last week that based on discussions with the F.D.A. We have responded to their prior complete response center and resubmitted our application poor approval of the use of.

True to and a 400 milligrams every six weeks dosage form across all indications and adults based both upon modeling information and new data that have emerged Martino 555 study, which will be discussed in part of the American Association Precancerous search meeting later today.

We've also seen important progress in our partnership with Astra Zeneca Ahmed <unk> are leading park inhibitor just last week, we announce new results from a key secondary endpoint of our profound trial, which showed statistically significant improvement in overall survival in men with medicine, tadic castration resistant prostate cancer who's.

Roger Perlmutter: We expect to describe these results in detail at an upcoming medical meeting. We also announced the results of our Keynote 204 study, which demonstrated that Keytruda monotherapy improved progression-free survival in adult patients with relapsed or refractory classical Hodgkin lymphoma as compared with brentuximab-zidocine. These data strongly support our current indication in classical Hodgkin lymphoma, and the study will continue to permit evaluation of the dual primary overall survival endpoint. Also during the quarter, we announced the results of our Keynote 177 trial, a Phase III study in which monotherapy with Keytruda improved progression-free survival as compared with standard chemotherapy in the first-line treatment of patients with unresectable or metastatic colorectal cancer whose tumors had demonstrated a deficiency in mismatched DNA repair or evidence of DNA microsatellite instability, the so-called MSI-high

Tumors have mutations in Nebraska, one racket, two genes or the H.T.M.G., all which are important for homologous the combination related feed and eight repair following treatment of the cars as compared with at a restaurant or insulted my therapy. The result provide yet. Another example of the benefit of Lynparza therapy in patients whose.

Tumors have defined D.N.A. repaired mutations I remind you that we presented primary data from the profound study at the European Society for medical oncology meeting in October 2019, we expect the details of the <unk> study, though not those just enough will be published in the top your medical journal in the very near future, perhaps this week.

I should also note with respect to that part is that that are Palo one study phase three trial examining the combination of Lynparza plus blood bevacizumab versus France's map alone in the first line maintenance treatment of women was advanced overall can ovarian cancer is under review by the F.D.A. with the produce the data in this second quarter.

I Kinda complete our survey of important results in tumor therapy without mentioning the approval two weeks ago of cuts of Lugo known generically as <unk>, which is the first selective therapy approved for patients with neurofibromatosis type one or suffering from symptomatic inoperable flex a form neurofibroma yeah.

Roger Perlmutter: The study will continue, as is customary, to permit evaluation of an overall survival endpoint once the data are mature. Most will recall that, in 2017, we gained the very first approval of a tumor-agnostic PD-1 directed therapy indication with the identification, completed in collaboration with colleagues at Johns Hopkins University, of MSI high status as a biomarker for tumor responsiveness. At the end of the first quarter, we also received priority review from the FDA for what we regard as a second potential tumor agnostic indication, the use of t-TRUDA in certain patients whose tumors have a high mutational burden that is greater than equal to 10 mutations per megabase of DNA, irrespective of tumor type. We look forward to presenting all of these data at upcoming scientific meetings and in peer-reviewed journals.

Costs, a logo as part of our what now longstanding collaboration with colleagues that after his annika, who first identified this important Mac signal transduction inhibitor.

Beyond oncology, we also advanced important programs and other therapeutic areas earlier in the quarter, we had the opportunity to present the results of our phase three Victoria study performed in collaboration with colleagues that day, or which demonstrated that <unk> and invest to go investigational soluble <unk> agonists provided benefit.

As judged by a composite endpoint, including heart, they are hospitalization or cardiovascular death, as compared with placebo when given as add on therapy to well treated patients was established heart failure with reduced injection fraction, who had suffered a worsening event.

This represents the first study of its cons in the population is very high risk for for the <unk> cardiac complications. The data were published in the New England Journal Medicine and presented virtually at the American College of Cardiology meetings, just last month.

Also during the quarter, we announced that in our phase three program, Jeff picked sent our investigation no p. two x. three antagonists reduce the 24 hour cough frequency and patience with long standing chronic cough details of these results will also be published in presented and then not too distant future.

Roger Perlmutter: As I've indicated, we are also engaged in discussions with regulatory agencies regarding these data. Finally, we announced last week that, based on discussions with the FDA, we have responded to their prior complete response letter and have resubmitted our application for approval of the use of Keytruda in a 400 milligram every six weeks dosage form across all indications and adults based both upon modeling information and new data that have emerged from our Keynote 555 study, which will be discussed in part at the American Association for Cancer Research meeting later today. We've also seen important progress in our partnership with AstraZeneca.

Finally in the metabolic disease area.

You have just announced results for the phase three Burgess C.D. cardiovascular outcomes trial. In this study conducted jointly by Merck and Pfizer compared administration of Sig Latrobe also didn't glucose code transport or two or S. yeltsin to inhibitor versus placebo in the treatment of patience with type two diabetes and establish atherosclerosis backward.

Disease and achieved its primary endpoint of Noninferiority from major <unk> adverse cardiovascular events.

These events were defined as time to the first event of C.B. death, non fatal myocardial infarction or nonfatal stroke.

The keys secondary endpoints of superiority per se glottal versus placebo for time to the composite at C.B. death, or hospitalization for heart failure, CVBF alone and the composite renal death dialysis transplant or doubling up serum create moved from baseline we're not Matt.

Roger Perlmutter: At the end of the year, we announced new results from a key secondary endpoint of our PROFOUND trial, which showed statistically significant improvement in overall survival in men with metastatic, castration-resistant prostate cancer whose tumors have mutations in the BRCA1, BRCA2 genes or in the ATM gene, all of which are important for homologous recombination-related DNA repair, following treatment with mumparsa as compared with a This result provides yet another example of the benefit of linparsa therapy in patients whose tumors have defined DNA repair mutations. I will remind you that we presented primary data from this deep study at the European Society for Medical Oncology meeting in October of 2019. We expect the details of this profound study, though not those that I've just announced, will be published in a top tier medical journal in the very near future, perhaps this week. I should also note with respect to lympharza that our PAOLA-1 study, a phase 3 trial examining the combination of lympharza plus blood bevacizumab versus bevacizumab alone in the first line maintenance treatment of women with advanced breast cancer

Well not a pre specified hypothesis for statistical testing.

Section and hospitalization for heart failure was observed was good steak lateral the safety profile, let's think about her was consistent with that reported in previous studies.

Results of bird to C.V. are scheduled to be presented on June 16th at the virtual American diabetes associations, 80th scientific sections.

I will now describe activities during the past quarter directed at developing treatments that could have an impact on the course of the coded 19 pandemic.

Leading vaccine manufacturer for more than 100 years. It is no surprise that we have embarked upon a broad based development program.

HM Let me put these results in the proper context.

Vaccine development is extraordinarily difficult and customarily requires many years investigation.

As others have noted during the past quarter century, despite enormous effort.

Then only seven vaccines directed against previously undergrad human pathogens that earned registration for these seven were developed by Merck Research Laboratory.

So we have relevant experience in this area.

Her v., though are most recent vaccine, which has been demonstrated to provide protection from.

<unk> I year strain of the Boulevard.

Was developed rapidly and under emergency use authorization to help address outbreaks in West Africa.

Roger Perlmutter: Overall,

Roger Perlmutter: Ovarian Cancer is under review by the FDA for the PDUCA date in this second quarter. However, I cannot complete our survey of important results in tumor therapy without mentioning the approval two weeks ago of Casalugo, known generically as Felometinib, which is the first selective therapy approved for patients with neurofibromatosis type 1 who are suffering from symptomatic inoperable plexiform neurofibromas. The approval of Casalugo is part of our now longstanding collaboration with colleagues at AstraZeneca who first identified this important MEK signal transduction inhibitor. Beyond oncology, we also advance in

Now the less.

Required a multi year development program and involve building a factory that we're proud to say can produce 1 million doses of vaccine per year.

The development and registration of their vivo required the efforts of hundreds of our employees as well as an extraordinary commitment from the World Health organization and from Health care workers and Guinea, Sierra Leone, The Democratic Republic of the Congo and in many other jurisdictions.

Was the coven 19 pandemic, however, we attached with creating a completely new vaccine in 110th the time that we devoted curvy, though and we must planned to manufacture. This expect seen at 1000 times the scale.

