Q2 2020 Merck & Co Inc Earnings Call

I would be a conference operator today.

Operator: At this time, I would like to welcome everyone to the Merck & Co. Q2 Sales & Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Hi, I would like to welcome everyone to the more until a T cells and earnings conference call.

All lines have been placed to me.

Any background noise.

Operator: 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 the star and then the number 1 on your telephone keypad. To withdraw your question, press the pound key.

Because you might be a question and answer session.

If you would like to ask the question. During this time it simply pesticide bending number one I get telephone keypad.

Well you question passed the town.

Operator: Thank you. I would now like to turn the call over to Peter Dannenbaum, Vice President of Investor Relations. Please go ahead.

Thank you.

I like to take all over it could be they got a bomb vice president of Investor Relations. Please go ahead.

Thank you Laura and good morning, welcome to Merck second quarter 2020 conference call today, I'm joined by Ken Frazier, Our Chairman and Chief Executive Officer, Rob Davis, Our Chief Financial Officer.

Peter Dannenbaum: Thank you, Lara, and good morning. Welcome to Merck's second 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, Chief Commercial Officer, and Mike Nally, our Chief Marketing Officer. Before we get started, 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 I'd also like to remind you that some of the statements that we make during today's call may be considered forward-looking statements within the meaning of the safe harbor provision of the U.S. Private Litigation Reform Act of 1995.

[music] motor President of Merck Research Labs.

Cliburn, our chief commercial officer, and Mcnally, our Chief marketing Officer.

Before we get started up like the point out a few items you will see the we have items in our GAAP results such as acquisition related charges restructuring costs or.

So we have excluded these from our non-GAAP results and provide reconciliations in our press release.

We've also provided a table in our press release that help you understand the sales in the quarter.

Isn't seeing some product.

I'd also like to remind you of some of the things that we make during today's call maybe considered forward looking statements within the meaning of the safe Harbor provision of U.S. Private litigation Reform Act of 1995.

Peter Dannenbaum: Such statements are made based on the current beliefs of Merck's management and are subject to significant risk and uncertainty. If our underlying assumptions prove inaccurate or uncertainty materializes, 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 highlights of our results are all posted on Merck.com. With that, I'd like to turn the call over to Ken.

Statements are made based on the current beliefs Merck's management.

Our subject to significant risks and uncertainties for underlying assumptions prove that inaccurate or uncertainties materialize actual results may differ materially from those set forth in the forward looking statements.

Let me see funds, including item one name. The 2018 10-K identified certain risk factors and cautionary statements like 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 RCC filings todays earnings release added about to predict presentation with highlights of our risk.

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

Unknown Attendee: Thank you, Peter. Good morning, and thank you all for joining today's call. I want to start by thanking our employees around the world for demonstrating resiliency and diligence through this difficult time. As a result of their tireless work, we continued to make progress on our strategic priorities, and we exited the quarter with accelerating business momentum. While the pandemic has brought challenges that few of us could have imagined, even six months ago, it has also demonstrated the critical importance of organizations that are focused on breakthrough science. Our scientists are highly focused on this effort. And we are incredibly energized by this mission. Simply put, This is why Merck exists. Throughout the quarter, Merck executed well both operationally in support of our existing portfolio and by advancing our innovative research program. We continue to perform at a very high level without significant disruption to the production, supply, and distribution of our medicines, vaccines, and animal health products or our clinical trials, as expected. However, social distancing measures in many regions negatively impacted second quarter volumes for many of our products.

Thank you Peter.

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

I want to start by saying employees around the world for demonstrating resiliency and diligence through this difficult.

As a result of their tireless work, we continue to make progress on strategic priority and we exited the quarter with accelerating business momentum.

While the pandemic has brought challenge it's a few bus could have imagined even six months ago. It.

It is also demonstrated the critical important organizations that are focused on breakthrough site.

Our bodies is highly focused on this effort.

We are incredibly energized by this mission.

Simply put.

This is wide Merck exists.

Throughout the quarter, Merck executed well, both operationally and support of our existing portfolio.

Last thing on innovative research program.

We continue to perform at a very high level without significant disruption to the production supply and distribution of our medicine vaccine and animal health products or our clinical trial.

As expected.

Just to see measures in many regions negatively impacted second quarter volumes for many of our product.

However, customer access to care steadily improving including in our portfolio vaccine.

Unknown Attendee: However, customer access to care is steadily improving, including in our portfolio of vaccines, which was hit particularly hard this quarter. We remain confident that our innovative portfolio will drive strong, long-term growth. Our financial strength also allows us to execute on our capital allocation priorities, including continuing to invest in internal R&D and business development.

With hit, particularly hard this quarter.

We remain confident.

Innovative portfolio will drive strong long term growth.

Our financial strength.

Cool allows us to execute on our capital allocation priorities, including continuing to invest in internal R&D and business development.

In addition to are definitely more strategic priorities. We also achieved significant progress.

Unknown Attendee: In addition to advancing our strategic priorities, we also achieved significant progress on our plans to spin off Organon & Co., which remains on track to be completed in the first half of 2021. We remain confident that creating two more focused companies will result in each being stronger and better positioned in an evolving healthcare landscape, which will benefit the patients we serve and our shareholders. We recently announced appointments of several talented and experienced leaders from outside, The Bulletproof Executive 2013, and they are already deeply engaged in driving the various work streams underway to set up the standalone company for success.

Well sit on organon income, which remains on track.

Completed in the first half of 2021.

We remain confident that creating two more focused company will result in each being stronger and better position in an evolving healthcare landscape.

Which will benefit.

Sure, we serve and our shareholders.

We recently announced appointment so how it is an experienced leader from outside the company.

Long leadership team and they are already deeply engaged drives in the various workstreams underway to set up the Standalone company for success.

Before Roger provides more detail I'd like to see a few work on the multiple efforts underway within Merck on the cold at 19 front.

Unknown Attendee: Before Roger provides more details, I'd like to say a few words on the multiple efforts underway within Merck on the COVID-19 front. COVID-19 represents a tremendous challenge to the biopharmaceutical research community. And Merck is moving with urgency to apply our deep expertise in vaccines and infectious diseases toward potential solutions. During the quarter, we announced two vaccine development efforts: one through a collaboration with iOB, and the other, which is now completed, acquisition of FEMET.

Coldest 19 represents a tremendous chalice to the bio pharmaceutical research community.

And Mark is moving with urgency to acquire deep expertise in vaccines infectious diseases toward potential solution.

During the quarter, we announced two vaccine development efforts.

One through a collaboration without hobby.

Any other who are now completed acquisition of salmon.

We selected these candidate because they are based on proven platform that we anticipate will lead safe.

Unknown Attendee: We selected these candidates because they are based on proven platforms that we anticipate will lead to safe, effective, and broadly deployable vaccines with the promise of a single dose. Both vaccine candidates will soon enter the clinic, and we have begun investing to facilitate our ability to manufacture hundreds of millions of doses. We also announced a program to develop a novel, orally available antiviral candidate through a collaboration with Ridgeback Biotech. This compound has advanced into phase 2 clinical trials. We are optimistic about the prospects for these three programs, and if successful, Merck is committed to working with others to create broad, affordable, and equitable global access. These programs illustrate our continued commitment to supplementing internal capabilities with innovative external science.

Yes.

Broadly deployable vaccine.

With the promise of single dosage.

Both Saxon candidates will soon entered the clinic and we have begun investing to facilitate our ability Madden girl hundreds of millions of doses.

We also announced a program to develop a novel orally available anti viral candidate who were collaboration with rig back bio.

This compound has advanced into phase two clinical trial.

We are optimistic about the prospects for these three program and if successful Merck is committed to working with others to create broad affordable an equitable global access.

These programs illustrate our continued commitment supplementing internal capabilities with innovative external side.

[noise] Roger will provide more details on a significant progress being made in our research activity elsewhere.

Unknown Attendee: Raja will provide more details on the significant progress being made in our research activities elsewhere. But more broadly, the biopharmaceutical industry's response to COVID-19 has been extraordinary. Our industry is uniquely positioned to address this public health challenge on a global scale. Collaboration across the scientific, public health, and biopharmaceutical industry communities will be key to successfully finding solutions for this pandemic and to help ensure that we are adequately prepared for the next. We are confident that science will ultimately prevail over COVID-19 with new medicines and vaccines. Let me conclude by expressing our gratitude to the frontline health care workers, as well as to our own employees who have worked to help patients affected by COVID-19. Your dedication inspires me.

More broadly the bio pharmaceutical industries response to cobot nice team has been extraordinary.

Our industry is uniquely positioned to address this public health talent on a global scale.

Collaboration across the five since the public health biopharmaceutical industry community will be key to successfully finding solutions for this pandemic.

To help ensure that we are adequately prepared for that.

We are confident that science will ultimately prevail over cobot 19, with new medicines and vaccines.

Let me conclude by expressing our gratitude to the frontline healthcare workers as well as to our own employees work to help patients affected by cold it nicely.

The dedication in five that makes us even more resolute in our commitment to bring forward new tools to help and this pandemic.

Unknown Attendee: It makes us even more resolute in our commitment to bring forward new tools to help end this pandemic. The value of our industry to society is underscored by this crisis, as is the need for companies like Merck to continue to invest in research and development to address the greatest health threats both now and in the future. And with that, I'll pass it over to my colleague, Rob Davis, to review the details of our performance and our app. Thanks, Ken, and good morning, everyone.

The value Barton industry Briody underscored by this crisis.

The need for companies like Merck considered to invest in research and development.

Addressed the greatest health threat, both now and in the future.

With that I'll pass it over to my colleague Rob David to review the details of our performance and our outlook.

Thanks, Ken good morning, everyone.

Rob Davis: As Ken highlighted, our business performed well in an unprecedented environment. While we saw a meaningful impact from the COVID pandemic in the quarter, particularly in April and May, overall, the business fared well. Within our human health business, the impact was largely as expected, while within animal health, the impact was less than anticipated. That said, we were able to deliver better than expected results in both human health and animal health due to our underlying operational strength combined with our execution in the face of the pandemic. Based on our ability to drive improved and accelerating operational momentum, we now expect to see stronger performance in the second half of the year. As a point of reference, if we adjust for the impact of COVID in the quarter, Merck's underlying sales growth would have been 6% nominally and 9% excluding exchange, reflecting strong demand for key growth pillars. We continue to operate from a position of financial and operational strength, which allows us to execute on our capital allocation priorities.

That's kept highlighted for business performed well in an unprecedented environment.

Well, we sold meaningful impact the cobot pandemic in the quarters, particularly in April and May overall, the business for well.

Within our human health business.

The impact was largely as expected well with him animal health the impact was less than most anticipated.

That said, we were able to deliver better than expected results in both human health and animal health.

Each or underlying operational strength.

Combined with our execution in the face of the pandemic.

Based on our ability to drive improved gimmick celebrating operational momentum.

We now expect to see stronger performance in the second half you.

I was appointed rough lunch.

Just for the impact of Coca during the quarter, most underlying sales growth would've been 6% nominally and 9% excluding exchange, reflecting strong demand Cork equal fillers.

We continue to operate from a position to financial and operational strength, which allowed us to execute on our capital allocation priorities.

Rob Davis: Investments behind our extensive pipeline of research programs remain robust, and we also successfully completed two collaborations and an acquisition to bring in-house promising vaccine and antiviral candidates to address the COVID-19 pandemic, as Ken referenced. All of this is in support of our goal of advancing science to fulfill unmet medical needs, the core of Merck's mission. Now turning to our second quarter results. Total company revenues were $10.9 billion, a decrease of 8% year-over-year or 5%, excluding the negative impact from foreign currencies.

That's much behind on extensive pipeline of research programs remain robust.

