Q1 2021 Merck & Co Inc Earnings Call

Good morning, My name is Laura and I will be conference operator today.

Lara: Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome everyone to the Merck & Co. Q1 Sales & Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

At this time I would like to welcome everyone to Merck and tell our Q1 sales and earnings conference call.

All lines have been placed on mute to prevent any background noise I think the speaker's remarks, there will be a question and answer session.

Lara: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Peter Dannenbaum, Vice President, Investor Relations. Sir, please go ahead.

I'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.

Thank you for your question press the pound key.

I would now like to turn the call over to Peter Gannon Baum, Vice President Investor Relations. Sir. Please go ahead.

Thank you Laura and good morning, welcome to Merck's first quarter 2021 conference call today, I'm joined by Ken Frazier, Our Chairman and Chief Executive Officer, Rob Davis, Our President Dr. Lee President of Merck Research Labs, Frank Library, President and human Health and Caroline Litchfield Chief Financial Officer.

Peter Dannenbaum: Thank you, Lara, and good morning. Welcome to Merck's first quarter 2021 conference call. Today I'm joined by Ken Frazier, our Chairman and Chief Executive Officer, Rob Davis, our President, Dr. Dean Lee, President of Merck Research Labs, Frank Flavern, President of Human Health, and Caroline Litchfield, Chief Financial 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 certain other items.

Before we get started I'd like to point out a few items you will see that we have items in our GAAP results such as acquisition related charges restructuring costs and certain other items you should note that we have excluded these from our non-GAAP results and provided a reconciliation in our press release.

Peter Dannenbaum: Note that we have excluded these from our non-GAAP results and provided a reconciliation in our press release. I would 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 Securities Litigation Reform Act of 1995.

I would also like to remind you that some of the statements. We make during today's call maybe considered forward looking statements within the meaning of the safe Harbor provision of the U S. Private Securities Litigation Reform Act of 1995, such statements are made based on the current releases Merck management and are subject to significant risks and uncertainties, if our underlying assumptions prove inaccurate or uncertainties materialize actual results may differ.

Peter Dannenbaum: Such statements are made based on the current police management and are subject to significant risks and uncertainties. If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements. Our SEC filings, including Item 1A in the 2020 10-K, identified 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.

Materially from those set forth in the forward looking statements, our SEC filings, including item <unk> in the 2020 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 are SEC filings today's.

Peter Dannenbaum: 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. Thank you, Peter.

The earnings release, and an investor presentation with highlights of our results are all posted on Merck Dot com.

I'd like to turn the call over to Ken.

Thank you Peter.

Unknown Attendee: Good morning, and thank you for joining today's call. 2021 marks Merck's 130th year, which provides an opportunity to reflect on our company's heritage of bringing forward transformative innovations that have changed medical paradigms across many therapeutic areas. Today, we are well-positioned to achieve sustained future success, given our highly talented employees, our scientific expertise, and our long-term goals. Our Promise and Pipeline and Our Financial and Operational Strength. We are also taking the right steps to evolve Merck's operating model to best position the company for the future as the industry landscape continues to evolve. The upcoming spin-off of Organon will further enhance our focus on innovation and on our key growth drivers, and this will enable the necessary investment in cutting-edge science.

Morning, and thank you for joining today's call.

2021 March Merck is 130 year, which provides an opportunity to reflect on our company's heritage, bringing forward transformative innovation change medical paradigm across many therapy areas.

Today, we are well positioned to achieve sustained future success, given our highly talented employees, our scientific expertise a promising pipeline.

Natural and operational strength.

We also are taking the right steps to evolve Merck's operating model to best position the company for the future as the industry landscape continues to evolve.

The upcoming spin off of ordering will further enhance our focus on innovation and all of our key growth drivers and this will enable the necessary investments in cutting edge science.

Merck leadership progression has been thoughtfully planned and seamless succession is well underway.

Unknown Attendee: Merck's leadership progressions have been thoughtfully planned, and seamless succession is well underway. Each of our newly appointed leaders has a proven track record of success and embodies the mission. I am confident that this team, led by Rob, is more than ready to take the helm and lead this company into. Reflecting on the results this quarter, while the pandemic continued to impact both patient access and Healthcare Provider Capacity to Treat, we delivered solid performance, especially considering the high proportion of physician-administered products in our portfolio. Particularly on that,

Each of our newly appointed leaders has a proven track record of success and embodies the mission of the company.

I am confident that this team led by Rob is more than revenue to take the helm and lead this company into the future.

Reflecting on the results this quarter, while the pandemic continue to impact both patient access and health care provider capacity to treat we delivered solid performance.

Actually considered that considering the high proportion of physician administered products in our portfolio.

Particularly on that day.

And speaking of a pandemic Merck remains committed to the development of model peer view as an important potential treatment for COVID-19.