Roger Perlmutter: provided benefit as judged by a composite endpoint including heart failure hospitalization or cardiovascular death as compared with placebo when given as add-on therapy to well-treated patients with established heart failure with reduced ejection fraction who had suffered a worsening event. This represents the first study of its kind in a population at very high risk for further cardiac complications. The data were published in the New England Journal of Medicine and presented virtually at the American College of Cardiology just last month. Also, during the quarter, we announced that in our Phase 3 program, Jeff Apixent, our investigational P2X3 antagonist, reduced the 24-hour cough frequency in patients with long-standing chronic cough. Details of these results will also be published and presented in the not-too-distant future.

We approached this challenge with enthusiasm, but also with humility, we know from long experience that creating safe and effective vaccines typically requires decades of effort and investment.

We're mindful of the imperative tax with speed indeed resurgence.

Based on the progress that we had made I will say that I'm optimistic that a vaccine capable of inducing a potent neutralizing immune response to Sars coby too can be invented.

But it's also critical to develop a comprehensive understanding of this particular corona virus, which will allow us to design developing ultimately to manufacture vaccines and can be deployed globally.

But this in mind, we of course supported efforts to characterize effective immune responses to Sars coby to infection as we announced yesterday, we have partnered with scientists at the Institute for systems Biology, Sweetest Hospital, and the Providence Health system, all in Seattle with Stanford University, numerous others to collect cells in Sierra over multiple kind points from.

Patients diagnosed with covert 19.

Roger Perlmutter: Finally, in the metabolic disease area, we have just announced results for the Phase 3 VIRTUS-CV Cardiovascular Outcomes Trial. This study, conducted jointly by Merck and Pfizer, compared administration of Stiglatro, an oral sodium glucose co-transporter 2, or SGLT2 inhibitor, versus placebo in the treatment of patients with type 2 diabetes and established atherosclerotic vascular disease and achieved its primary endpoint of These events were defined as time to the first event of CV death, non-fatal myocardial infarction, or non-fatal stroke. The key secondary endpoints of superiority for stiglatra versus placebo were time to the composite of CV death or hospitalization for heart failure, CV death alone, and the composite of renal death, dialysis, transplant, or doubling of serum creatinine from baseline.

Derived from these analyses will be made available to researchers worldwide and we'll position us to decipher correlates of immunity to this corona virus.

With respect to the vaccines themselves, we have been thoughtful and selecting proven platform that we have used to generate vaccines were desirable qualities in the past of course in light of my prior comments regarding the difficulty of developing successful vaccine I cannot guarantee to use at any of these approaches will prove effective in the near term.

However, you should have no doubt that scientists in our own laboratories and those of our collaborators are committed to this process.

We have also worked we'll identify internal resources that can support the manufacturer of these potential new vaccines at an appropriate scale and we are in discussions with contract manufacturers, who could assist in what would surely rank as the most challenging then sex vaccine production initiative ever undertaken.

Beyond our search for vaccines. We are also engaged in studying potential antiviral drugs that could be deployed more rapidly here too we have evaluated compounds in our own laboratories and have identified programs that other laboratories that could prove beneficial time does not permit me to describe these programs in detail instead, I would like to mention that the global community.

Roger Perlmutter: were not met.

Pharmaceutical companies had been very open to collaboration to address this challenge.

Roger Perlmutter: While not a pre-specified hypothesis for statistical testing, a reduction in hospitalization for heart failure was observed with Skid Stiglatro. The safety profile of Stiglatro was consistent with that reported in previous studies.

Within M.R.L., we are trying to help as many of our colleagues as we possibly can both through the active consortium led by the National Institutes of health and also through interactions of many companies large and small.

Contacted as for advice and assistance with their own program.

Roger Perlmutter: Detailed results of Virtus CV are scheduled to be presented on June 16 at the virtual American Diabetes Association's 80th Scientific Session. I will now describe activities during the past quarter directed at developing treatments that could have an impact on the course of the COVID-19 pandemic. As a leading vaccine manufacturer for more than 100 years, it is no surprise that we have embarked upon a broad-based development program. Let me put these results in the proper context. Vaccine development is extraordinarily difficult and customarily requires many years of investigation. As others have noted, during the past quarter century, despite enormous effort, there have been only seven vaccines directed against previously unaddressed human pathogens that have earned registration. Four of these seven were developed by Merck Research Laboratories, and so we have relevant experience in this area.

I will close by emphasizing that at Merck Our mission is to translate breakthrough research into medicines and vaccines that improve and extend life.

This mission has never seemed more vital and it does today.

I wish to express my gratitude to all of my colleagues here at Merck are working tirelessly in pursuit of a means to ameliorate the covert 19 pandemic.

How return the call back to Peter.

Thank you Roger Jerome or you line up the Q. I just want to remind everybody. Our punk comment went a bit longer than normal today. We're prepared to go past nine o'clock, but we do ask that you limit yourself to one or two questions. So we can get as many questioners in as possible. So thank you.

If you could <unk>.

Ladies and gentlemen to ask a question please press star.

<unk> <unk> key pad or first question comes from the line as parents.

We had Goldman Sachs amino acids requesting.

Roger Perlmutter: Hervebo, our most recent vaccine, which has been demonstrated to provide protection against the Zaire strain of Ebola virus, was developed rapidly and under emergency use authorization to help address outbreaks in West Africa. Nevertheless, it still required a multi-year development program and involved building a factory that we're proud to say can produce one million doses of vaccine per year. The development and registration of VIVO required the efforts of hundreds of our employees, as well as an extraordinary commitment from the World Health Organization and from healthcare workers in Guinea, Sierra Leone, the Democratic Republic of the Congo, and in many other jurisdictions. With the COVID-19 pandemic, however,

Great. Thanks for taking the questions maybe two for me. It just wondering I know you commented a little bit on this but in terms of the environment and your approach to capital allocation I know you called out no further share repurchases. So can you just give us any more detail off the main driver. There is that you see an increasing number of M.A. or B.D. opportunities.

Now in this environment and the second was just wondering with respect to the PHARMAQ guidance, specifically, the new guidance me give us any more detail on the pacing the impact I'm, assuming the majority of that's going to occur in the second quarter and then can you break that down by product meeting how much was <unk> versus guard to sell versus other thank you.

Alright, good good morning, and thanks for that for the questions with regard to maybe the second question first the pharma guidance.

Is the majority that will hit in the second quarter and the majority of it is in the United States and maybe alternate over to Frank to give you some of the more specifics on product detail before coming back to the first question yeah. So I'm in the second quarter, we do anticipate vaccines in particular.

Roger Perlmutter: 2012 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Office of Communications and Creative Services

Roger Perlmutter: We are tasked with creating a completely new vaccine in one-tenth the time that we devoted to Avivo, and we must plan to manufacture this vaccine at 1,000 times the scale. We approach this challenge with enthusiasm, but also with humility. We know from long experience that creating safe and effective vaccines typically requires decades of effort and investment. We are mindful of the imperative to act with speed, indeed with urgency.

It's important to know that we have a very broad vaccine portfolio that ranges from infants all the way to older adults and we do anticipate that are based on well visits being down approximately 70% that that will impact or vaccine portfolio.

Also in the hospital specialty area Briana's I mentioned elective surgeries are down approximately 70% so reducing unpack there. It's important to know we having a a significant product implemented an explanation, which requires physician administration, we think there'll be an impact during the second quarter and then as far as on college.

Roger Perlmutter: Based on the progress that we have made, I would say that I am optimistic that a vaccine capable of inducing a potent, neutralizing immune response to SARS-CoV-2 can be invented. But it is also critical to develop a comprehensive understanding of this particular coronavirus, which will allow us to design, develop, and ultimately manufacture vaccines that can be deployed globally. With this in mind, we have first supported efforts to characterize effective immune responses to SARS-CoV-2 infection. As we announced yesterday, we have partnered with scientists at the Institute for Systems Biology, Swedish Hospital, and the Providence Health System, all in Seattle, with Stanford University and numerous others to collect cells and sera over multiple time points from patients diagnosed with COVID-19. Data derived from these analyses will be made available to researchers worldwide and will position us to decipher correlates of immunity to this coronavirus.

He goes overall, we believe that on college is is pretty resilient. We are seeing new patient visits declined by approximately 10% to 20% depending on the indication and we we think that we'll have a fight impact in in the core from a new patient perspective, but feel very confident as we move in.