Also successfully completed two collaborations in an acquisition to bring in house promising vaccine antibody candidates to drastic overnight you said that mix, it's Ken referenced.

All of the specifics affordable goal of advancing plans to fulfill unmet medical needs the core of most submission.

Now turning to our second quarter results.

Total company revenues were $10.9 billion, a decrease of 8% year over year, four or 5%, excluding the negative impact from foreign currency.

Rob Davis: The pandemic negatively impacted our second-quarter results by $1.6 billion, reflecting approximately $1.5 billion in human health and approximately $100 million in animal health. In the human health business, the impact to sales will spread to varying degrees across our vaccines, hospitals, women's health, and oncology products due to access limitations from social distancing orders and prioritization of coronavirus patients in hospitals. Within the animal health segment, livestock product sales were impacted by a change in protein demand due to restaurant closures and regional outbreaks, while companion animal product sales reflected decreased visits to veterinarian offices.

The pandemic negatively impacted or second quarter results by $1.6 billion, reflecting approximately $1.5 billion in human health and approximately $100 million an animal health.

In the human health business, the impact to sales from spread to during degrees across our vaccine hospital women's health and oncology products due to access limitations from social distancing orders and prioritization that kind of buyers patients some hospitals.

Within the animal health segment.

Lifestyle products sales were impacted by changing protein demand due to restaurant closures and regional outbreaks what companion animal products sales were slightly decreased visits to veterinarian offices.

Rob Davis: It's worth noting that despite the short-term headwinds experienced in the quarter, the underlying strength and demand for our products enabled first-half growth of 4% excluding exchange. The remainder of my comments will be focused on the underlying performance of our key growth drivers and near-term trends, and will be on an exchange basis. Our human health revenues declined 6%.

It's worth noting that despite the short term headwinds experienced in the quarter.

The underlying shrinks in demand for our products enabled first half growth of 4% excluding exchange.

The remainder my comments, we focus on the underlying performance about equal growth drivers and near term trend and will be on an ex exchange basis.

Our human health revenues declined 6%.

Rob Davis: In oncology, protruded cells grew 31% year over year, reaching $3.4 billion in the quarter. In the U.S., Keytruda demonstrated strong growth across all key tumor types. We continue to strengthen our leadership in I.O., including in Lung, in the face of recent competitor launches. We have benefited from continued strength in melanoma, bladder, and head and neck cancers and strong momentum from launches in renal cell and endometrial carcinomas. We received FDA approval for a six-week dosing regimen across all adult indications, which enabled greater patient access and contributed to growth. Outside the U.S., lung cancer indications remain the driver of unconstrained growth. In the EU, growth continues to be driven by the uptake of Keynote 189, with reimbursement secured across all major markets. In Japan, the combined impact of delayed new patient starts.

In oncology Katrina sales grew 31% year over year, reaching $3.4 billion in the quarter.

In the U.S. Keytruda demonstrated strong growth across all key tumor types. We continued to strengthen our leadership in I O, including along in the face of recent compared to the launches.

We benefited from continued strength in melanoma bladder and had a net cancers and strong momentum from launching renal cell and mutual carcinomas.

We received FDA approval for six week dosing regimen crossed all adult indications, which enable greater patient access contributed to growth.

Outside the U.S., one cancer indications remains a driver of countries as well.

In the new growth continues to be driven by the uptake of keynote 189 with reimbursement you true across all major markets.

In Japan, the combined impact the blade new patient starts.

Rob Davis: The reduced frequency of existing patients and the huge seller price adjustments from February and April more than offset volume growth in new indications. We saw a COVID-related impact on Katrina in April and May across all tumor types, but not to the degree we expected. We are encouraged by the recovery we saw in June, particularly in the United States and Europe, and this trend has continued in the third quarter. Strong growth from Lymparza and Lumbima continues to bolster our oncology performance, as both products experience limited pandemic impacts due to their oral formulations. PARSA's performance in the quarter continues to reflect growth and leadership in the PARP class in the United States, and the recent launches of the PALA-1 in ovarian cancer and PROFOUND in prostate cancer provide opportunities for future growth.

Reduced frequency of existing patients and the huge silver price adjustments from February in April more than offset volume growth in new indications.

We saw cobot related impact to Keytruda in April and may across all tumor types, but not too easily we expected.

We're encouraged by the recovery, we sold June, particularly in the United States in New York and this trend has continued in the third quarter.

Strong growth from Lynparza in London, we must continue to bolster our oncology performance. That's both products experienced limited pandemic it impacts due to the oral formulations.

When cars. This performance in the quarter continues to reflect growth in leadership from the port plus Moonlighted stage.

And the recent launches of the power one in ovarian cancer and profound in prostate cancer provide opportunities for future growth.

Rob Davis: Lenvima maintains market leadership in first-line hepatocellular carcinoma, and the combination with Keytruda and endometrial carcinoma is now the leading treatment regimen in the second-line setting in the United States. Now, to vaccines. Our vaccine portfolio was negatively impacted by a reduction in patient visits to physician's offices in line with our expectations. Gardasil sales declined 24% year-over-year, driven by stay-at-home orders in the United States and most European markets, partially offset by continued demand-driven strength in China.

When FEMA Mccain's market leadership in first line Hepatocellular carcinoma, and the combination with Keytruda in endometrial carcinoma carcinoma. That's now the leading treatment regimen in the second one study in the United States.

Turning now to vaccines.

Oh vaccines portfolio was negatively impacted by a reduction of patient visits which positions offices in line with our expectations.

Gardasil sales declined 24% year over year.

And by stay at home waters in the United States and most European markets, partially offset by continued demand driven of course strength in China.

Rob Davis: In the United States, we were encouraged to see a significant increase in wellness visits beginning in late April for children and in late June for adults and anticipate this trend will lead to a recovery in our vaccines business in the back half of the year. However, our hospital business was impacted by delays and cancellations of elective surgeries and prioritization of coronavirus patients in hospitals. This impacted sales of Bridion, which declined 18% year over year. Additionally, reduced wholesaler inventories also contributed to the decline.

In the United States, we want encouraged to see significant increase in wellness business just beginning in late April for children in late June for adults and anticipate this trend will lead to a recovery in our vaccines business in the back half the year.

Hospital business was impacted by delays and cancellations of elective surgeries and prioritization of krona virus patients from hospitals.

Impacted sales of bridie on which declined 18% year over year.

Reduced wholesaler inventories also contributed to the decline.

Rob Davis: We remain confident in the underlying demand for Brion and are encouraged by the ongoing recovery and overall surgical procedure volume. Partially offsetting the decline in our hospital portfolio is the growth in prevention. Animal health revenue increased 3% this quarter to $1.1 billion. Livestock grew 3% due to contributions from an acquisition in our Animal Health Intelligence product line, and Companion Animal also grew 3%, reflecting strong growth of the Provecta line of products. Visits to veterinarian offices were negatively impacted early in the quarter.

We remain confident in the underlying demand for bringing on and are encouraged by the ongoing recovery and overall surgical procedure volumes.

Partially offsetting the decline in a hospital portfolio was the growth in problems.

Animal health revenue increased 3% this quarter to $1.1 billion.

Livestock grew 3% due to contributions from an acquisition or animal health intelligence product line.

Opinion animal also grew 3%.

Second strong growth at the back to one products.

Visits to veterinarian offices were negatively impacted early in the quarter.

Rob Davis: But offices opened earlier than expected, which benefited volume. Turning to the rest of our P&L, my comments will be on a non-GAAP basis. Gross Margin was 73.8% in the quarter, a decrease of 160 basis points, driven largely by catch-up amortization, but for expected milestone achievements for our collaborations on RunPARSA and RunVMA. Operating expenses decreased 9% year-over-year to $4.4 billion.

<unk> offices opened over the next affected which benefited volumes.

Turning to the rest of or PML, my comments will be on a non-GAAP basis.

Gross margin was 73.8% in the quarter, a decrease of 160 basis points, driven largely by catch up amortization booked for expected milestone achievements for collaboration on them parts, a and B mall.

Operating expenses decreased 9% year over year to $4.4 billion in total cope with resulted in reduced spending of approximately $325 million.

Rob Davis: In total, COVID resulted in reduced spending of approximately $325 million, driven largely by lower promotional selling and administrative costs, along with lower laboratory travel and meeting expenses. The significant year-over-year increase in other income was driven by unrealized equity gains from our security holdings, predominantly reflecting our investments in Moderna and MGM. The effective tax rate for the quarter of 15% was driven by a lower soon four-year effective tax rate as a result of favorable earnings measures.

Driven largely by lower promotional selling and administrative costs, along with lower laboratory travel and meeting expenses.

The significant year over year increase in other income.

Was driven by unrealized equity gains from our security holdings predominately reflecting on investments in Madonna and then GM.

The effective tax rate for the quarter of 15% was driven by lower soon for your effective tax rate as a result of favorable on these matters.

Rob Davis: Taken together, we earn $1.37 per share, an increase of 9% excluding exchange. Now, turning to our outlook for the remainder of the year. As expected, April was a particularly challenging month in the human health business. As we move through May and, particularly through June, however, we saw a meaningful increase in patient wellness visits to providers and in elective surgeries in hospitals, and our oncology business was particularly resilient due to the strength and breadth of our offerings. Business conditions have clearly improved, and despite increased outbreaks and infection rates that are impacting the phasing of our recovery, we believe the healthcare system is better positioned to provide patient access as we move through the balance of the year. The improved underlying operational strength we are seeing across several parts of our portfolio will help to more than offset the impact from COVID-19 and lead to stronger expected second half growth.

Taken together, we earned $1.37 cents per share an increase of 9% excluding exchange.

Now turning to our outlook for the remainder of the year.

As expected April was a particularly challenging month in the human health business.

As we move through May of particularly through June. However, we saw a meaningful increase inpatient wellness business to providers and an elective surgeries or hospitals.

And on Cold you business was particular zillions due to the strengthened breathable offers.

Business conditions have clearly improved and despite increased outbreaks and infection rates that are impacting the phasing about recovery.

We believe the health care system is better positioned to provide patient access as we move through the balance of the year.

The improved underlying operational strength, you're seeing across several parts of a portfolio.

Hope to more than offsets the impact from cobot, 19, and lead to stronger expected second half growth.

In addition.

Rob Davis: In addition, we are benefiting from our prior investments in digital capabilities to interact with our patients, providers, and payers, and this allows us to continue to address medical inquiries and promote our product effectively. This gives us further confidence in our ability to drive efficiencies in our business as we adapt to a post-COVID world through our continuing digital and other transformation efforts. On the animal health side, as mentioned, veterinarian offices opened earlier than initially expected, which benefits our companion animal products, and stay-at-home restrictions were lifted sooner than anticipated, which positively impacts our livestock products. These favorable trends contributed to our better-than-expected second quarter results and favorably impacted our outlook for the full year. We will continue to monitor regional outbreaks, restaurant and school openings, and the potential impact on demand for our livestock products.

We are benefiting from our prior investments in digital capabilities to interact with our patients providers and payers and allowing us to continue to address medical inquiries and promote or products effectively.

This gives us further confidence in our ability to drive efficiencies in our business. That's we adopt to oppose cope with world through our continuing digital and other transformation efforts.

On the animal health side as mentioned that nearing offices opened earlier than initially expected, which benefits were companion animal products and stay at home restrictions lifted sooner than anticipated, which positively impacts or lifestyle products.

These favorable trends contributed to our better than expected second quarter results and favorably impact our outlook for the full year.

We will continue to monitor original outbreaks restaurant in school openings and any potential impact demand for livestock products.

Now turning to guidance.