Unknown Attendee: And speaking of the pandemic, Merck remains committed to the development of monopiravir as an important potential treatment for COVID-19, and we are proud to partner with Johnson & Johnson on the production of their vaccine. This will be my final earnings call as CEO before I retire from the role on June 30. I want you to know that I appreciate the helpful and constructive input you all have given me over the years, and I look forward to serving as Executive Chairman of the Board of Directors and acting in an advisory role, and importantly, to watching Merck achieve even greater success. And with that, I'll turn the call over to Rob Davis.

We're proud to partner with Johnson <unk> Johnson on production.

I see.

This will be my final earnings call as CEO before I retire from the roll on June 30.

I want you to know that I appreciate the helpful and constructive input you all has given me over the years and I look forward to serving as executive chairman of the board of directors.

Assuming an advisory role.

Our free to Washington, Merck achieve even greater success and with that I'll turn the call over to Rob.

Thanks, Ken and good morning, everyone.

Rob Davis: Thanks, Ken, and good morning, everyone. This is Ken's 42nd and final CEO, and on behalf of all of us here at Merck, we thank him for his profound contributions to this company, to the scientific community, and to our customers and patients around the world. We wish him much success and happiness as he embarks on life after his distinguished career as the CEO of Merck, and we look forward to his continuing counsel as he serves as our Executive Chairman.

This is <unk>, 42nd and final earnings call as CEO and on behalf of all of US here at Merck. We thank him for his profound contributions to this company to the scientific community and to our customers and patients around the world.

We wish him much success and happiness as he embarks on life. After his distinguished career as the CEO of Merck and we look forward to his continuing council.

He serves as our executive chairman.

As I transition to the CEO role one of my immediate priorities is to ensure that our experienced and empowered leadership team continues building on the strong foundation and positive momentum we have across the company.

Rob Davis: As I transition to the CEO role, one of my immediate priorities is to ensure that our experienced and empowered leadership team continues building on the strong foundation and positive momentum we have across the company. To that end, I'm very pleased to welcome Caroline Litchfield to the Executive Committee as our new Chief Financial Officer.

To that end I'm very pleased to welcome Caroline which fuel to the Executive Committee as our new Chief Financial Officer.

Caroline and most recently served as treasurer and prior to this was head of finance for our human health business.

Rob Davis: Caroline most recently served as Merck's treasurer and prior to that, she was head of finance for our human health business. She has had a distinguished 30-year career at Merck, serving in finance roles across different regions and businesses, and is exceptionally well-positioned to lead our finance organization and provide strategic insight as a member of our senior leadership team. I'm also very pleased by the expansion of Frank's role to President of our Human Health Division, including both our commercial and marketing operations.

She has had a distinguished 30 year career at Merck, serving in finance roles across different regions and businesses and is exceptionally well positioned to lead our finance organization and provide strategic insight.

Member of our senior leadership team.

I'm also very pleased by the expansion of Frank's role to the president of our human health business.

Including both our commercial and marketing operations.

<unk> insight and leadership have been critical drivers of Merck success over the past decade, particularly as we build out our oncology business.

Rob Davis: Frank's insight and leadership have been critical drivers of Merck's success over the past decade, particularly as we've built out our oncology business and achieved extraordinary commercial success. In addition, I've been working closely with Dean to ensure that the connection between the commercial and research operations remains strong.

<unk> extraordinary commercial success.

In addition, I have been working closely with deep to ensure that the connection between the commercial and research operations remained strong R&D is the lifeblood of Merck and Dean and his team are fully committed to driving scientific innovation, and then efficiently allocating resources to our most promising pipeline opportunities.

Rob Davis: R&D is the lifeblood of Merck, and Dean and his team are fully committed to driving scientific innovation and efficiently allocating resources to our most promising pipeline opportunities, while our portfolio continues to be affected by the pandemic. We are confident that underlying demand for our products remains strong, and we are optimistic that a more normal environment is beginning to emerge. We've executed important business development transactions this quarter, and we've made meaningful advancements in our pipeline. Frank, Caroline, and Dean will speak to that in a moment.

While our portfolio continues to feel the impacts of the pandemic. We are confident that underlying demand for our products remains strong and we are optimistic that a more normal environment is beginning to emerge.

We've executed important business development transactions this quarter and we've made meaningful advancements in our pipeline.

Caroline and Dean will speak to this in a moment.

But I'll first give you an update on where I've been focusing during this transition period.

I've been spending a lot of time with the leadership team and many others across the company to ensure we have open lines of communication and a clear path towards continued success I'm.

Rob Davis: But I'll first give you an update on where I've been focusing during this transition period. I've been spending a lot of time with the leadership team and many others across the company to ensure we have open lines of communication and a clear path toward continued success. I'm using my time as president to listen to employees throughout the organization to help me flesh out further my own perspectives on our Go Forward strategy and to begin to shape our priorities for delivery.