And the third and fourth quarter for not only in college, but for the rest of our portfolio.

Thank you Frank and then on your question about share repurchase program, you know just to be clear and I had it in a prepared remarks, but it's worth reinforcing we really decided to temporarily stopped to share repurchase program predominantly out of an abundance caution our financial position continues to be strong and as we said it really was.

To make sure that we can continue to do all of the investments we want to do at R. and D. and cap Act to support our future growth and in business development as your ass, which really across all those areas that where you want to make sure we can prioritize investment.

Roger Perlmutter: With respect to the vaccines themselves, we have been thoughtful in selecting proven platforms that we have used to generate vaccines with desirable qualities in the past. Of course, in light of my prior comments regarding the difficulty of developing successful vaccines, I cannot guarantee to you that any of these approaches will prove effective in the near future. However, you should have no doubt that scientists in our own laboratories and those of our collaborators are committed to this process. We have also worked to identify internal resources that can support the manufacture of these potential new vaccines at an appropriate scale, and we are in discussions with contract manufacturers who could assist in what would surely rank as the most challenging vaccine production initiative ever undertaken. Beyond our search for vaccines, we are also engaged in studying potential antiviral drugs that could be deployed more rapidly. Here too, we have evaluated compounds in our own laboratories and have identified programs in other laboratories that could prove beneficial. Time does not permit me to describe these programs in detail.

And we will continue to look at it and very well could reinstate the share repurchase as we see the situation involved in the marketplace.

Thank you next question.

Hi next question comes from the line F. craft shop, but J.P. Morgan. Some you know after a question.

Oh, great. Thanks, very much just a follow up on the vaccine commentary cues talk a little bit more about how you see that business normalizing sounds like clearly the two q. trends are going to be depressed, but should we think about to catch up in three q. and four q. is wellness visits return or is it just more like normalize volumes and we shouldn't expect as much of a catch up.

I guess specifically on that line. The second question was just a bigger picture question about we're closing high unemployment rates at at what it more broadly is that mean for merck's business I. It should be thinking about lower price an adverse pair mix as representing a had meant to your business as we look beyond somebody's near term covered disruptions, whereas that up.

Manageable kind of dynamic as we think about the longer term business. Thank you very much.

Roger Perlmutter: Instead, I would like to mention that the global community of biopharmaceutical companies has been very open to collaboration to address this challenge. Within MRL, we are trying to help as many of our colleagues as we possibly can, both through the active consortium led by the National Institutes of Health and also through interactions with many companies, large and small, that have contacted us for advice and assistance with their own programs. I will close by emphasizing that at Merck, our mission is to translate breakthrough research into medicines and vaccines that improve and extend life. This mission has never seemed more vital than it does today. I wish to express my gratitude to all of my colleagues here at Merck for working tirelessly in pursuit of a means to ameliorate the COVID-19 pandemic. I'll now return the call to Peter.

<unk> trying to answer the question I'll take your second question first on pay or.

Mixing impact and I'll I'll give some color into our mixed in the U.S. It breaks out approximately crescent the commercial business represents about a third of our business from a mix perspective, we have about 17% of or mix as important to noticing vaccine private pay because of the significance.

Size or vaccine portfolio as we've been discussing government represents about half of our overall pair mix, but also important to note half of that are approximately 26, 27% is could true to related because of Medicare part and be so we've talked about it.

True to continues to grow we anticipate that will grow overtime.

Peter: Thank you, Roger. Jerome, while you line up the queue, I just want to remind everybody that our opening comments went on a bit longer than normal today. We're prepared to go past nine o'clock. But we do ask that you limit yourselves to one or two questions so we can get as many questioners in as possible. So thank you.

K part or Medicare I should say part D. is a small per cent approximately 7% and then we have very small percentages of our business in Medicaid and then the rest is pretty much other with regards to federal and some other parts of our payer Max but you know if you look at our portfolio Medicaid.

Jerome: Jerome, if you could line up the queue, please. Ladies and gentlemen, to ask a question, please press star, then the number 1 on your telephone keypad. Your first question comes from the line of Terence Flynn with Goldman Sachs. You may now ask your question. Great. Thanks for taking the questions. Maybe two for me.

It is very small were clearly looking at unemployment rates and we'll have to to monitor that as it goes for it I think it's too early to assume anything at this point in time. However, we have taken into our guidance different scenarios as we possibly we'll see increase unemployment, but for us in particular.

Terence Flynn: Just wondering, I know you commented a little bit on this, but in terms of the environment and your approach to capital allocation, I know you called out no further share repurchases. So can you just give us any more detail on whether the main driver there is that you see an increasing number of M&A or BD opportunities now in this environment? And the second question was with respect to the pharma guidance, specifically the new guidance, can you give us any more detail on the pacing of the impact. I'm assuming the majority of that's going to occur in the second quarter. And then can you break that down by product, meaning how much is Katruda versus Gardasil versus other?

Medicaid as a small portion of our business.

Shifting the vaccines just to give you a little bit more insight, we expect is you'd come and or towards the end of the second quarter into the third quarter.

We expect at the infants and young children group Mr. Vaccines during Cove at nine <unk> be prioritized first.

Then expect that will seen the adult new Mcconnell vaccines come back strongly as we headed into the flu season, and then we expect a adolescents and young adults will probably come back a little bit slower Chris as patients are able to engage with the health care systems.

Rob Davis: All right, good morning, and thanks for the questions. With regard to maybe the second question first, the pharma guidance is the majority that will hit in the second quarter, and the majority of it is in the United States. And maybe I'll turn it over to Frank to give you some of the more specifics on product detail before coming back to the first question.

Right next question please.

The next question comes from the line of team Anderson.

Well for me So you know abstract question.

Yeah. Thank you so.

Frank Clyburn: In the second quarter, we do anticipate vaccines, in particular. It's important to note that we have a very broad vaccine portfolio that ranges from infants all the way to older adults, and we do anticipate that based on well visits being down approximately 70%, that that will impact our vaccine portfolio. Also, in the hospital specialty area, Britianne, as I mentioned, elective surgeries are down approximately 70%, so we do see an impact there. It's important to note we have a significant implanon product, Nexplanon, which requires physician administration. We think there'll be an impact there in the second quarter. And then, as far as oncology goes, overall, we believe that oncology is pretty resilient. We are seeing new patient visits decline by approximately 10 to 20% depending on the indication, and we think that will have a slight impact on the quarter from a new patient perspective, but we feel very confident as we move into the third and fourth quarters for not only oncology but for the rest of our portfolio.

I'm sure. It does not go unnoticed by you that Merck so far as the only company to lower guidance, but we're maybe only halfway through a at least our company's reporting.

And I'm, just really trying to tease out let off beyond product mix could be driving that you know is that you guys run your supply chain error.

Or you are less if all to kind of manage business from work from home environment.

<unk> your possibly you know more conservative for example, you're pausing share buybacks.

And Merck I think because then a pretty strong cast position.

You know you have slow down and brands, but I would think also you have slowed down in spending that you could find as an offset kind of again mirroring what other companies are saving deal and be able to pull off in their guidance.

So I don't know if there's anything else that you can add on what you said, but it just strikes me as odd.

Second question.

<unk> and a big Investor overhang as ticket data from rush.

A good oncology company, it's randomize phase two first line long as coming up here and ask him most likely.

No, they're pushing into phase three and so I'm wondering how is this not going to be a continual worry bowl for American investors.

Part of that if you can just update us on your own ticket program on China was earlier I get I.

I think we'll start with Rob and then turn it over to Roger for tickets Alright, great. Thanks 10 for your question. So if you look at why we lowered guidance and understand again, the profile or business and I think it's really important that we just really hit this home. It is the fact that we are seeing reduced access.

Frank Clyburn: Thank you, Frank. And then on your question about the share repurchase program, just to be clear, and I had it in my prepared remarks, but it's worth reinforcing, we really decided to temporarily stop the share repurchase program predominantly out of an abundance of caution. Our financial position continues to be strong, and as we said, it really was to make sure that we could continue to do all of the investments we want to do in R&D and CapEx to support our future growth. And in business development, as you asked. So it's really across all those areas that we want to make sure we can prioritize investment.

Is what's driving the reduction and guidance because the fact as Frank said two thirds of our products are tradition administered and that is probably someone unique and is causing a the impact and as we said, while we expect to get back to normal by the time, we get to the fourth quarter, because we're going to see a large impacts mainly.