Rob Davis: Now, turning to guidance. Our updated guidance reflects continued confidence in the underlying strength of our business, a more limited COVID impact than previously expected across our business as a whole, and a more favorable regulatory environment. Our assumptions regarding the progression of the COVID impact remain unchanged. We assume that the largest impact from COVID occurred in the second quarter, with recovery having begun during the second quarter that will continue through the third quarter before a return to normal operating levels in the fourth quarter. We now expect revenues of $47.2 billion to $48.7 billion, which reflects an increase of $850 million from our previous midpoint.

Our updated guidance reflects continued confidence in the underlying strength of our business more limited cobot impact than previously expected crossroad business as a whole.

And then more favorable FX environment.

Our assumptions regarding the progression of the coping impact remain unchanged.

We assumed that the largest impact from coal which occurred in the second quarter with recovery, having begun during the second quarter. The will continue through the third quarter before returning to normal operating levels in the fourth quarter.

We now expect revenues of $47.2 billion to $48.7 billion, which reflects an increase of $850 million from our previous midpoint.

Our guidance now assumes roughly $1.95 billion of cobot headwind for the year.

Rob Davis: Our guidance now assumes roughly $1.95 billion of COVID headwind for the year. This is a reduction from our prior assumption of $2.1 billion, with human health roughly in line with, and animal health below our prior estimate. We now assume a negative impact from foreign exchange of roughly 2 percentage points using mid-July rates.

This is a reduction from our prior assumptions of $2.1 billion with human health roughly in line with an animal health below our prior estimates.

We now assume a negative impact from foreign exchange of roughly two percentage points using mid July rates.

Rob Davis: Overall, our guidance implies 3-6% growth in revenue for the full year, excluding the impact of exchange, reflecting the strong underlying demand for our product. The one area we are watching is vaccines, and Gardasil in particular, for an potentially extended recovery timeline. However, this risk has been fully considered within our guidance range and more than offset by the overall strength we expect to see across the rest of our portfolio. We continue to expect gross margin to be roughly 75%. Operating expenses are now expected to be roughly flat year over year, reflecting increased R&D spend offset by reduced SG&A costs.

Overall, our guidance implies 3% to 6% growth in revenue for the full year, excluding the impact of exchange, reflecting strong underlying demand for products.

The one area, we are watching is vaccines and gardasil in particular.

Potential extended recovery time on.

However, this risk has been fully considered within our guidance range and more than offset by the overall strength, we expect to see across the rest of portfolio.

We continue to expect gross margin to be roughly 75%.

Operating expenses are now expected to be roughly flat year over year, reflecting increased R&D spend offset by reduced S unit cost.

Rob Davis: The increase in our OPEX assumptions versus previous guidance reflects spending and R&D associated with the acceleration of the COVID-19 program. However, this guidance still implies operating margin expansion of approximately 100 basis points for the year. We now expect our full-year tax rate to be in the range of 16% to 16.5%, reflecting improved earnings net. We now expect other income of roughly $550 million, reflecting higher unrealized gains in our equity securities portfolio based on the June 30th valuation. We continue to anticipate 2.54 billion shares outstanding. Taken together, we now expect our non-GAAP EPS to be between $5.63 and $5.78, which reflects an increase of 44 cents from our previous midpoint. This range includes a negative impact on foreign exchange of roughly three percentage points.

The increase in Opex assumptions versus previous guidance reflects spending in R&D associated with the acceleration of October 19 programs.

This guidance still implies operating margin expansion of approximately 100 basis points for the year.

We now expect our full year tax rate to be in the range of 16% to 16.5%, reflecting improved earnings mix.

We now expect other income of roughly $550 million, reflecting higher unrealized gains in our equity securities portfolio based on June Thirtyth valuations.

We continue to anticipate 2.54 billion shares outstanding.

Taken together, we now expect or non-GAAP EPS to be between $5.63 to $5.78, which reflects an increase of 44 cents from our previous midpoint.

This range includes a negative impact from foreign exchange of roughly three percentage points.

Our results are benefiting from an improved catch rate and higher other income due to gains from our equity holdings.

Rob Davis: Our results are benefiting from an improved tax rate and higher other income due to gains from our equity holdings. Excluding these benefits, however, we continue to drive operational leverage in the P&L. Revenue growth coupled with continued expense management while we invest in R&D, including our COVID-19 candidates and capacity expansion, is expected to drive operating margin expansion for the full year. Our cash flow generation and access to capital both are strong, and we remain well-positioned to continue with our capital allocation priorities, including full investment behind our key growth drivers and pipeline, continued commitment to the dividend, and strategic value-enhancing business development to enhance our pipeline and long-term growth potential. To conclude, we remain confident in the fundamentals of the business and the meaningful growth opportunities that lie ahead, despite the near-term impact of the pandemic.

Excluding these benefits however, we continue to drive operational leverage in the PML.

Revenue growth, coupled with continued expense management, while we invest in R&D, including our corporate 19 candidates and capacity expansion.

Expected to drive operating margin expansion to the full year.

Our cash flow generation and access to capital both are strong and we remain well positioned to continue with our capital allocation priorities, including full investment behind are key growth drivers in pipeline.

Continued commitment to the dividend.

A strategic value enhancement business development to enhance our pipeline in long term growth potential.

To conclude.

We remain confident in the fundamentals of the business and the meaningful growth opportunities that lie ahead.

Despite the near term impact in the pandemic.

The favorable recovery trends that we sold through the quarter concessions or company, we're accelerating business momentum as we head into the back half a year.

The underlying health of the business and demand for innovate a portfolio of medicines and vaccines remains strong.

This combined with our strong clinical execution across the portfolio and our expanding indications, which Roger will highlight in a moment continues to reinforce our confidence.

Rob Davis: The favorable recovery trends that we saw through the quarter position our company for accelerating business momentum as we head into the back half of the year. The underlying health of the business and demand for our innovative portfolio of medicines and vaccines remains strong. This, combined with our strong clinical execution across the portfolio and our expanding indications, which Roger will highlight in a moment, continues to reinforce our confidence in the sustainability and strength of our revenue growth. During these challenging times, we are leveraging our operational and financial strength not only to weather the storm, but also to meaningfully execute on our strategy of innovation and our mission to bring new medicines to patients. We continue to believe this best positions Merck for success and value creation long into the future. With that, I'd like to turn the call over to Roger. Thank you, Rob.

The sustainability and strength of our revenue growth.

During these challenging times, we are leveraging our operational and financial strength not only to weather the storm.

But also to execute meaningfully on our strategy of innovation.

And our mission to bring new medicines to patients.

We continue to believe this best positions more picks up for stuff and value creation long into the future without I'd like to turn the call over Roger.

Thank you Rob.

During the second quarter, we were able to expand laboratory operations beyond the essential production that materials for clinical trials.

Such that we are now once again selecting new chemical entities and discovery research and advancing these materials in preclinical testing.

As our laboratories reopened our priorities remain first ensuring the safety of our employees.

Second ensuring that patients in our clinical trials received their treatments and our managed appropriately and finally.

We are once again applying our skills like identifying new medicines and vaccines.

Many programs that I highlighted in my remarks during our first quarter earnings call made substantial progress for example in May we received FDA approval for Lynparza developed in collaboration with our colleagues that Astra Zeneca.

Roger Perlmutter: During the second quarter, we were able to expand laboratory operations beyond the essential production of materials for clinical trials, such that we are now once again selecting new chemical entities and conducting research, and Advancing These Materials in Preclinical Testing. As our laboratories reopen, our priorities remain first: insuring the safety of our employees. And second, ensuring that patients in our clinical trials receive their treatments and are managed appropriately.

When used in combination with Bevacizumab for the first line maintenance treatment of adult patients with advanced at the field Varian fallopian tube or primary paired Neal cancer, who sustained a complete or partial response first line platinum based chemotherapy and whose tumors demonstrate deficiency and homologous recombination based on.

Roger Perlmutter: We are once again applying our skills to identifying new medicines and vaccines. Many programs that I highlighted in my remarks during our first quarter earnings call have made substantial progress. For example, in May, we received FDA approval for LINPARSA, developed in collaboration with our colleagues at AstraZeneca, when used in combination with Bevacizumab for the first-line maintenance treatment of adult patients with advanced epithelial ovarian cancer who have sustained a complete or partial response to first-line platinum-based chemotherapy and whose tumors demonstrate deficiency in homologous recombination. Based on results from an FDA-approved diagnostic test, this approval referenced a biomarker subgroup analysis of the Phase 3 PALO-1 trial, in which lympharza plus bevacizumab improved median progression pre-survival by more than two-fold to 37.2 months.

Results ruin that FDA approved diagnostic tests. This approval referenced a biomarkers subgroup analysis of the phase three pollo, one trial in which Lynparza plus Bevacizumab improved median progression free survival by more than two fold.

37.2 months.

Lynparza also received FDA approval in May for the treatment of patients with metastatic castration resistant prostate cancer.

Tumors have progressed totaling prior treatment with enzalutamide or abiraterone and also contain deleterious or suspected deleterious germline or somatic mollins for combination repair gene mutations.

This approval is based on results of our phase three profound study.

We estimate that approximately 20% to 30% of men with metastatic castrate resistant prostate cancer have tumors containing these kinds of mutations later in the quarter.

Parts of gained a positive opinion from the C. H M. P for use in the first line maintenance treatment of patients with metastatic pancreatic cancer, whose tumors contain germline BRC a mutations based on the polo study.

Roger Perlmutter: Lynn Parza also received FDA approval in May for the treatment of patients with metastatic, castration-resistant prostate cancer whose tumors have progressed following prior treatment with enzalutamide or abiraterone and also contain deleterious or suspected deleterious germline or somatic homologous recombination repair gene mutations. This approval was based on the results of our Phase 3 profound study. We estimate that approximately 20 to 30% of men with metastatic castrate-resistant prostate cancer have tumors containing these kinds of mutations.

This recommendation was ratified by the European Commission early in July.

Keytruda was the subject of numerous important regulatory actions in the second quarter such that the FDA label is now nearly 100 pages and links and tabulate nearly 30 explicit approvals.

I will not enumerate all of the regulatory activity associated with Keytruda filings today, but we'll note that the second quarter began with the approval by the FDA of an extended dosing interval 400 milligrams every six weeks for all adult indications.

Previously registered in Europe approval of this new dosing schedule in the United States offers physicians an option to reduce the number of clinic visits that patients must attend to at a time when they have implemented important social distancing measures.

Roger Perlmutter: Later in the quarter, PARSA gained a positive opinion from the CHMP for use in the first-line maintenance treatment of patients with metastatic pancreatic cancer whose tumors contain germline BRCA mutations based on the POLO study. This recommendation was ratified by the European Commission early in July. Keytruda was the subject of numerous important regulatory actions in the second quarter, such that the FDA label is now nearly 100 pages in length and tabulates nearly 30 explicit approvals. I will not enumerate all of the regulatory activity associated with Keytruda filings today but will note that the second quarter began with the approval by the FDA of an extended dosing interval of 400 milligrams every six weeks for all adult indications. Though previously registered in Europe, approval of this new dosing schedule in the United States offers physicians an option to reduce the number of clinic visits that patients must attend to at a time when they have implemented important social distancing measures. In June, the FDA granted three additional approvals for Keytruda. First, for the treatment of recurrent or metastatic cutaneous squamous cell carcinoma that cannot be cured by surgery or radiation therapy.

In June the FDA granted three additional approvals for Keytruda.

First for the treatment of recurrent or metastatic cutaneous squamous cell carcinoma that cannot be cured by surgery or radiation therapy second for the first line treatment in patients with unresectable or metastatic colorectal cancer and patients whose tumors show evidence of mismatch repair deficiency or emphasize hot.

And third.

The second line treatment of adult and pediatric patients with unresectable or metastatic solid tumors, whose tumors have progressed following prior treatment and you have no satisfactory treatment options provided that the tumor show a high mutational burden of at least 10 mutations per Mega base of DNA I wish to note here.

This is the second tumor agnostic indication for Keytruda.

We received the very first such indication in the history of oncology Therapeutics in 2017 with the accelerated approval of our MSR hi indication for Keytruda in adults with solid tumors as I. Just mentioned this approach was extended still further in June with the approval for first line treatment of MSR colorectal cancer.

Based on our keynote 177 trial.

FDA approval for the second line treatment to patients, whose tumors show a high tumor mutational burden represents the second time that Keytruda has received an indication based on the molecular characteristics of the tumors themselves rather than the sell Oregon from which these tumors are believed to have originated.

Roger Perlmutter: Second, for the first-line treatment of patients with unresectable or metastatic colorectal cancer whose tumors show evidence of mismatched repair deficiency or are MSI high, and third, for the second-line treatment of adult and pediatric patients with unresectable or metastatic solid tumors, whose tumors have progressed following prior treatment and who have no satisfactory treatment options provided that the tumors show a high mutational burden of I wish to note here that this is the second tumor agnostic indication for Keytruda. We received the very first such indication in the history of oncology therapeutics in 2017 with the accelerated approval of our MSI high indication for pituitary and adults with solid tumors. As I just mentioned, this approach was extended still further in June with the approval for first-line treatment of MSI high colorectal cancer based on our Kino 177 trial. FDA approval for the second-line treatment of patients whose tumors show a high tumor mutational burden represents the second time that Keytruda has received an indication based on the molecular characteristics of the tumors themselves, rather than the cell or organ from which these tumors are believed to have originated.

Two other ft approvals from the second quarter deserves special mention Gardasil nine was approved for the prevention of human Papilloma virus related oral for NGL and other had net cancers. This was an accelerated approval based on the effectiveness of Gardasil nine in preventing papilloma virus related in a general disease and was supported by.

Hi studies, showing clearance of persistent oral differential HPV infection index annuities.

A recent analysis by the U.S. centers for disease control demonstrated that HPV attributable oral for NGL cancer has now surpassed cervical cancer has the most prevalent form of HPV related cancers in the United States approval in the head and neck cancer setting was the result of decades of investigation pursuit.

Merck Research laboratories.

We also received FDA approval for Ricardo for the treatment of hospital acquired and ventilator associated bacterial pneumonia caused by susceptible organisms.

Roger Perlmutter: Two other FDA approvals from the second quarter deserve special mention. Gardasil 9 was approved for the prevention of human papillomavirus-related oropharyngeal and other head and neck cancers. This was an accelerated approval based on the effectiveness of Gardasil 9 in preventing papillomavirus-related anagenital disease and was supported by studies showing clearance of persistent oropharyngeal HPV infection in vaccines. A recent analysis by the U.S. Centers for Disease Control and Prevention demonstrated that HPV-attributable oropharyngeal cancer has now surpassed cervical cancer as the most prevalent form of HPV-related cancer in the United States.

As coated 19 hospitalizations increased the risk of secondary bacterial pneumonia becomes more profound.

Carpio provides an important new antibiotic <unk>, especially helpful in treating infections due to pseudomonas species.

Beyond these regulatory approvals, we continued to support to submit important new files for example, during the second quarter. We filed the results of the Victoria study conducted in partnership with Bayer, which demonstrate that burris acquiring our novel orally administered soluble guanylate cyclase activator reduced the risk it.

Ask or death, and heart failure hospitalization when added to standard therapy in patients with symptomatic chronic heart failure following a worsening event.

Roger Perlmutter: Approval in the head and neck cancer setting was the result of decades of investigation pursued by Merck Research Laboratory. We also received FDA approval for Recarbio for the treatment of hospital-acquired and ventilator-associated bacterial pneumonia caused by susceptible organisms. As COVID-19 hospitalizations increase, the risk of secondary bacterial pneumonia becomes more profound. Recarbio provides an important new antibiotic that can be especially helpful in treating infections due to Pse

These data were previously presented at the American College of Cardiology meetings in the spring.

The FDA has granted priority review to this application, reflecting the significant unmet need for new therapies in the heart failure population.

In the oncology area. We also submitted for review our data from the keynote three find side and keynote five to two studies.

Which document the activity of Keytruda in triple negative breast cancer, either a second line treatment in combination with chemotherapy that and keynote three times five.

Roger Perlmutter: Beyond these regulatory approvals, we continue to support to submit important new files. For example, during the second quarter, we filed the results of the VICTORIA study conducted in partnership with Bayer, which demonstrated that Verisiquat, our novel, orally administered, soluble guanylate cyclase activator, reduced the risk of cardiovascular death and heart failure hospitalization when added to standard therapy in patients with symptomatic chronic heart failure following a worsening event. These data were previously presented at the American College of Cardiology meetings in the spring. The FDA has granted priority review to this application, reflecting the significant unmet need for new therapies in the heart failure population. In the oncology area, we also submitted for review our data from the Keynote 355 and Keynote 522 studies, which document the activity of Keytruda in triple-negative breast cancer, either as second-line treatment in combination with chemotherapy, that in Keynote 355, Or as an adjunct to surgery in the neoadjuvant setting, in combination with chemotherapy, followed by monotherapy, Keytruda in the adjuvant setting, that is the Keynote 522 study.

Whereas an adjunct to surgery and the neoadjuvant setting in combination with chemotherapy followed by monotherapy Keytruda Neoadjuvant setting that is the keynote <unk> to two study.

We announced yesterday the acceptance of both files for review by the FDA and here as well the keynote threefive five filing was granted priority review.

This week, we also announced that the ft had granted breakthrough designation to empty 648 to our novel his two alpha inhibitor for the treatment of certain patients with bunge simple Linda disease associated renal cell carcinoma based on data that we presented at the American Society for clinical oncology meetings in June.

Finally, our broad portfolio of activities in cardiovascular medicine oncology and infectious diseases. Now includes three new programs directed at interdicting, the cobot 19 pandemic.

As Youre aware during the second quarter, we forged a partnership with Ridgeback biotherapeutics to develop MK 44, 82 nuclear side analog that disrupts the fatal replication of the Sars koby to viral genome.

Empty 44, 82 has now been studied and ascending dose protocol and has been shown to be well tolerated. During five day oral administration, achieving drug levels that we would expect would be more than sufficient to block viral replication compound is currently under study in three different phase two programs in outpatient as well as it.

Roger Perlmutter: We announced yesterday the acceptance of both files for review by the FDA, and here, as well, the Keynote 355 filing was granted priority review. This week, we also announced that the FDA had granted breakthrough designation to MK-6482, our novel HIF-2 alpha inhibitor, for the treatment of certain patients with von Hippel-Lindau disease-associated renal cell carcinoma, based on data that we presented at the American Society for Clinical Oncology meetings in Finally, our broad portfolio of activities in cardiovascular medicine, oncology, and infectious diseases now includes three new programs directed at interdicting the COVID-19 pandemic. As you are aware, during the second quarter, we forged a partnership with Ridgeback Biotherapeutics to develop MK4482, a nucleoside analog that disrupts the faithful replication of the SARS-CoV-2 viral genome.

In patients here in the United States and in the United Kingdom.

Based partially on the results of these studies, we expect to initiate two large pivotal trials one in outpatient and the second and hospitalized coded 19 patients beginning in September.

We're also in discussions with the active consortium to begin a large phase two outpatient study conducted under the supervision the National Institute of allergy and infectious diseases.

MK 44, 82 has demonstrated a strong barrier to resistance when studied in vitro, which was to be expected based on its mechanism of action. It is for example, active against viruses that have acquired mutations rendering them resistant to rent density.

In light of the proton medical need for an orally active treatment to reduce the impact of cobot, 19th we have mounted a very aggressive clinical program as I described.

And we have secured manufacturing capability to produce many millions of doses of the drug before the end of this year.

At the same time, we're advancing two important new vaccines directed against Sars Koby too.

Roger Perlmutter: MK-4482 has now been studied in ascending-dose protocols and has been shown to be well-tolerated during five-day oral administration, achieving drug levels that we would expect would be more than sufficient to block viral replication. The compound is currently under study in three different Phase II programs in outpatients as well as in inpatients here in the United States and in the United Kingdom.

These back to sexy and approaches were selected for three reasons as as Ken mentioned.

First they make use of proven vaccine platforms that have been used in human studies, demonstrating both efficacy and safety.

Second they are replicating barrel vaccines, which means that they provide a very potent immune stimulus that could offer the promise of single dose administration.

And dealing with an aggressive globally dispersed disease like cobot 19, we believed that it is wise to lower the barrier to vaccination as much as possible for example by launching a vaccine that is effective with just a single administration.

Roger Perlmutter: Based partially on the results of these studies, we expect to initiate two large pivotal trials, one in outpatients and the second in hospitalized COVID-19 patients beginning in September. We are also in discussions with the ACTIV Consortium to begin a large phase two outpatient study conducted under the supervision of the National Institute of Allergy and Infectious Diseases. MK-4482 has demonstrated a strong barrier to resistance when studied in vitro, which was to be expected based on its mechanism of action.

Third since we believe that there may well be a need for different vaccines in different populations. We chose to well characterized vaccine platforms that are quite different properties. A measles buyers recombinant that was invented by the institute pasture in Paris, and which we acquired through the purchase of tennis five science.

And 60 secular stomatitis fires recombinant first developed by health, Canada, which were advancing in partnership with the International AIDS vaccine initiative.

Roger Perlmutter: It is, for example, active against viruses that have acquired mutations, rendering them resistant to remdesivir. In light of the profound medical need for an orally active treatment to reduce the impact of COVID-19, we have mounted a very aggressive clinical program, as I described. And we have secured the manufacturing capability to produce many millions of doses of the drug before the end of this year. At the same time, we are advancing two important new vaccines directed against SARS-CoV-2. These vaccine approaches were selected for three reasons, as Ken mentioned.

At this construct utilizes the same virus platform that we employed to develop our successful boulevards vaccine, which was registered in the United States earlier this year.

In preclinical studies both of these cobot 19 vaccine constructs have now been shown to stimulate neutralizing antibody production following a single intramuscular administration.

Our program using the measles buyers vaccine platform, which we call de Fivenine. One has now completed clinical manufacturing.

And.

We'd be tend to begin clinical studies performed in collaboration with the Institute past sure. A later this quarter.

Roger Perlmutter: First, they make use of proven vaccine platforms that have been used in human studies, demonstrating both efficacy and safety. Second, they are replicating viral vaccines, which means that they provide a very potent immune stimulus that could offer the promise of single-dose administration. In dealing with an aggressive, globally dispersed disease like COVID-19, we believe that it is wise to lower the barrier to vaccination as much as possible, for example, by launching a vaccine that is effective with just a single administration. Third, since we believe that there may well be a need for different vaccines in different populations, we chose two well-characterized vaccine platforms that have quite different properties. A measles virus recombinant that was invented by the Institut Pasteur in Paris and which we acquired through the purchase of Temes Biosciences, and a vesicular stomatitis virus recombinant first developed by Health Canada, which we're advancing in partnership with the International AIDS Vaccine Initiative, IABI. This construct utilizes the same virus platform that we employed to develop our successful E In preclinical studies, both of these COVID-19 vaccine constructs have now been shown to stimulate neutralizing antibody production following a single intramuscular administration.

Meanwhile, we've been manufacturing clinical doses of the VSD based cobot 19 vaccine, which we call the 590 in our facilities in Pennsylvania.

We also expect to begin clinical studies with the type 90 in the next few months.

Planning for large global clinical trials involving both fee type 90, Nvfive nine one is down nearly complete these trials will initiate as soon as we have supportive data regarding immunogenicity.

Finally, I note that one additional advantage of beside 90 is that it may be active when administered orally via a Swiss and swallow protocol and again this will help to lower the barrier to vaccination should it be effective.