The second four to a little bit into third that second quarter impact largely courage to the year and it's really what's driving it the other thing to to point out is our human health reduction, there's only a little over half of what's driving the reduction in our guidance.

Rob Davis: and we will continue to look at it and could very well reinstate the share purchase as we see the situation evolve in the marketplace. Thank you. Next question.

Actually eat almost.

Off of it is coming from foreign currency and the fact that we have the impact an animal health and if you look at it impacting animal health is actually more significant than it is in the human health doesn't know so that is also a little bit of a differentiation relative to some of our peers. If you look then and how does that translate down to the bottom line, which you see.

Jerome: Your next question comes from the line of Chris Schott with J.P. Morgan. Give me no after questions. Great, thanks very much. Just to follow up on the vaccine commentary, can you talk a little bit more about how you see that business?

Actually for the for your Rach room, bringing down on packs more than what is the impact of just opened 19 reductions and spend some of that is also due to the way currencies, owing to the opera and spend flying but then there was a little bit of incremental savings. We also we're assuming I would say.

Chris Schott: So clearly, the 2Q trends are going to be depressed, but should we think about a catch-up in 3Q and 4Q as wellness visits return, or is it just more like normalized volumes and we shouldn't expect as much of a catch-up, I guess, specifically on that line? The second question was just a bigger picture question about how we're clearly seeing high unemployment rates, and what that means for Merck's business. Should we be thinking about lower prices and an adverse payer mix as representing a headwind to your business as we look beyond some of these near-term COVID disruptions, or is that a manageable kind of dynamic as we think about the longer-term business? Thank you very much.

We didn't go harder at <unk>, primarily because we don't see this as a demand driven issue and we want to be in a position that as the the market normalizes, we can come back Foley with our product. So we're expect we're expecting to continue to invest in research and development R. and D. will continue to grow and we will.

Continue to make selective investments to be prepared to come back strong as we see the market normalize and that's why we've not pull down AAPEX further, but you shouldn't read anything more into this than the mixed of our business and the fact that the access is impacting our ability to deliver what we originally expected for the year.

Frank Clyburn: Hey Chris, it's Frank. Thanks for the question. I'll take your second question first on payer, mix, and impact, and I'll give some color on our mix in the U.S.

Roger on ticket.

Right.

Let me speak more generally to to the combinations with Keytruda and it is the case that really since since we began but since I began working with the Keytruda program back in 2013, we have been exploring a whole variety of different combinations with various agents and that's what.

Frank Clyburn: It breaks out approximately, Chris, the commercial business represents about a third of our business from a mixed perspective. We have about 17% of our mix, which is important to note is in vaccine private pay because of the significant size of our vaccine portfolio, as we've been discussing. Government represents about half of our overall payer mix. But also important to note, half of that is approximately 26, 27% is Katrina related because of Medicare Part B. So we've talked about how as Katrina continues to grow, we anticipate that will grow over time.

Let us of course to partner with Astra Zeneca, and then part as a partner with East side with N.V. mine has led us to develop a whole set of programs internally that we are using in combination with keytruda in various clinic clinical studies, including ticket <unk> numerous other biologicals that are well advanced in our program.

I've indicated before that you know we have really quite impressive data in some of these combinations. Most importantly of course in Ireland, Demma combination, where we have registration and Dimitrius cancer Annette already presented data for the combination and renal cell carcinoma, but beyond that with the biologicals as well we are looking.

Frank Clyburn: Medicaid Part or Medicare Part D, I should say, Part D is a small percentage, approximately 7%. And then we have very small percentages of our business in Medicaid. And then the rest is pretty much other with regard to federal and some other parts of our payer mix.

Frank Clyburn: But, you know, if you look at our portfolio, Medicaid is very small. We're clearly looking at unemployment rates, and we'll have to monitor that as it goes forward. I think it's too early to assume anything at this point in time.

For affects though really meaningful and that will make a big difference from an advocacy standpoint, while preserving the you know very favorable profile that keytruda has already demonstrated so we were making good progress. We're looking forward to to developing some of these agents assuming that these play out and of course.

Frank Clyburn: However, we have taken into account different scenarios as we possibly will see increased unemployment. But for us, in particular, Medicaid is a small portion of our business. Moving on to vaccines, just to give you a little bit more insight. We expect as you come in or towards the end of the second quarter into the third quarter. We expect that the infants and young children who have missed their vaccines during COVID-9 will be prioritized first. We then expect that we'll see the adult pneumococcal vaccines come back strongly as we head into the flu season. And then we expect adolescents and young adults will probably come back a little bit slower, Chris, as patients are able to engage with the health care system. Next question, please.

We'll be watching what others do I I think we're in a very good place.

Right next question please.

Here next question comes from the line isn't there of Goldstein.

<unk> seeming to ask a question.

Oh, great. Thank you just a a little bit more on currency. If you don't mind and I'm just curious as you're speaking how maybe isn't just much at concerts and possibly can estimate granularity on what you've had contracted issue versus what is actually a country by country swing and currency and then secondarily.

Can you just can find the timing of that's split off given everything that's gone on from my perspective.

Yeah. Good morning things to the question through on a currency basis. If you look at what is driving the reduction it is entirely just due to change and where we see rates as a mid April. So basically we took the mid April exchange rates and assume those held for the four year and as a.

Timothy Minton Anderson: Your next question comes from the line of Team Anderson with Wolf Research. You may now ask your question. Yeah, thank you.

The result of the fact of what you're seeing is that really versus almost every currency. The dollar has strengthened as there's been a flight back to the dollar as the as soon as the the quality currency and as a defensive measure that is impacting us it's hitting us across all of our currencies, but importantly, what's happening as well.

Timothy Minton Anderson: So I'm sure it does not go unnoticed by you that Merck so far is the only company to lower guidance, but we're maybe only halfway through at least our company's reporting. And I'm just really trying to tease out what else beyond product mix could be driving that. You know, is it you guys run your supply chain narrower? Or are you less able to kind of manage business from a work from home environment?

Oh, and we're not able to hedge as much as we normally would is because we're also seeing a material impact in the emerging market currencies as well, where we don't hedged today. So it's really that is what's driving entirely the 750 million dollar reduction than we talked about in our guidance.

Timothy Minton Anderson: and Merck I think is in a pretty strong cast position. You know, you have a slowdown in brands, but I would think also you have a slowdown in spending that you

And then on your second question on the timing the the spin out as Chen noted in his prepared remarks, we continue to expect to have the spin out completed in the first half of 2021 that is consistent with where we'd guided last for.

unknown: https://www.kenhub.com

Timothy Minton Anderson: So, I don't know if there's anything else that you can add beyond what you've said, but it just strikes me as odd. The second question is about Keytruda, and a big investor overhang is Tigas.

Right next question. Please [noise].

Hearing next question comes from the line F. intervene <unk>, but you'd be asking me don't ask a question.

Hi, Thanks, [noise]. Thanks for taking my question to being from U.B.S.

Timothy Minton Anderson: A good oncology company, it's randomized phase two, first line lung cancer, it's coming up here at ASCO most likely, and we know they're pushing into phase three. And so I'm wondering, you know, how is this not going to be a continual worry both for Merck and investors? As part of that, if you can just update us on your own TIGID program, which I know is early. I think we'll start with Rob and then turn it over.

<unk> Roger cause for you on your could be 19 vaccine program.

[noise], it's just a it was interesting that you mentioned are highlighted that your turn to go with proven platforms wondering your thoughts on some of the more novel platforms searches and marinade why perhaps you may or may not be looking at some of those more novels platforms sort of associated with that.

So the love your thoughts on neutralizing antibodies.

Rob Davis: Thanks Tim for your question. So if you look at why we lowered guidance and understand again the profile of our business, and I think it's really important that we just really hit this home, it is the fact that we are seeing reduced access that is driving the reduction in guidance. Because, as Frank said, two-thirds of our products are physician administered, and that is probably somewhat unique and is causing the impact. And as we said, while we expect to get back to normal by the time we get to the fourth quarter, because we're going to see a large impact, mainly in the second quarter, a little bit in the third, that second quarter impact largely carries to the year. And that's really what's driving it.

The method for either treatment or prophylactic or treatment and then.

Separate to that but but along the same lines wondering how you're thinking about <unk>, whether mutations around the spike protein could create selective pressure and how you think about items, such as bad or whether it's antibody dependent enhancement that may be putting some.

Maybe affecting how you're thinking about proving platforms versus more novels platform. Thank you very much.

Right well. Thanks, Thanks very much for the question. So so first of all we we are interested in any and all approaches that could be helpful. In reducing the impact of the code 19 pandemic and we've been in discussion with most all of the organizations that are too.

Rob Davis: The other thing to point out is our human health reduction is only a little over half of what's driving the reduction in our guidance. It's actually almost half of it is coming from foreign currency and the fact that we have the impact on animal health. And if you look at it, the impact on animal health is actually more significant than it is in the human health business.

Trying to do this.

In various different ways, whether that's using passive immunization with antibodies or.

Trying to use a alternative methods of activity immunization that are can more rapidly be brought into the clinic like nucleic acids m. aren't they in particular and of course, we have a long history of collaboration with people who have done that kind of work.

Rob Davis: So that is also a little bit of differentiation relative to some of our peers. And if you look then at how that translates down to the bottom line, what you see is that for the full year, we're actually bringing down OPEX more than the impact of just COVID-19 reductions in spend. Some of that is also due to the way currency is flowing through our operating expense line, but then there is a little bit of incremental savings we also are assuming. I would say we didn't go harder on OPEX primarily because we don't see this as a demand-driven issue, and we want to be in a position that as the market normalizes, we can come back fully with our products.

<unk> our sense, though is that the task before US is one that requires a vaccine that will be you know quite stimulus story and that will yield neutralizing antibodies ideally with a single immunization of course, it must first be safe because you're talking about a vaccine that.

Would in principle be given too much of the world's population.

To protect the world's population and since we believes that.

Rob Davis: So we're expecting to continue to invest in research and development. R&D will continue to grow, and we will continue to make selective investments to be prepared to come back strong as we see the market normalize, and that's why we've not pulled down OPEX further. But you shouldn't read anything more into this than the mix of our business and the fact that access is impacting our ability to deliver what we originally expected for the year.

Virtually everyone to susceptible these are all high bars and that makes us want to return to to proven platforms that have these kinds of characteristics and that's where we have put our focus my expectation is that over time, we will need more than one vaccine in order to.

To actually protecting human population from Sars coby too. So that's sort of thing that we've looked at the the <unk> specifically with respect to the.

Roger Perlmutter: Roger, on the ticket.

Roger Perlmutter: Right. Let me speak more generally about the combinations with Keytruda. And it is the case that, really, since we began, or since I began working with the Keytruda program back in 2013, we have been exploring a whole variety of different combinations with various agents. And that's what led us, of course, to partner with AstraZeneca and Parsa and partner with Esai, with Landima, and has led us to develop a whole set of programs internally that we are using in combination with Key I've indicated before that, you know, we have really quite impressive data in some of these combinations, most importantly, of course, in our Landima combination, where we have registration in endometrial cancer and have already presented data for the combination in renal cell carcinoma.

<unk> antibodies being administered as passive vaccination, we've looked at a number of those in in the near term that may turn out to be a useful approach.

For individuals who perhaps in the treatment contacts and also for individuals where it extraordinarily high risk and have a great susceptibility because of age and co morbidity, but it's a broadly based method to protect the human population I think probably less likely to to be use just.

For a logistical reasons that doesn't mean that we wouldn't be willing to work with others to help develop that if if that proved to be the near term. The most important thing that one could do.

Only I wouldn't say that that just to put the the card back behind the horse and that's the issue of selective pressure and mutation I. We we should recognize that while right now we're not seeing an enormous amount of variation in the Sars coby to virus when we put selective pressure on the virus either within antiviral drugs.

Roger Perlmutter: But beyond that, with the biologicals as well, we are looking for effects that are really meaningful and that will make a big difference from an efficacy standpoint while preserving the very favorable profile that Keytruda has already demonstrated. So, we are making good progress. We're looking forward to developing some of these agents, assuming that these play out. And, of course, we'll be watching what others do. I think we're in a very good place.

And some of those do indeed look fairly promising early on or with a vaccine. It is possible that we'll we'll see variance emerging those variants can prove to be important and that's something else that we're paying quite a bit of attention to.

[noise]. Thank your next question place hearing next question comes from deadline as David right Here, We had Morgan Stanley ask a question.

Jerome: Great. Next question, please. Your next question comes from the line of Mara Goldstein from Mizuhu Securities. You may now ask your question. Great, thank you. Just a little bit more on currency, if you don't mind. And I'm just curious, as you speak to how you've made these adjustments for currency, can you possibly give us some more granularity on what is a contracted issue versus what is actually a country by country swing in currency? And then, secondarily, can you just confirm the timing of the split off given everything that's gone on from a COVID perspective?

[noise] yeah. Thanks, very much I have two questions for Roger please to follow onto your remarks regarding Cove. It could you. Please comment on the potential to one inject disinfectants and to to use U.V. rays inside the body secure cove it.

<unk>.

No I'm I'm, just kidding I'm, sorry, so I I found a more serious notes could you discuss merck's novel I owe agent read outs to watch from 2020 and a second could you discuss your conviction in the profile of Merck's 15 ballot <unk> contact.

Good vaccine and your disclosure an adult filing plans. Thank you.

Mara Goldstein: Yeah, good morning. Thanks for the question.

Rob Davis: So on a currency basis, if you look at what is driving the reduction, it is entirely just due to the change in where we see rates as of mid-April. So basically, we took the mid-April exchange rates and assumed those held for the full year. It's hitting us across all of our currencies. But importantly, what's happening as well, and we're not able to hedge as much as we normally would, is that we're also seeing a material impact in the emerging market currencies as well, which we don't hedge today. So that's really what's driving the $750 million reduction that we talked about in our guidance. And then on your second question on the timing of the spinout, as Ken noted in his prepared remarks, we continue to expect to have the spinout completed in the first half of 2021. That is consistent with where we guided the company last quarter.

Yeah David.

So.

With respect to novel.

Ah Immunooncology agents I mean, I've mentioned some of this before and responds to a prior question, but but we have a stable of them beer of course.

Looking at our own see till they poor molecule have been for some time in combination with Keytruda. We're also looking at lag three tickets in a whole variety of others. We have 20 or so agents that we have tested in the clinic and all of these are being tested <unk>.

Thereafter, as combination with p. to to buy I should emphasize that keytruda. It really is quite special we've not seen anything of course that has characteristics that are are like Keytruda. You know if we did that would be a very different story and it you know it's no surprise because.

We and many other investigators University based investigators myself included looked for these kinds of things for decades and never found anything that looks like Keytruda. It's unlikely. We're just gonna kick went over now.

Rob Davis: Great

Naveen Jacob: Great. Next question, please. Your next question comes from the line of Naveen Jacob with UPS. You may now ask your question. Hi, thanks. Thanks for taking my question.

When we didn't have those in the past that doesn't mean, though that those things in combination with p. through the couldn't be beneficial and we're seeing some early signs of suggest as possible and we'll have quite a lot more to say about that during the coming year and the the second question had to do with our conviction with respect to our 15 tailing Molly.

Naveen Jacob: Roger, a question for you on your COVID-19 vaccine program. It was interesting that you mentioned

Naveen Jacob: Thank you very much.

Roger Perlmutter: Right, well, thanks. Thanks very much for the question.

Roger Perlmutter: So, first of all, we are interested in any and all approaches that could be helpful in reducing the impact of the COVID-19 pandemic. And we've been in discussions with most of the organizations that are trying to do this in various different ways, whether that's using passive immunization with antibodies or trying to use alternative methods of active immunization that can more rapidly be brought into the clinic, like nucleic acids, mRNA, in particular, and of course, we have a long history of collaboration with people who have done that kind of work. Our sense, though, is that the task before us is one that requires a vaccine that will be, you know, quite stimulatory and that will yield neutralizing antibodies, ideally, with a single immunization. Of course, it must first be safe, because you're talking about a vaccine that would, in principle, be given to much of the world's population in order to protect the world's population.

He'll be 1144 invasive pneumococcal disease, we have a lot of conviction behind it I think we've already recorded our phase two data that everyone has had a chance to see the phase three data will be available to us very very soon.

And as soon as those data become available assuming the data phase three recapitulate, what we saw in phase two which is certainly are hoping expectation those the top line of those data will be announced of course and and we'll at that point provide more clarity with respect to our filing plans but are expected.