It should be playing that Merck research laboratories continues to advance development of new drugs in vaccines across many fronts.

In this context, I wish specifically to commend the dedication of more than 10000 MRL employees around the globe.

Who super regulatory efforts have again brought us hope that the world can gain greater freedom from previous illness.

Reviewing the progress that we have made and developing MK 44, 82, and both of our Cobot 19 vaccines I am optimistic that we'll be able to reduce the impact of this devastating pandemic.

And now I'll turn the call back to Pete.

Cleric if you could put the Q1 eight quarter in place, please and I'll, just remind questioners to limit yourself to one or two questions.

As always.

We have a lot of questioners in the queue and we are prepared to extend a bit past nine to try to get to as many as we can.

A couple of our speakers today, our remote so I'll do the best I can to quarterback those questions when they come in Florida.

Thank you for Mr. [noise].

And let me go ahead Im begin read your first question like bowls, which is going to be coming from that Mr., Andrew Baum Citi. Your line is our life peacefully.

Roger Perlmutter: Our program using the measles virus vaccine platform, which we call V591, has now completed clinical manufacturing. We plan to begin clinical studies performed in collaboration with the Institut Pasteur later this quarter. Meanwhile, we've been manufacturing clinical doses of the VSV-based COVID-19 vaccine, which we call V590, at our facilities in Pennsylvania. We also expect to begin clinical studies with V590 in the next few months. Planning for large global clinical trials involving both V590 and V591 is now nearly complete, and these trials will begin as soon as we have supportive data regarding immunogenicity. Finally, I note that one additional advantage of v590 is that it may be active when administered orally via a swish and swallow protocol.

Thank you and that's your question.

That's one we can see from your clinical trials.

That is significant.

On Sunday mom and several of your President and teach it's one that's been taken the passable.

A lot to and the number of others.

Yes, that's the thing signs a couple of things activity.

Can you give us some sense just because it's come off to the state by state.

The importance of Keytruda, when you make beautification to shall funnels that emerging.

To date.

The coffee and she as well.

The tough question.

Right and then Sharon I'm not expecting it to get me, which conference on when but as much time and then second.

Given the competitive threats that keytruda.

The non small cell you have a from gelling trial with the policy when it makes no staffing.

That's where if you could kooky option does not exceed all be willing model in other indications in common sense the disease.

Can you whether you could address.

Do you think you need to select for patients had filed with law.

HIV.

In school website.

Thanks, Chris becomes the concomitant together with at South, which accountant sensitive to sufficient so two questions. Thank you.

Roger I think those are both for you if you yeah.

Roger Perlmutter: And again, this will help to lower the barrier to vaccination should it be effective. It should be plain that Merck Research Laboratories continues to advance the development of new drugs and vaccines across many fronts. In this context, I wish specifically to commend the dedication of more than 10,000 MRL employees around the globe, whose supererogatory efforts have again brought us hope that the world can gain greater freedom from grievous illness. Reviewing the progress that we have made in developing MK4482 and both of our COVID-19 vaccines, I am optimistic that we will be able to reduce the impact of this devastating pandemic. And now I'll turn the call back to Peter. Clerical, could you put the Q&A order in place, please, and I'll just remind questioners to limit themselves to one or two questions, as always. We have a lot of questioners in the queue, and we are prepared to extend a bit past nine to try to get to as many as we can. A couple of our speakers today are remote, so I'll do the best I can to answer those questions when they come in.

Yeah, Andrew Thank you for the questions I think that in some sense. The questions are related if I caught them correctly and I apologize for the fact that I'm remote and so the connection is perhaps not as clear as I would like it to be but.

But with respect to the expansion of clinical trials for a whole variety of new agents were seeing some interesting activity at some of these data will we hope to be able to present at the European Society for medical oncology meetings, which are coming up in September and we'll have additional opportunities we hope.

Through towards the end of year to talk about these data are NBC to go precisely to the issue that you raised with non small cell lung cancer now first I should mention that.

As as you know we have an extremely strong dataset in non small cell lung cancer Keytruda is very active in that setting an active in combination with chemotherapy as we've shown.

And that remains.

Hugely important intervention the dominant intervention in the treatment of non small cell lung cancer, either as monotherapy and the PD L. One high population or in combination therapy that said that you're also looking at activity of these new agents directed at a whole variety of different.

Peter Dannenbaum: Thank you so much, sir. Let me go ahead and begin with your first question for today, which is going to be from Mr. Andrew Baum of Citi. So your line is now live. Please go ahead. Thank you. I have a few questions. First of all, we can see from your clinical trials that there is significant cohort expansion going on in several of your programs, and Tijit's one that's been spoken about, but also Little Abbey 2, and there's a number of others, which suggests that you're seeing signs of promising activity. So perhaps, Roger, you could talk about your options for that, because you're obviously exploring that in other indications for platelet-sensitive disease, and particularly whether So, those are the two questions. Thank you. Roger, I think those are both for you. If you say Yes to both, Yeah, Andrew, thank you for the questions. I think that in some sense, the questions are related, if I've caught them correctly. And I apologize for the fact that I'm remote.

Checkpoints in multiple cellular compartments.

As well as looking at though.

Issue.

Mismatch repair deficiency in combination with Keytruda, we're optimistic that we will be into.

Segregated non small cell lung cancer patients still further on the basis of the fundamental properties of the tumors and this goes precisely to our efforts in both MSR hi.

And tumor mutational burden in order to achieve still better results in the non small cell lung cancer setting. So suffice it to say we're extremely active in this area and generating a lot of very interesting data and hope to have a chance presented to very soon.

Thank you next question please Laura.

Absolutely. Your next question will come from the line of five from Evercore ISI. Your line is online. Please go ahead.

Roger Perlmutter: And so the connection is perhaps not as clear as I would like it to be. But with respect to the expansion of clinical trials for a whole variety of new agents, we're seeing some interesting activity. Some of these data will, we hope, be able to present at the European Society for Medical Oncology meetings, which are coming up in September. And we'll have additional opportunities, we hope, through towards the end of the year to talk about these data. And these data go precisely to the issue that you raised with non-small cell lung cancer. Now, first, I should mention that, as you know, we have an extremely strong data set on non-small cell lung cancer. Keytruda is very active in that setting and active in combination with chemotherapy, as we've shown.

Thank you. So much my question is on close into two parts if I may.

Roger you probably been seeing a lot of the first round of coal that vaccine data, so far and without really commenting on any single company I'm curious how you view the data in totality. The date of all the clinical data uncoated vaccines.

Perhaps specifically on whether you think the neutralizing titers that various players have shown are good enough or do you feel laddered room for improvement and your take on the T. cell data and also on your on your small molecule for coated do you think you can show a.

Anti viral benefit so that's something run that severe was never able to achieve but then there's also the school of thought that there's no large viremia included so you may not be able to show that in the firstly could really appreciate your thoughts there.

Roger.

Roger Perlmutter: And that remains a hugely important intervention, the dominant intervention, in the treatment of non-small cell lung cancer, either as monotherapy in the PD-L1 high population or in combination therapy. That said, you're also looking at activity of these new agents directed at a whole variety of different checkpoints in multiple cellular compartments, as well as looking at the issue of mismatch repair deficiency in combination with Keytruda. We're optimistic that we will begin to segregate non-small cell lung cancer patients still further on the basis of the fundamental properties of the tumors. And this goes precisely to our efforts in both MSI high and tumor mutational burden in order to achieve still better results in the non-small cell lung cancer setting.

Yeah. Thanks, you think humira the.

So first of all with respect to that coated vaccine data, yes, we have to say that.

From from our starting position, knowing very little about Sars koby too at the beginning.

The results that we've seen thus far from a variety of.

Early studies Phase one studies are as good as one could hope was really.

There was no guarantee that the spike protein of sorts koby, two would prove to be as immunogenic as it is so immune response broadly speaking across the.

Population of of vaccinations are quite good.

The question you asked is is there enough neutralizing antibody and how well with that perform clinically and unfortunately, we can't really know that until we looked at phase three studies, but I guess I would say first that as has been discussed by others.

Roger Perlmutter: So, suffice it to say, we're extremely active in this area and generating a lot of very interesting data, and hope to have a chance to present it to you very soon. Thank you. Next question, please, Lara. Absolutely. Your next question will come from the line of Umer Raffat from Evercore ISI. Your line is now live.

Most of the vaccines look as if they're going to be.

Require a boost in order to produce high tighter neutralizing activity against the spike protein.

Roger Perlmutter: Please go ahead. Thank you so much. My question is on COVID, with two parts, if I may. Roger, you've probably been seeing a lot of the first round of COVID vaccine data so far. Without really commenting on any single company, I'm curious how you view the data in totality to date of all the clinical data and COVID vaccines, perhaps specifically on whether you think the neutralizing titers that various players have shown are good enough, or do you see a lot of room for improvement and your take on the T cell data? And also, on your small molecule for COVID, do you think you can show a antivir Because that's something remdesivir was never able to achieve. But then there's also this school of thought that there's no large viremia in COVID. So you may not be able to show that in the first place.

That seems clear.

We don't know for sure and maybe things will go better, which we can all hope for.

We're time, we'll see more of that the second question of course is it is is the production of immune response against the spike protein sufficient by itself.

Or is it necessary to generate responses against other components of the virus, particularly the nuclear protein.

And and then of course, there is the question what contribution dismayed by T cell immunity and a little bit that goes to the question of what we're actually trying to achieve.

Finally in the background is the question of whether the immune stimulation that we are producing could in fact contribute to adverse effects. Since it is widely believed that the severe pulmonary complications of Sars koby to infection include a and over exuberant immune response that results in tissue destruction.

Roger Perlmutter: So I'd really appreciate your thoughts there. Roger. Yeah, thank you. Thank you, Umer. So first of all, with respect to the COVID vaccine data, we have to say that from our starting position, knowing very little about SARS-CoV-2 at the beginning, the results that we've seen thus far from a variety of early studies, Phase 1 studies, are as good as one could hope for, really. There was no guarantee that the spike protein of SARS-CoV-2 would prove to be as immunogenic as it is. So immune responses, broadly speaking, across the population of vaccinees are quite good. The question you ask is, is there enough neutralizing antibody? And how well will that perform clinically? And unfortunately, we can't really know that until we look at Phase 3 studies.

So those are all open questions that can only be answered by large phase three studies that extend for a considerable period of time.

No studies at least have begun now in a couple of cases more will begin soon.

And we'll have a chance to see exactly how these vaccines perform I don't think at the moment, we can handicap it except to say that it is certainly a favorable finding that the spike protein in its various different forms trip. It typically is a pre fusion form or hoped it is a pre fusion for a seems to be.

Roger Perlmutter: But I guess I would say first that, as has been discussed by others, most of the vaccines look as if they are going to be, require a boost in order to produce high-titer neutralizing activity against the spike protein. That seems clear. We don't know for sure, and maybe things will go better, which we can all hope for. With time, we'll see more of that.

Quite immunogenic and there are reasonable titers of antibodies being produced so that should give us considerable optimism I should also say I.

We are.

The the broader industry is collaborating and thinking about these problems and how to make sufficient doses available and I think the community at large should be very encouraged by the enormous numbers of vaccine doses that are being planned for.

Roger Perlmutter: The second question, of course, is the production of an immune response against the spike protein sufficient by itself? Or is it necessary to generate responses against other components of the virus, particularly the nuclear protein? And then, of course, there is the question of what contribution is made by T cell immunity. And a little bit of that goes to the question of what we're actually trying to achieve. Finally, in the background is the question of whether the immune stimulation that we are producing could, in fact, contribute to adverse effects since it is widely believed that the severe pulmonary complications of SARS-CoV-2 infection include an over-exuberant immune response that results in tissue destruction. So those are all open questions that can only be answered by large Phase III studies that extend for a considerable period of time.

For manufacturing, particularly as we get into 2021 and beyond.

If these vaccines are effective I think the industry is going to be able to produce enough material ultimately.

To provide vaccination for substantial fraction of the world's population.

Roger I think there's a second question on 44 82.

Right. So the second question is what do we see an anti viral benefit with MK 44 82.

It's important to note here that empty 44, 82 differs in mechanism quite a lot from Rem density or Red Desert view of courses and R&D dependent Arnie polymerase inhibitor it causes termination.

Where as.

Roger Perlmutter: Those studies have at least begun now in a couple of cases. More will begin soon, and we'll have a chance to see exactly how these vaccines perform. I don't think at the moment we can handicap it except to say that it is certainly a favorable finding that the spike protein, in its various different forms, typically as a prefusion form, or it's hoped it is a prefusion form, seems to be quite immunogenic, and there are reasonable titers of antibodies being produced.

Okay, 44, 82 is and.

Cytosine analog because that is incorporated and as a result causes a miss incorporation.

Of bases into the nascent our nay of those aren't A's are produced but they contain many many errors and the result is something called error catastrophe, which is.

Roger Perlmutter: So that should give us considerable optimism. I should also say the broader industry is collaborating and thinking about these problems and how to make sufficient doses available. And I think the community at large should be very encouraged by the enormous numbers of vaccine doses that are being planned for manufacturing, particularly as we get into 2021 and beyond. If these vaccines are effective, I think the industry is going to be able to produce enough material ultimately to provide vaccination for a substantial fraction of the world's population. Roger, I think there's a second question on 4482.

A very powerful means of preventing production of functional virus.

So those are two quite different mechanisms. The expectation is that there would be production of.

Hi, or is that right at least for a period of time, but that virus would not be able to replicate.

I think you know from from a variety of in vitro studies. It is possible to measure a dramatic reduction in virus production and we may see the same thing in our clinical studies. We are of course looking for it the phase two studies are underway. So it wont to take too long until we have a chance to see that we are of course as well measuring clinical outcomes.

Thank you. Thank you very much.

Thank you Sir your next question will come from the line of having friends from Goldman Sachs. Sir Your line is I'll, let go ahead.

Roger Perlmutter: Right. So the second question is, would we see an antiviral benefit with MK-4482? It's important to note here that MK-4482 differs in mechanism quite a lot from remdesivir. Remdesivir, of course, is an RNA-dependent RNA polymerase inhibitor. It causes termination, whereas... MK4482 is a cytosine analog that is incorporated and, as a result, causes misincorporation of bases into the nascent RNA. Those RNAs are produced, but they contain many, many errors, and the result is something called error catastrophe, which is a very powerful means of preventing the production of a functional virus. So those are two quite different mechanisms.

Great. Thanks, maybe two for me just one follow up on on.

The the oral anti viral for Koby two was just wondering if you can comment on when we might expect to see some of the initial phase two data and then how you're defining success on that front and then the second question I had was for Rob just wondering the outlook for capital allocation for the rest of the year, if the share repo program.

<unk> is still on hold and if that as a result, you're intending to be more active on the business development front here over the near term. Thank you.

Roger.

Right for MK 44, 82, I think that the.

You know we.

I don't really want to dribble out data on this as we.

Acquire meaningful data from the phase two program.

Roger Perlmutter: The expectation is that there would be production of virus, at least for a period of time, but that virus would not be able to replicate. I think, you know, from a variety of in vitro studies, it is possible to measure a dramatic reduction in virus production, and we may see the same thing in our clinical studies. We are, of course, looking for it. The phase two studies are underway. So it won't take too long until we have a chance to see that. And we are, of course, also measuring clinical outcomes. Thank you very much. Thank you, sir. Your next question will come from the line of Terence Flynn from Golden Sacks.

We'll we'll of course, that's you know, but I, but I should point out that we will be embarking it's probably in insist September on on very large pivotal studies and so those are going to be the important ones and here. The goal has to be that with this orally active drug that we can.

Both reduce the duration of of symptoms, but more importantly, a t. people, who are symptomatic from becoming sick enough that they require a hospitalization or its hospitalized that they.

Require intensive care unit hospitalization.

Roger Perlmutter: Sir, your line is now live. Go ahead. Great. Thanks. Maybe two for me.

The the the good news about MK 44, 82 is that it because it is an oral.

Roger Perlmutter: Just one follow-up on the oral antiviral for COVID-2. I was just wondering if you could comment on when we might expect to see some of the initial Phase 2 data and then how you're defining success on that front.

Drug given and capsules.

It can be easily administered from the time that people have symptoms.

And so that I think.

Could mean that we could have a a meaningful effect on the clinical outcomes and that of course has to be the goals therapy.

Roger Perlmutter: Just wondering the outlook for capital allocation for the rest of the year, if the share repo program is still on hold, and if, as a result, you're intending to be more active on the business development front here over the near term. Thank you. Roger.

And Rob on capital allocation.

Yes. The morning, So you know as a as you pointed out we did stop this share repurchase after the first quarter and you'll recall, we did that really out of an abundance of caution.

Roger Perlmutter: Right, for MK 4482, I think that the, you know, we don't really want to dribble out data on this as we acquire meaningful data from the phase two program. You know, we'll, we'll, of course, let you know, but I should point out that we will be embarking on this as, [inaudible] The good news about MK4482 is that, because it is an oral drug given in capsules, it can be easily administered from the time that people have symptoms. And so that, I think, could mean that we could have a meaningful effect on clinical outcomes. And that, of course, has to be the goal of therapy and Rob on capital allocation. Yes, good morning.

Because we weren't sure how the how the newer progress on I'm happy to report and as I mentioned in his prepared comments, our cash flow actually remains very strong.

And our access to capital is also very strong I think we've demonstrated that when the recent debt offering.

Record low.

Right so come up position, we're in a good position as we think about purchase for the remainder of the year, we continue to evaluate it.

Business development is very important to us so I, obviously put a priority on making sure we got the capital necessary for business development.

On the business itself in them.

Maybe for capital expansion more underway as well as all of the important programs that we've talked about so we're looking at all of that and continuing to evaluate whether or not we will restart.

Symbol domains with you.

Rob Davis: So you know, as you pointed out, we did stop this share purchase after the first quarter. And you recall, we did that really out of an abundance of caution because we weren't sure how the year would progress.

Thank you Terrence next question please Laura.

Yes. Thank you for that you have your next question comes from the line of Louise Chen from Cantor. Your line is for life going to happen.

Hi, Thanks for taking my questions. So first question I had here is in light of the pandemic and ahead of the 2020 presidential elections, how does the environment for M&A luck, how evaluations in the what is the willingness of sellers.

Rob Davis: I'm happy to report, and as I mentioned in the prepared comments, our cash flow actually remains very strong. And our access to capital is also very strong. I think we demonstrated that in a recent debt offering at record low rates.

Second question I have for you is assuming you get approval for V. One one for in the rest of your PCV portfolio.

Rob Davis: So from that position, we're in a good position. As we think about share purchases for the remainder of the year, we continue to evaluate them. Business development is very important to us, so I obviously put a priority on making sure we have the capital necessary for business development, to fund the business itself and the meaningful capital expansion we're underway as well as all of the important programs that we've talked about. So we're looking at all of that and continuing to evaluate whether or not we will restart for the remainder of the year. Thank you, Terence. Next question, please, Laura. Yes, sir, thank you for that. We have your next question coming from the line of Louise Chen from Canter. Your line is now live.

How do you see Merck feeding into the treatment paradigm for PCB is this a winner take all market and we'll things change. If these PCB 24 is actually make it to market. Thank you.

So I'll start off with the business development question, we thank for the question.

Rob said.

Development remains a really important priority for us now and going forward.

Right now I think the environment in which we are in its still a tough one in the sense that you know if you look at the first half the year the biotech IPO market.

Our path last outpaced last year.

All the challenges associated with cobot, despite all the concerns that might happen with respect to the election.

And of course established biotech has also performed very well this year. So I think the challenge for US is to find the best biased to the capability in a way that value, creating for shareholders and right now I think seller expectations are very high notwithstanding the issues around the political landscape the executive.

Unknown Attendee: Go ahead. Hi, thanks for taking my questions. So the first question I had here is, in light of the pandemic and ahead of the 2020 presidential elections, how does the environment for M&A look? What are valuations, and what is the willingness of sellers?

Order can everything else. So I think it the other day, we still have to continue to search for the best Brian commensurate with the need to create value for our shareholders. I don't think the election is a critical factor.

Unknown Attendee: And the second question I had for you is, assuming you get approval for v114 and the rest of your PCV portfolio, how do you see Merck fitting into the treatment paradigm for PCV? Is this a winner-take-all market? And will things change if these PCV24s actually make it to market? So I'll start off with the business development question, Louise. Thanks for the question. As Rob said, this business development remains a really important priority for us now and going forward. Right now, I think the environment in which we are in is still a tough one in the sense that, you know, as you look at the first half of the year, the biotech IPO market outperformed last year, despite all the challenges associated with COVID, and despite all the concerns that might happen with respect to the election.

Great and Mike Mally on the wonderful Hi, Louise.

And one for I think with what's really important here is you know for any future Ptv vaccine to first and foremost you'll continue to suppress.

Continue to generate an immune response across all the 13 shared their ties with our PCB 13 vaccine and then add on additional serotypes, what we've seen with the one of them for as we've been very successful in doing so in both they adult and pediatric segment.

As we look forward, we think there's room for multiple options within the PCB market. I think you can look at a market like wrote a virus has a good analog where despite having different profiles in different covered profiles, we have basically a shared market with both rotary and with wrote attack and so as we look forward, we think theres a big.

Unmet need still in this market, we think even one for will play a major role in that and we continue to look at alternative options in the future with both be one one as well as the 117.

Thank you Louise next question. Please LER.

Unknown Attendee: And of course, established biotech has also performed very well this year. So I think the challenge for us is to find the best scientific capability in a way that creates value for our shareholders. And right now, I think seller expectations are very high, notwithstanding the issues around the political landscape, the executive orders, and everything else. So I think, at the end of the day, we still have to continue to search for the best science commensurate with the need to create value for our shareholders. And I don't think the election is a critical factor, and Mike Malley on B.1.1.4. Hi, Louise.

Thank you next question will come from the line of David waving their from Morgan Stanley. Please go ahead Sir.

[noise], yes, thanks, very much I have two questions for Roger Please first regarding the rich back bio oral anti viral what is your view on the risk of Immunogenicity and how do you plan to demonstrate F.D.A. that it has acceptable safety.

With respect to the or the action of the drug and second Merck has very sophisticated understanding of MRT vaccines.

Could you. Please discuss why Merck chose not to pursue M&A vaccine development for Cove, It and I know you touched on that a little bit, but just a little more color on that would be helpful and.

Unknown Attendee: You know, on B.1.1.4, I think what's really important here is, you know, for any future PCV vaccine, the first and foremost, you know, continue to suppress. As we look forward, we think there's room for multiple options within the PCB market. I think you can look at a market like Rotovirus as a good analog, where despite having different profiles and different, you know, coverage profiles, you know, we have basically a shared market with both Rotarix and with RotoTek. And so, you know, as we look forward, we think there's a big unmet need still in this market.

Between the two Merck candidates.

Maybe you could just highlights for us which one.

We should be more focused on thank you.

Roger.

Well thank you David.

First of all from the.

<unk> 44 82.

As you know the the compound is aims positive that's in a way not unexpected given its mechanism of action is a sudden seen analog so so that one could expect to see those kinds of things. The question is.

Does the compound have immunogenic activity, that's meaningful and mammalian cells and what we want to do about this.