One would be that filing could occur not long thereafter. So we're we're really very enthusiastic about this vaccine because of the important new series types in it and also the balance with respect to the immune response that we saw in our view on for studies and taste too.

Roger Perlmutter: And since we believe that virtually everyone is susceptible, these are all high bars. And that makes us want to return to proven platforms that have these kinds of characteristics. And that's where we have put our focus.

Thank your next question <unk>.

Next question comes from the line if these Carla they call. It you may know after question.

Thank you I have two questions as has been stated clearly key one beat but full year guide insists lowered.

Roger Perlmutter: My expectation is that over time, we will need more than one vaccine in order to actually protect the human population from SARS-CoV-2. So that's the sort of thing that we've looked at, specifically with respect to neutralizing antibodies being administered as passive vaccination.

We are now about a third of the way through Q2 in the month available, which could be the peak of the pandemic you must be seeing a major impact.

On on college, he vaccines hospital, an animal health is that a reasonable conjecture.

Roger Perlmutter: We've looked at a number of those. And in the near term, that may turn out to be a useful approach for individuals who, perhaps, in the treatment context and also for individuals who are at extraordinarily high risk and have great susceptibility because of age and comorbidities. But it's a broadly based method to protect the human population, and I think it's probably less likely to be used just for logistical reasons. That doesn't mean that we wouldn't be willing to work with others to help develop that if that proved to be, in the near term, the most important thing that one could do. And finally, I would say that just to put the cart back behind the horse and the issue of selective pressure and mutation, we should recognize that while right now we're not seeing an enormous amount of variation in the SARS-CoV-2 virus, when we put selective pressure on the virus, either with an antiviral drug, some of those do indeed look fairly promising early on or with a vaccine, it is possible that we will see variants emerge, and those variants And that's something else that we're paying quite a bit of attention to.

And secondly, Roger normal investors were underwhelmed by the data on very <unk> and Jeff picked scent what in your if you are investors missing. Thank you.

Great Star Trek save a all start so to answer your question, Yeah, Steve as I mentioned and my prepared remarks.

With regards to vaccines, we are seeing an impact due to the reduction in patients and while visits we are seeing a reduction and our hospital specialty or in particular Brady on with the reduction elective surgeries as well as women's health. So we are seeing that into two which is why we've updated our guide.

<unk> and we also want to reiterate though we do see as we are seeing in China.

As we get through this period, we believe things will come back ratcheting through three and then as we get into queue for will return to normal operations and I just want to continue to echo that were very confident in the overall portfolio and and the demand trends that we see.

I would just add on the animal health run it's a similar situation human health, we are seeing the impact and now in the quarter and we do expect that the second quarter will be the vast majority of the impact driving what is the four year reduction so it definitely will be most acute and the second quarter.

David Reisinger: Your next question comes from the line of David Reisinger with Morgan Stanley. You may now ask your question. Yes, thanks very much.

But it will continue a little bit into the third and fourth and be a little bit more prolonged gated than what we want you expect from the human health business, driving a larger downside impact or animal health business than it's having to our human health isn't it.

David Reisinger: I have two questions for Roger, please. To follow on from your remarks regarding COVID, could you please comment on the potential to, one, inject disinfectants, and two, use UV rays inside the body to cure COVID? No, I'm just kidding. I'm sorry. So on a more serious note, could you discuss Merck's novel IO agent readouts to watch in 2020? And second, could you discuss your conviction in the profile of Merck's 15-valent pneumococcal conjugate vaccine and your disclosure and adult filing plans? Thank you.

Very Roger.

Yeah, Steve Thanks for the question. So first of all on their <unk> their C. plot and then the victorious study. So the victorious study address a patient population that typically is excluded from most studies and these are patients who have had a a recent decompensation in there a status these are patients with reduced.

Rejection fraction heart failure, who have typically undergone hard say or hospitalization as a result of some deterioration and and and <unk>. This is a very brittle population. If you looked at the data that were published what what you saw with it was that these.

Roger Perlmutter: Yeah, David. So, with respect to novel immuno-oncology agents. I've mentioned some of this before in response to a prior question, but we have a stable of them. We are, of course, looking at our own CTLA-4 molecule, which we have been for some time in combination with Keytruda. We are also looking at LAG-3, TIGIT, and a whole variety of others.

Since we're really quite yell and and had indices of heart failure of heart stress that were.

Much much higher than what is typically found in a in a hard sell your popular population. So the reason why the paper was published in the New England Journal Medicine. The reason why it was there was a plenary presentation at the American College Cardiology on these results is precisely because this is a very different population.

Roger Perlmutter: We have 20 or so agents that we have tested in the clinic, and all of these are being tested versus monotherapy and, thereafter, in combination with Keytruda. But I should emphasize that Keytruda really is quite special. We've not seen anything, of course, that has characteristics that are like Keytruda. You know, if we did, that would be a very different story. And, you know, it's no surprise because we and many other investigators, university-based investigators, myself included, looked for these kinds of things for decades and never found anything that looked like Keytruda. It's unlikely we're just going to kick one over now when we didn't have those in the past. That doesn't mean, though, that those things, in combination with Keytruda, couldn't be beneficial.

The therapy is given as add on to existing heart failure therapies and improves outcomes.

And so that's a pretty important result, and I think there's there's a lot of enthusiasm for within the cardiovascular community of amongst those positions who treat heart failure. So I think that's a that's really important to recognize this is really quite a change in terms of how we think about these patients send it's an important patient population.

Roger Perlmutter: And we're seeing some early signs that suggest that it's possible, and we'll have quite a lot more to say about that during the coming year. And the second question had to do with our conviction with respect to our 15-valent molecule V114 for invasive pneumococcal disease. We have a lot of conviction behind it.

To treat and then with respect to the Jeff picked sample of course, we we haven't presented the Chesapeake sent data, we'll have a chance to do that I think everyone should recognize two things. The first is that chronic costs is an extremely common complaint in the general population. So.

Positions are often called upon to to try and help people who are interrupted by by chronic coughing in our phase three studies, we had some individuals who had chronic cough complaints continuous chronicled complaints for more for decades. So this is a pretty significant interruption in their lives [noise].

Roger Perlmutter: I think we've already reported our Phase II data, which everyone has had a chance to see. The Phase III data will be available to us very, very soon. And as soon as those data become available, assuming the data in Phase III recapitulate what we saw in Phase II, which is certainly our hope and expectation, the top line of those data will be announced, of course. And we'll, at that point, provide more clarity with respect to our filing plans, but our expectation would be that filing could occur not long thereafter. So we're really very enthusiastic about this vaccine because of the important new serotypes in it and also the balance with respect to the immune response that we saw in our V114 studies in Phase II. Thank you.

On when the other hand, I I don't.

I don't want to dismiss the difficulty of going into a completely new area. Because there are no there hasn't been no drugs registered for chronic cops. There's been no study at this kind previously [noise].

Completely novel area will take some time for this to develop and for people to understand it.

[noise], creating a question.

Hearing next question comes from the line has really changed it can't for human to ask a question.

Hi, Thanks for taking my questions. So my first question is on the T.M.B. high opportunity here, what is that from Mark and is there any off label usage of Keytruda in that population alrighty and if so how much and then second question is if you could provide more color on your tie how asked X.K. rats.

Steve Scala: Thank you. Next question, please. Your next question comes from the line of Steve Scala with Colin. You may now ask your question.

Steve Scala: Thank you. I have two questions. As has been stated clearly, Q1 beat, but full-year guidance was lowered. We are now about a third of the way through Q2.

<unk> and when we can start to see date out from that pipeline asset. Thank you.

Sort of question on T.N.B. High Roger would you like to speak to think it'd be high please and and also the second question Huh.

Steve Scala: In the month of April, which could be the peak of the pandemic, you must be seeing a major impact.

Right, Okay for for T.M.B. high. So this the the basis for seeking registration is a study done enough variety of different tumor types.

Steve Scala: Transcription by CastingWords And secondly, Roger, many investors were underwhelmed by the data on Verisiglot and Jefapixent. What, in your view, are investors missing? Thank you.

The Keno one five age study in which their <unk> responses at the moment are currently inadequate and so the goal was to look and see what was there anything that we could do in these tumor types in which we could demonstrate that keytruda had an effect in certain patients and we looked at a variety of different.