Mike Nally: We think v114 will play a major role in that, and we continue to look at alternative options in the future with both v113 and v114. Thank you, Louise. Next question, please, Laura. Thank you, sir. Your next question will come from the line of David Wisinger from Morgan Stanley. Please go ahead, sir.

Ordinarily of course, we don't want to take mutagens forward into clinical practice although.

It has been done where the benefit risk profile makes sense.

With respect to this compound we should note that the in other tests for example, the in vitro and in vivo micro nucleus test of the compound is a negative we're doing other in vivo tests for me the Genesis and mammalian systems.

Roger Perlmutter: Yes, thanks very much. I have two questions for Roger, please. First, regarding the Ridgeback Bio oral antiviral, what is your view on the risk of mutagenicity, and how do you plan to demonstrate to FDA that it has acceptable safety with respect to the action of the drug?

And we'll do the usual kinds of.

Preclinical evaluations that are conducted in such settings.

Which includes a development or reproductive toxicology studies.

Roger Perlmutter: And second, Merck has a very sophisticated understanding of the mRNA vaccine. Could you please discuss why Merck chose not to pursue mRNA vaccine development for COVID? I know you touched on that a little bit, but just a little more color on that would be helpful, and between the two Merck candidates, maybe you could just highlight for us which one we should be more focused on. Thank you. Roger.

And of course accelerated carcinogenicity studies in roads.

Those are the things that one customarily does and my expectation is that when you look at the totality of data that benefit risk profile for a short term course in treating as acute.

Pulmonary infection will be favorable and of course that has been seen before so.

It is something that we pay a lot of attention too.

Roger Perlmutter: Well, thank you, David. First of all, from MK4482, as you know, the compound is AIMS positive. That's, in a way, not unexpected, given its mechanism of action, and it is a cytosine analog. So one could expect to see those kinds of things. The question is, does the compound have mutagenic activity that's meaningful in mammalian cells, and what do we want to do about this? Ordinarily, of course, we don't want to take mutagens forward into clinical practice, although it has been done where the benefit-risk profile makes sense. With respect to this compound, we should note that in other tests, for example, the in vitro and in vivo micronuclear test, this compound is negative.

But on the other hand, I think something that we can overcome with respect to M&A vaccines, you're right, we have quite a bit of experience, which we've gained from working with colleagues at Madonna and looking at M&A vaccination and I think theres some great strengths to MRT vaccination in particular is quite fast as.

As both but they're not beyond tech now working with Pfizer had demonstrated when can move very quickly from knowing the sequence the genetic sequence of.

Have a potential targets it developing in immunogen.

On the other hand are concerned from the beginning was that this was going to be a pandemic, we felt that way long before whr declared at dependent.

We had no idea it would be as severe and as widely dispersed as it has proved to be it is a threat to the entire world.

Roger Perlmutter: We're doing other in vivo tests for mutagenesis in mammalian systems, and we'll do the usual kinds of preclinical evaluations that are conducted in such settings, which include developmental and reproductive toxicology studies and, of course, accelerated carcinogenicity studies in rodents. Those are the things that one customarily does, and my expectation is that when you look at the totality of the data, the benefit-risk profile for a short-term course in treating an acute pulmonary infection will be favorable, and, of course, that has been seen before. So it is something that we pay a lot of attention to, but on the other hand, I think it's something that we can overcome. With respect to mRNA vaccines, you're right. We have quite a bit of experience, which we've gained from working with colleagues at Moderna in looking at mRNA vaccination, and I think there are some great strengths to mRNA vaccination. In particular, it's quite fast.

And we had none of us are safe until we're all safe as everyone says I am with that in mind to the need will be to Mount effective vaccination for large a fraction of the human population.

There are several aspects of that that are important to emphasize the first of course as I've said is it. It is nice to have a single dose vaccine.

It would also be nice to have a vaccine that could be administered orally and the way that for example, not that this is directly relevant the save an oral vaccine.

Came to to replace the original polio vaccine.

And.

In addition, we should recognize that there are many different populations who are affected of course, everyone is ultimately infected, but but we have an elderly population is extremely high risk, particularly those who have underlying cardiovascular disease.

And those individuals the elderly population tend not to respond as well so under those circumstances, one wants and especially a potent imaging and that was the reason for wanting to choose a replicating viral platform. In addition to our desire to have a single dose.

Roger Perlmutter: As both Moderna and BioNTech, now working with Pfizer, have demonstrated, one can move very quickly from knowing the sequence, the genetic sequence, of a potential target to developing an immunogen. On the other hand, our concern from the beginning was that this was going to be a pandemic. We felt that way long before WHO declared it a pandemic. We had no idea it would be as severe and as widely dispersed as it has proved to be. It is a threat to the entire world, and none of us is safe until we're all safe, as everyone says.

We also have a children and adolescence and those in their third decade of life, who are currently being infected and very high numbers and we have a lot of people in.

A robust.

Early adulthood, who are ending up in intensive care unit those people have extremely potent immune responses, but that's important to get neutralization amounted quite early I believe and that population so that could be a different kind the virus maybe not the same when you would use in.

Roger Perlmutter: And with that in mind, the need will be to mount effective vaccination for a large fraction of the human population. There are several aspects of that that are important to emphasize. The first, of course, as I've said, is that it is nice to have a single-dose vaccine. It would also be nice to have a vaccine that could be administered orally in the way that, for example, not that this is directly relevant, the SAVE-N oral vaccine came to replace the original polio vaccine. In addition, we should recognize that there are many different populations who are infected. Of course, everyone is ultimately infected, but we have an elderly population at extremely high risk, particularly those who have underlying cardiovascular disease. And those individuals, the elderly population, tend not to respond as well.

The adult population as a vaccine a different kind of viral vaccine.

The answer to the question of which one of the should we pay attention to I think I'm I'm paying attention to vote.

We will get information from the measles platform earlier and of course, the measles platform. The measles vaccine has been used successfully in billions of people. So we have a lot of confidence and the way that will behave we just need to see immunogenicity data and I would say preclinically it looks terrific.

Roger Perlmutter: So under those circumstances, one wants an especially potent immunogen, and that was a reason for wanting to choose a replicating viral platform in addition to our desire to have a single dose. We also have children and adolescents and those in their third decade of life who are currently being infected in very high numbers, and we have a lot of people in robust early adulthood who are ending up in the intensive care unit. Those people have extremely potent immune responses, but it's important to get neutralization antibody levels quite early, I believe, in that population.

And and then of course, we have a lot of confidence in the BSP platform, which we've investigated extensively through the course of our registration program for a boulevards taxing so I'd watch them, both and I think that they're there potentially quite important.

Thank you David next question, please let our and we're going to extend that path nine to try to get as many questions and its possible. Thank you.

Thank you say your next question will come from the line of Seamus Fernandez from Guggenheim. Your line is I like the filler.

Oh, thanks very much so.

Roger I I Didnt want to follow up on yet yes.

Roger Perlmutter: So that could be a different kind of virus, maybe not the same one you would use in the adult population as a vaccine, a different kind of viral vaccine. And the answer to the question of which one of these should we pay attention to? I think I'm paying attention to both. We will get information from the measles platform earlier, and of course, the measles platform, the measles vaccine has been used successfully by billions of people. So we have a lot of confidence in the way it will behave. We just need to see immunogenicity data, and preclinically, it looks terrific. And then, of course, we have a lot of confidence in the VSV platform, which we've investigated extensively through the course of our registration program for the Ebola virus vaccine. So I'd watch them both, and I think that they're potentially quite important.

When you don't want or or.

Mark.

New number 44 82.

But more so as a potential treatment for.

Other respiratory retroviruses.

Can you just maybe.

To help us understand if you believe that there is a potential treatment in those setting and if there are broader potential.

For this particular mechanism and then second.

Didn't want to actually about your HIV program 80 591.

I believe mark with hoping to have another agent.

Hum married to 80 591 to optimize the treatment opportunity.

What do you mind, maybe updating us on that in the context of identifying a longer acting treatment regimen.

Roger Perlmutter: Thank you, David. Next question, please, Lara. And we're going to extend the time a bit past nine to try to get as many questions in as possible. Thank you, absolutely. Thank you, sir. Your next question will come from the line of Seamus Fernandez from Guggenheim. Your line is now live.

And then.

Separately.

On the robustness of the data offer some other agents in the prep regimen, maybe you could just update us on your thoughts around 80 591 as a potential best in class treatment choice for Frank Thanks.

Second Seamus Roger.

Yeah Seamus thanks for the questions for 44, 82, you're right you're completely right.

Roger Perlmutter: Please go ahead. Thanks very much. So, Roger, I did want to just follow up on EIDD 2801 or the Merck new number 4482, but more so as a potential treatment for other respiratory retroviruses. Can you maybe help us understand if you believe that this is a potential treatment in those settings and if there is broader potential for this particular mechanism? And then second, I did want to ask about your HIV program, 8591. I believe Merck was hoping to have another agent to marry to 8591 to optimize the treatment opportunity.

Because of its mechanism of action that is that it is it resembles a.

Nucleoside basis in fact, just a derivatized version of a cytosine.

It can be incorporated into.

Any nascent aren't a strain that is made by.

And appropriate virus. It just a function of of how well the viral polymerase is willing to accept a modified base and.

Just as one expect set a virus is is is built for speed typically viruses there aren't a slim races for R&D viruses are more accommodating of different structures than our our mammalian DNA dependent aren't a prelim raises.

Roger Perlmutter: Would you mind maybe updating us on that in the context of identifying a longer-acting treatment regimen? And then separately, just on the robustness of the data for some other agents in the PrEP regimen, maybe you could just update us on your thoughts around 8591 as a potential best-in-class treatment choice for PrEP? Thanks. Thank you, Seamus. Roger.

Involved in making messenger our name for example.

And so it has good selectivity and good properties in that regard and should work very well for a whole variety of R&D viruses in vitro it does exactly that.

So a whole set of R&D viruses.

Could potentially be treated including a broadly speaking corona viruses that we haven't yet made the acquaintances program.

Roger Perlmutter: Yeah, Seamus, thanks for the questions. For 4482, you're right. You're completely right, uh... because of its mechanism of action, which is that it resembles a uh... nucleoside base is just a derivatized version of a cytosine, it can be incorporated into any nascent RNA strain that is made by an appropriate virus. It's just a function of how well the viral polymerase is willing to accept a modified base. And just as one expects, a virus is built for speed. Typically, their RNA polymerases for RNA viruses are more accommodating of different structures than our mammalian DNA-dependent RNA polymerases involved in making messenger RNA, for example.

I really want to make it swings of these but but our expectation is that this this is not our last pandemic and probably not the last pandemic caused by Corona virus. So 44, 82 has claude activity and as potentially useful in a variety of different settings, let's first to see how it does with respect to Sars koby to.

Regarding his latrobe here.

We have.

Of course, we remain enormously enthusiastic about Islam severe phase three studies are ongoing for the first set of combinations for as larger via for treatment of HIV infected individuals and we've also as you say been looking for of compounds to partner.

Roger Perlmutter: And so it has good selectivity and good properties in that regard and should work very well for a whole variety of RNA viruses. In vitro, it does exactly that. So a whole set of RNA viruses could potentially be treated, including, broadly speaking, coronaviruses that we haven't yet made the acquaintance of. We don't really want to make the acquaintance of these, but our expectation is that this is not our last pandemic and probably not the last pandemic caused by coronaviruses. So 4482 has broad activity and is potentially useful in a variety of different settings.

With is Latrobe VR and we have such compound side one of them moving forward right now is 85 or seven.

And we also have a group of others. So we were we believe that we're in a good place with respect to those.

But we're moving forward in a variety of different directions.

Then with respect to pre exposure prophylactic as of yet because the the long durability of his laughter via the potential for a once monthly oral in particular in particular, which could be used anywhere in the world I think is extremely attractive but beyond that as we've shown.

Roger Perlmutter: Let's first see how it does with respect to SARS-CoV-2. Regarding izlotrivir, we have... We're, of course, enormously enthusiastic about Islotrevir. Phase three studies are ongoing for the first set of combinations of Islotrevir for treatment of HIV-infected individuals. And we've also, as you say, been looking for compounds to partner with Islotrevir. And we have such compounds.

His lots of your can be formulated in implantable.

Form of which is a polymer that.

His position that need to scan and can be active for potentially a year.

And that provides you know just about as close.

To perfect Chemo truffle access as one can get it's nearly vaccine like.

So what we're pursuing that as well and we're optimistic about the ability of the softer here to make a big change in terms of the prevalence of HIV mediated disease and the incidence of HIV infection.

Roger Perlmutter: One of them moving forward right now is 8507, and we also have a group of others, so we believe that we're in a good place with respect to those. But you know, we're moving forward in a variety of different directions. And then with respect to pre-exposure prophylaxis. Yeah, I mean, the long durability of Islotrevir, the potential for a once monthly oral, in particular, which could be used anywhere in the world, I think is extremely attractive. But beyond that, as we've shown, Islotrevir can be formulated in an implantable form, which is a polymer that is positioned underneath the skin and can be active for potentially a year.

Thanks Seamus next question please Laura.

Great. Thank you Sir your next question will come from the line of at the next wave off from SVB, allowing can go go ahead. Please your line is now live.

Thank you very much for the questions to for me I Wonder why you're still confident on goes to your Covance vaccine candidates that they could be a single dose a when let's say that chimp, adding a viral vector, which I think we also thought to be a single dose looks much better wells two doses.

Roger Perlmutter: And that provides, you know, just about as close to, Thank you, Seamus. Next question, please, Lara. Absolutely, thank you, sir. Your next question will come from the line of Daina Graybosch from SBB Leering. Ma'am, go ahead, please; your line is now live.

In the early clinical data and the second question about following up on one from earlier as a you're looking to choose between the two vaccine programs. After you get clinical data or do you expect to bring both of them all the way through two registration may be finding different places for them in the market. Thanks.

Roger.

Roger Perlmutter: Thank you very much for the questions, too, from me. I wonder why you're so confident in both your COVID vaccine candidates that they could be a single dose when, let's say, the chimpanzee adenoviral vector, which I think we also thought could be a single dose, looks much better with two doses in the early clinical data. And a second question, a bit following up on one from earlier, is: are you looking to choose between the two vaccine programs after you get clinical data, or do you expect to bring both of them all the way through? Through registration, maybe finding different places for them in the market?

Yeah. Thanks for thanks for those questions.

So.

We have a lot of confidence in the single dose activity of of both vaccines. Because these are replicating vaccines. So they replicate in you, they're very potent immunogens and they have single dose or activity single administration activity and other settings.

So.

Of course with beside 90, that's the secular stomatitis fires vaccine.

That that has been demonstrated for Ebola virus disease very effectively a single dose you know provides in the field in in this in the setting of of.

Roger Perlmutter: Thank you. Yeah, thanks for thanking me for those questions. So we have a lot of confidence in the single dose activity of both vaccines because these are replicating vaccines. So they replicate in you.

Civil strife.

Of the large magnitude.

Greater than 97.5% efficacy in a single dose no I can't tell you that thats exactly that it will behave.

Roger Perlmutter: They're very potent immunogens, and they have single dose activity, single administration activity in other settings. So, of course, with the V590, that's the vesicular stomatitis virus vaccine that has been demonstrated to be effective against Ebola virus disease very effectively, a single dose, you know, provides in the field, in the setting of civil strife of a large magnitude, greater than 97. Now, I can't tell you that that's exactly how it will behave when we put a different different from simply expressing the protein wherever one expresses it.

When we put a different.

Gene in this case Sars koby to spike protein encoding nucleic acids into the construct but you know the interesting thing about that BSP platform is that.

This is actually a eight a.

Hey, vaccine in which the the spike protein becomes part of the vaccine that the replication of the virus is completely dependent upon the spike protein. It becomes the envelope protein that the vaccine, which is different from simply expressing the protein wherever when expressed as a.

So that has big effects and pre clinically that magnitude. The response Vodafone single administration is very impressive.

Roger Perlmutter: So that has big effects. And preclinically, the magnitude of the response following single administration is very impressive. Similarly, the measles platform has been shown in a variety of different settings, most recently with respect to the chicken Kenya administration, to be a very potent immunogen. So we have a lot of confidence in that. And with respect to Y2, as I've said, there's reason to believe that multiple different vaccines will be required in order to manage this extraordinary global pandemic. In particular, when one thinks about the heterogeneity of the population that we want to vaccinate, those with extremely robust immune responses, for example, teenagers or those in their 20s, those in the elderly population at greatest risk but who have poor immune responses, just to give a couple of examples.

Similarly, the measles platform has been shown in a variety of different settings. Most recently with respect to the chicken Tanya administration to be a very potent and so we have a lot of confidence in that and with respect to why too.

As I've said, there's reason to believe that multiple different tax vaccines will be required in order to manage this extraordinary global pandemic in particular, when one thinks about the heterogeneity as the population that we want to vaccinate.

Those with extremely robust immune responses for example.

Teenagers or those in their twentys those in the elderly population the greatest risk, but we'll have four immune responses just to give a couple of examples. There. There is also reason in terms of of just the ability to deliver the vaccine to different parts of the globe and to administer it successfully as part of a huge global that.

Roger Perlmutter: There is also a reason in terms of just the ability to deliver the vaccine to different parts of the globe and to administer it successfully as part of a huge global vaccination program. So our intention at the moment is not to choose but instead to examine the special properties of each of these very good platforms. And then to see which one needs to be taken forward first and in which population, and which perhaps second, although both could be advanced simultaneously.

It's a nation program. So our intention at the moment is not to choose but to instead examine the the special properties of each of these very good platforms.

And then to see which one needs to be taken forward first and in which population, which perhaps second although both could be advance simultaneously.

Thank you Dana.

Oh, we're going to take one more question and apologies to those of you that we didnt get to today.

Thank you Sir your next question will come from the line of Chris Schott, Some taking Mike in your line is unlikely to happen.

Roger Perlmutter: Thank you, Daina. We're going to take one more question, and my apologies to those of you that we didn't get to today. Thank you, sir. Your next question will come from the line of Chris Schott from J.P. Morgan. Your line is now live, sir. Go ahead, please.

Great. Thanks, so much for the questions just a couple ones here first on Keytruda are you seeing fairly normalized for new patient starts in major markets. At this point or is there still some disruptions there and maybe as part of that answer just give us a quick update in terms of where kind of market share in penetration stands in front line long and then my second question was on.

Frank Clyburn: Great. Thanks so much for the questions. There are just a couple here.

On the vaccine business and wellness visits.

Frank Clyburn: First on Keytruda, are you seeing fairly normalized new patient starts in major markets at this point, or are there still some disruptions there? And maybe as part of that answer, just give us a quick update in terms of where the market share and penetration stands in frontline long. And then my second question was about the vaccine business and wellness visits. Are we also kind of at normalized levels as we move through July at this point? And are you anticipating any catch-up as we go later in the year for some of the missed vaccinations from 2Q? Thanks. Frank.

Are we also kind of normalized levels as we move through July at this point and are you anticipating any catch up as we go later in the year for some of them to stock stations from Tokyo. Thanks, So much.

Frac.

Chris Good morning for Keytruda, we are I'm very encouraged especially over the last month.

We are seeing new patient starts to get back to where they were almost pretty coated if you look at what happened in the quarter, Chris April and May new patient starts were down somewhere in the range about 5% to 10% depending on the cancer type, but that has improved and we're seeing a pretty much around the world where oncology.

Frank Clyburn: Yeah, Chris. Good morning. For Katrina, we are very encouraged, especially over the last month. We are seeing new patients start to get back to where they were almost pre-COVID. If you look at what happened in the quarter, Chris, April and May, new patient starts were down somewhere in the range of about 5 to 10 percent, depending on the cancer type, but that has improved. And we're seeing that pretty much around the world, where oncologists are now figuring out ways to be able to get patients into their practices. You know, that's going to vary by geography.

Certain now figuring out ways to.

Be able to get patients into into their practices.

That's going to vary.

By geography, there will be some ups and downs around that but all in all oncology has been very resilient and probably most importantly, what we're encouraged about is the continued strong momentum not only in non small cell lung cancer. We still are seeing in the U.S., Chris about 80% of the eligible patients receiving contributor.

Frank Clyburn: There will be some ups and downs around that, but all in all, oncology has been very resilient. And probably most importantly, what we're encouraged about is the continued strong momentum, not only in non-small cell lung cancer. But still, we're seeing in the U.S., Chris, about 80% of the eligible patients receiving Keytruda.

But we're also very excited about all the other indications that Roger mentioned, we're seeing really good growth in head and neck bladder edge of in melanoma in some of the other newer indication. So all in all we feel very confident in contributed not only in the near term, but as Weve continued to stay long term.

North of vaccines.

Frank Clyburn: But we're also very excited about all the other indications that Roger mentioned, and we're seeing really good growth in head, neck, bladder, adjuvant melanoma, and some of the other newer indications. So all in all, we feel very confident in Keytruda, not only in the near term, but, as we've continued to state, long term. With regard to vaccines, you heard Rob's comments up front that April and May, wellness visits were down very significantly, in particular in the U.S. market, approximately 70% in the month of April. They started to improve as you got to June, and we really saw some encouraging pickup with wellness visits for our pediatric portfolio and for the pediatric patient population. Adolescents are lagging a little bit behind, which is why we mentioned we're keeping an eye on Gardasil, but we are seeing encouraging signs there with wellness visits picking up as well, which gives us confidence, not only in the near term for Gardasil, but, as we mentioned, the strong demand that we continue to believe will come through for Gardasil, not only in the U.S. but clearly outside the U.S.

I heard from Rob's comments up front is that April and May wellness visits were down very significantly in particular in the U.S. market approximately 70% in the month of April they started to improve as you got to June and we really saw some encouraging pickup as long as visits for pediatric portfolio in for the PD.

Patrick patient population.

Adolescence are lagging a little bit behind which is why we mentioned, we're keeping an eye on gardasil, but we are seeing encouraging signs there with wellness business picking up as well, which gives us confidence not only near term for regardless, so but as we mentioned the strong demand that we continue to believe.

We will come through for Gardasil, not only in the U.S., but clearly outside the U.S. in markets such as China. So very confident in that outlook is well Chris.

Great. Thank you, Chris I'll turn to can you comment thanks, Peter as you've heard today, we remain confident in our strategy our execution in our prospects are strong long term growth. We remain committed also to bringing Merck commissioner life by advocating for innovative approaches and partnerships that will be essential to bring it into the trend Dennis while also invest.

Running behind our promising pipeline I want to thank you all for joining us today and I hope that you and your family stay safe and healthy.

Thank you say thank you so much but then I attended then thank you everyone for participating. This concludes today's conference you may now disconnect. Thank they have a level.

Frank Clyburn: So very confident in that outlook as well, Chris. Great, thank you, Chris. I'll turn to Ken's comments.

Unknown Attendee: Thanks, Peter. As you've heard today, we remain confident in our strategy, our execution, and our prospects for strong long-term growth. We remain committed also to bringing Merck's mission to life by advocating for innovative approaches and partnerships that will be essential to bring an end to this pandemic, while also investing behind our promising pipeline.

[music].

Operator: I want to thank you all for joining us today, and I hope that you and your family stay safe and healthy. Thank you, sir. Thank you so much, presenters. And again, thank you, everyone, for participating. This concludes today's conference. You may now disconnect. Stay safe and have a lovely day.