Frank Clyburn: Great

Frank Clyburn: Steve, I'll start. So to answer your question, yes, Steve, as I mentioned in my prepared remarks, with regard to vaccines, we are seeing an impact due to the reduction in patient and well visits. We are seeing a reduction in our hospital specialty area, in particular Brion, with a reduction in elective surgeries, as well as women's health. So we are seeing that in Q2, which is why we've updated our guidance. And we also want to reiterate, though, as we are seeing in China, as we get through this period, we believe things will come back gradually in Q3. And then, as we get into Q4, we'll return to normal operations. And I just want to continue to echo that we're very confident in the overall portfolio and in the demand trends that we see.

Markers, so that we could use it turned out for us that a tumor mutational burden marker a greater than 10 mutations per megabyte face was associated with an improved overall response in a certain of these tumors and that's what we'd start registration for and we are.

In the midst of having those discussions with the agency. So we'll see what happens I I I I, frankly, I'm not aware of off label use and we wouldn't necessarily know anything about that in that population and with regard to our our <unk> program, it's actually a quite abroad program looking.

Rob Davis: I would just add on the animal health front: it's a similar situation to human health. We are seeing the impact now in the quarter, and we do expect that the second quarter will be the vast majority of the impact driving what is the full year reduction. So it definitely will be most acute in the second quarter, but it will continue a little bit into the third and fourth and be a little bit more prolonged than what we expect from the human health business, driving a larger downside impact on our animal health business than it's having on our human health business.

At both.

D.P.N.G.T.P. bound forms of K. wraps and looking at the mutations beyond the the Sistine mutation code on 12 mutation avail since mutation, which occurs in in a fraction of patients, but there of course there are many other mutations.

<unk> substitution bailing substitution et cetera, so we're looking quite broadly, but it will be a while before we have the opportunity to to bring the first of those compounds into the clinic.

Rob Davis: Great, Roger.

Roger Perlmutter: Yeah, Steve, thanks for the question. So first of all, on variciquat and the Victoria study. So the Victoria study addressed a patient population that is typically excluded from most studies, and these are patients who have had a recent decompensation in their status. These are patients with reduced ejection fraction heart failure who have typically undergone heart failure hospitalization as a result of some deterioration. And hence, this is a very brittle population. If you look at the data that were published, what you see with it was that these patients were really quite ill and had indices of heart failure and heart stress that were much, much higher than what is typically found in a heart failure population. So the reason why the paper was published in the New England Journal of Medicine, the reason why there was a plan or a presentation at the American College of Cardiology on these results is precisely because this is a very different The therapy is given as an add-on to existing heart failure therapies and improves outcomes.

Great. Thank you we have a number questioner still in the queue, we're going to stop at 915, but we're going to keep going for now next question. Please.

The next question comes from the line as Andrew bomb with <unk>, you know ask a question.

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Roger Perlmutter: And so that's a pretty important result, and I think there's a lot of enthusiasm for it within the cardiovascular community among those physicians who treat heart failure. So I think that's a really important thing to recognize. This is really quite a change in terms of how we think about these patients. And it's an important patient population to treat. And, and then with respect to jefapixan, well, of course, we haven't presented the jefapixan data yet. We'll have a chance to do that.

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Muscle impact yeah. He says right thing I mean, Sharon right replace it with unemployment I realize that you have folic space yet.

With your pet, but I'm interested in your post generally, but obviously it does relational things such as dive on as well, which that you have <unk>.

Roger Perlmutter: I think everyone should recognize two things. The first is that chronic cough is an extremely common complaint in the general population. So physicians are often called upon to try and help people who are interrupted by chronic cough. And in our phase three studies, we had some individuals who had chronic cough complaints, continuous chronic cough complaints for more, for decades. So this is a pretty significant interruption in their lives.

Great Roger first on ticket and then we'll turn at the front.

Well Andrew <unk>. Thank you think for the question again on on ticket you know different companies will have different perspectives on this our view really is quite simple and it it's not I wouldn't over think this what we want to see is sufficient evidence of benefits in combination, which is an m. bit where you can <unk>.

Vigorously say that both elements that is keytruda in our case and the anti ticket antibody both elements and that's saying is true for like three or C.T.L.A. for any others are at each contributing and so that there's at least additive effect and ideally better than that if one could get it and and so we want to be absolutely.

Roger Perlmutter: On the other hand, I don't want to dismiss the difficulty of going into a completely new area because there hasn't been any drug registered for chronic coughs, there's been no study of this kind previously, it's a completely novel area, and it will take some time for this to develop and for people to understand it.

Sure of that and we want to be absolutely sure that we're addressing the right patient populations and of course, we want to be sure that there's no deterioration in the favorable adverse experience profile of Keytruda. So it's it's just a matter of reaching a conclusion about that we could eventually reached the conclusion that you know we don't actually think it's good enough.

Jerome: Next question, please.

Louise Chen: Your next question comes from the line of Louise Chen with Canfor. You may now ask your question. Hi, thanks for taking my questions.

Louise Chen: So my first question is on the TMB high opportunity here. What is that for Merck? And is there any off-label usage of Keytruda in that population already? And if so, how much?

Roger Perlmutter: And then the second question is if you could provide more color on your Taiho, Aztecs, KRAS opportunity and when we can start to see data from that pipeline asset. Thank you. First question on TMB High. Roger, would you like to speak to TMB High?

And there could be a whole variety of reasons for that or we could reach the conclusion. Yeah. We think this is really important let's move forward. There are a number of programs in which we're sort of looking at that and we are we find some data that's intriguing, but we just don't have enough data yet to make us feel comfortable about it other people might look at that day that say you need to go immediately what were we.

Roger Perlmutter: Right. Okay, for TMB High.

Doing what we think it's the right thing in that regard.

Roger Perlmutter: So this The basis for seeking registration is a study done in a variety of different tumor types, the Kino 158 study in which their responses at the moment are currently inadequate. And so the goal was to look and see, well, was there anything that we could do in these tumor types where we could demonstrate that Keytruda had an effect in certain patients? And we looked at a variety of different markers that we could use. It turned out for us that a tumor mutational burden marker at greater than 10 mutations per megabase was associated with an improved overall response in certain of these tumors, so that's what we sought registration for. And we are in the midst of having those discussions with the agency. So we'll see what happens.

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I think we're all concern obviously, what we're saying in the U.S. with regards to rising unemployment.

As I mentioned earlier for US, we'll have to see the shift potentially from our commercial business over to hire discounted segments like Medicaid, but just to reiterate again Medicaid is a very small portion of our our business currently in as we look going forward, our our business and.

Mixes more geared towards Medicare and in particular part B. Medicare right next question. Please.

Here next question comes from the line of Seamus Fernandez with <unk> came and I'll ask your question.

Oh, great. Thanks, so much for the question. So just a couple here could you guys comment I know we've commented on Medicaid side of things, but 340, b. expansion could be a meaningful threats.

Roger Perlmutter: I frankly am not aware of off-label use, and we wouldn't necessarily know anything about that in that population. And with regard to our KRAS program, it's actually quite a broad program, looking at both GDP and GTP-bound forms of KRAS and looking at the mutations beyond the cysteine mutation, codon-12 mutation, and veil-cis mutation, which occurs in a fraction of patients. But there, of course, are many other mutations, aspartic acid substitution, valine substitution, et cetera. So we're looking quite broadly, but it will be a while before we have the opportunity to bring the first of those compounds into the clinic.

To the industry overall, just trying to get a better understanding of what Merck's 340 B. exposure is currently that's a hospital based program that then put shift to Medicaid based pricing. So I just love to get a better understanding of of your thoughts their on exposure and then for Roger.

Can you just help us understand you know what unique or special about <unk>.

That has merck pursuing such a broad effort, where others with similar type T.K.I. smell certainly not and I think this is where I'd love for you to comment on the differentiation have not pursued that and I think this is particularly interesting in the context of the relatively limited patent my prelims email. Thanks, so much.

Unknown Attendee: Great, thank you. We have a number of questioners still in the queue. We're going to stop at 9:15, but we're going to keep going for now.

Jerome: Next question, please. Your next question comes from the line of Andrew Baum, from Red City. You may now ask your question. Andrew, are you there? Yes, I'm here. Can you hear me?

Franklin Roger.

So just if you look at 340 B. HM the majority of the exposure really is for products like to new the.

Andrew S. Baum: [inaudible]

Andrew S. Baum: Question for Roger on TIGIT. You're clearly seeing efficacy signals from your trial activity. Genentech, as noted, is seeing strong efficacy signals in PD-L1 high. Is the central reason before accelerating any Phase III program whether TIGIT is additive or synergistic to chemo in patients with low PD-L1-expressing tumors, or is there some other hurdle which is holding you back? And on the same note, how do you view the commercial risk-reward of taking your further time optimizing the patient population at the expense of potentially disadvantaging yourself by giving Roche or Eliterm, should their Phase III program in first-line non-stimulant L-lines in combination with chemo pans out? That's the first question. And the second question, very quickly to Frank. You've discussed the fairly obvious impact of delayed presentation to healthcare providers for third-party administered pharmaceuticals. Could you talk about how you think about, in the U.S., the commercial impact associated with rising uninsurance rates associated with unemployment? I realize that you have far less exposure than some of your peers, but I'm interested in your thoughts generally, but obviously, it does relate to things such as Diavan as well, which do have commercial exposure. Thank you.

And also could true to for could shrewd.

Approximately a third is within a 340 B. segment today. It has been growing slightly year on year and and we'll have to see how as I mentioned things continue to unfold a with regards to what's happening in the environment and it's obviously something that were closely monitor.

<unk> <unk>.

Right. So seamus that the were quite data driven on this we we were enthusiastic about <unk> initially from the the Monotherapies data that our colleagues at each site had obtained and we thought there was a chance that that could prove to be a good combination.

Keytruda, we had we did some experiments like that with them and then we signed our agreement with them and when we signed or agreement. We we thought let's do a signal <unk> signal detection study looking across a broad set of tumors and as we've done that we've seen a lot of really quite interesting signals those of course weren't the only combinations.

With multi kind these inhibitors that we tried to but we've we've seen impressive signals in combination with p. true to and and as you know every multi kind east inhibitor is different each one a hits a different range of molecules and and their effects are different so it's.

Roger Perlmutter: Well, Andrew, thank you. Thanks for the question. Again, on TIGIT, you know, different companies will have different perspectives on this. Our view really is quite simple, and it's not. I wouldn't overthink this. What we want to see is sufficient evidence of benefit in combination, which is where you can unambiguously say that both elements, that is, Keytruda in our case, and the anti-TIGIT antibody, both elements, and the same is true for LAG-3 or CTLA-4, and the others, are each contributing, so that there's at least an additive effect, and ideally better than that if one could get it. And so we want to And, of course, we want to be sure that there is no deterioration in the favorable adverse experience profile of Keytruda.

Quite hard to describe why that is true and whether that reflect <unk> them in the context of F.T.F. receptor or whatever but but what you can say is that they were all different and are the results that we've obtained with Lindy might have been very promising. So we have quite enthusiastic obviously first of all and endometrial.

They're tumors the data, we presented for renal and and there are many others decide so we're we're we're we're moving forward with that program.

Great. Thank you all for your questions and apologies to those we didn't get to I'm going to turn it over to come for closing remarks. Thank you everyone for joining us today, our mission of saving improve life will continue to drive the company in the coming days in month in the midst of the Corona virus pandemic Mark is committed to doing everything in its power to ensure our medicine bathrooms.

Patients around the world or we expect to contribute to the girl pandemic were Spock efforts today and offer to prepare for the next potential crisis.

Roger Perlmutter: So it's just a matter of reaching a conclusion about that. We could eventually reach the conclusion that, you know, we don't actually think it's good enough, and there could be a whole variety of reasons for that. Or we could reach the conclusion, yeah, we think this is really important, let's move forward. There are a number of programs in which we're sort of looking at that, and we find some data that's intriguing, but we just don't have enough data yet to make us feel comfortable about it. Other people might look at that data and say you need to go immediately. We are doing what we think is the right thing in that regard.

The underlying demand for our product remains strong and our fundamentals remain very found in the near term.

Reiterate our portfolio is different.

The result are near term guide takes into consideration, what's really happening on the outside world and attempt to be realistic about physician <unk> their ability to access patients but.

But in the final analysis, we believed that are underlying business fundamentals are very sound going forward and we look forward to providing update on a business as we continue to navigate through these challenging time until then we hope that you and your family off they say unhealthy banking.

Roger Perlmutter: Great, Frank.

Frank Clyburn: And, Andrew, I think we're all concerned, obviously, with what we're seeing in the U.S. with regard to rising unemployment. As I mentioned earlier, for us, we'll have to see the shift, potentially, from our commercial business over to higher discounted segments like Medicaid. But just to reiterate again, Medicaid is a very small portion of our business currently, and as we look going forward, our business and payer mix is more geared towards Medicare and, in particular, Part B Medicare.

Thank you.

I.

<unk> antique you, ladies and gentlemen for joining working company first quarter sales and earnings Conference call. <unk>. These conference think L. for 20 to me now disconnect.

[music].

Frank Clyburn: Great. Next question, please. Your next question comes from the line of Seamus Fernandez with Guggenheim. Can you ask your question? Oh, great. Thanks so much for the question. So just a couple here.

Seamus Fernandez: Could you guys comment? I know we've commented on the Medicaid side of things, but 340B expansion could be a meaningful threat to the industry overall. Just trying to get a better understanding of what Merck's 340B exposure is currently since that's a hospital-based program that could then shift to Medicaid-based pricing. So I'd just love to get a better understanding of your thoughts there on exposure. And then for Roger, can you just help us understand, you know, what's unique or special about Lenzema that has Merck pursuing such a broad effort where others with similar TKIs, and I think this is where I'd love for you to comment on the differentiation, have not pursued that? And I think this is particularly interesting in the context of the relatively limited patent life for Lenzema.

Frank Clyburn: Thanks so much. Frank, then Roger.

Roger Perlmutter: Yeah, Seamus, so just some, if you look at 340B, the majority of the exposure really is for products like Genuvia and also Katruda. For Katruda, approximately a third is within that 340B segment today. It has been growing slightly year on year, and we'll have to see how, as I mentioned, things continue to unfold with regard to what's happening in the environment. And it's obviously something that we're closely monitoring.

Roger Perlmutter: Great, Roger on OneBema.

Roger Perlmutter: Right. So Seamus, we're quite data-driven on this. We were enthusiastic about Lendima.

Roger Perlmutter: So we started initially from the monotherapy data that our colleagues at ESI had obtained, and we thought there was a chance that that could prove to be a good combination with Keytruda. We had, We did some experiments like that with them, and then we signed our agreement with them. And when we signed our agreement, we thought, let's do a signal detection study looking across a broad set of tumors. And as we've done that, we've seen a lot of really quite interesting signals. Those, of course, weren't the only combinations with multikinase inhibitors that we tried, but we saw impressive signals in combination with Keytruda. And as you know, every multikinase inhibitor is different. Each one hits a different range of molecules, and their effects are different. So it's quite hard to describe why that's true and whether that reflects VEGF receptor antagonism in the context of STF receptors or whatever. But what you can say is that they're all different.

Roger Perlmutter: And the results that we've obtained with Lumbima have been very promising. So we're quite enthusiastic, obviously, first of all, in endometrial cancer, in other tumors, the data we've presented for renal, and there are many others besides. So we're moving forward with that program.

Unknown Attendee: Thank you all for your questions, and my apologies to those we didn't get to. I'm going to turn it over to Ken for closing remarks.

Jerome: Thank you everyone for joining us today. Our mission to save and improve lives will continue to drive the company in the coming days and months in the midst of the coronavirus pandemic. Merck is committed to doing everything in its power to ensure our medicines and vaccines reach patients around the world. We expect to contribute to the global pandemic response efforts today and also to prepare for the next potential crisis. The underlying demand for our product remains strong, and our fundamentals remain very sound. In the nearer term, I reiterate, our portfolio is different. And as a result, our near-term guidance takes into consideration what's really happening in the outside world in an attempt to be realistic about physicians and their ability to access patients. But, in the end, we believe that our underlying business fundamentals are very sound going forward, and we look forward to providing updates on the business as we continue to navigate through these challenging times.

[music].

Jerome: And until then, we hope that you and your families all stay safe and healthy. Thank you. Thank you. Presenters, and thank you ladies and gentlemen for joining Merck & Co.'s first quarter sales and earnings conference call. That concludes today's conference. Thank you all for joining. You may now disconnect.

Jerome: BF-WATCH TV 2021