I'm using my time as president to listen to employees throughout the organization to help me flush out further my own perspectives on our go forward strategy and to begin to shape our priorities to deliberate.

In the meantime, and focused on ensuring that we continue to execute on the significant commercial and development opportunities we have in the short term.

To realize our meaningful growth potential while also taking the necessary steps to transform our operating model to best prepare us for the evolving health care landscape over the long term.

To that end, we will continue to focus on delivering our late stage pipeline and advancing programs out of a robust and growing early stage pipeline.

Rob Davis: In the meantime, I'm focused on ensuring that we continue to execute on the significant commercial and development opportunities we have in the short term to realize our meaningful growth potential. We're also taking the necessary steps to transform our operating model to best prepare us for the evolving healthcare landscape over the long term. To that end, we will continue to focus on delivering our late-stage pipeline and advancing programs out of our robust and growing early-stage pipeline.

And we will continue to augment our efforts through internal business through business development focused on meaningful asset additions.

The acquisitions of <unk> and its potentially foundational immunology asset in the HIV collaboration with Gilead Sciences are great. Examples of transactions completed this quarter.

Each have significant value creation potential.

Finally, we will continue to take the necessary steps to help shape Merck into a leaner more focused and agile company.

The upcoming spin off of organ on.

We look forward to hosting an investor day on Monday during which the full Oregon on leadership team will highlight its strategy and opportunities for growth.

Rob Davis: And we will continue to augment our efforts through internal business through business development focused on meaningful asset addition. The acquisitions of Pandion and its potentially foundational immunology asset and the HIV collaboration with Gilead Sciences are great examples of transactions completed this quarter that each have significant value creation potential. Finally, we will continue to take the necessary steps to help shape Merck into a leaner, more focused, and agile company, such as the upcoming spinoff of Organon.

We expect to complete the spin off on June 2nd with trading in the new stock commencing on June 3rd.

In closing, we remain confident that our business is well positioned for strong long term growth.

Our mission, we'll continue to be the fuel that drives our company forward and gives us purpose name.

Namely we will continue to be focused on scientific innovation aimed at addressing significant unmet medical needs and improve the lives of the patients we serve.

We believe that by keeping patients at the center of everything we do we create the most value for all of our stakeholders, including our shareholders with that I will turn the call to Frank.

Thanks, Rob good morning.

I am excited to expand my role as president of human health and to build on the commercial success, we are driving.

Rob Davis: We look forward to hosting an Investor Day on Monday, during which the full Organized on Leadership team will highlight its strategy and opportunities for growth. We expect to complete the spinoff on June 2nd, with trading in the new stock commencing on June 3rd.

We are very confident in the underlying demand for our key products and we continue to anticipate strong growth for our business for the full year.

That said the underlying strength in our human health business was impacted this quarter due to the increase in cases and additional lockdowns across the globe.

These headwinds were in part the continuation of reduced patient access to physician offices and lower than normal wellness visits and were more pronounced early in the quarter given the wave of infections that occur.

Rob Davis: In closing, we remain confident that our business is well positioned for strong long-term growth. Our mission will continue to be the fuel that drives our company forward and gives us purpose. Namely, we will continue to be focused on scientific innovation aimed at addressing significant unmet medical needs that improve the lives of the patients we serve. I firmly believe that by keeping patient care at the center of everything we do, we create the most value for all of our stakeholders, including our shareholders. With that, I'll turn the call to Frank. Thanks, Rob.

The rollout of the COVID-19 vaccines and recommendations against co administration have also impacted parts of our vaccines business.

As a reminder, roughly 70% of our pharmaceutical revenue is comprised of physician administered products.

It is important to keep in mind as well that our year over year growth was impacted by the particularly strong first quarter. We had in 2020, along with quarter to quarter variability in sales of Gardasil.

As a result of these factors our sales were roughly flat compared to last year were negative 3%, excluding the positive impact of foreign exchange.

Chris Schott: Good morning. I am excited to expand my role as President of Human Health and to build on the commercial success we are driving. We are very confident in the underlying demand for our key products, and we continue to anticipate strong growth for our business for the full year. That said, the underlying strength of our human health business was impacted this quarter due to the increase in cases and additional lockdowns across the globe. These headwinds were, in part, a continuation of reduced patient access to physician offices and lower than normal wellness visits and were more pronounced early in the quarter given the wave of infections that occurred.

I'll walk you through some of our expectations for future trends in just a moment, but first I'll turn to the first quarter performance of our key brands My comments will be on an ex exchange basis.

In oncology Keytruda sales grew 16% to $3 $9 billion, reflecting continued strong demand in.

In the United States contributed continues to maintain its leadership position in lung cancer, including capturing eight out of 10 eligible new patients and is benefiting from strong usage across all key tumor types, including renal cell carcinoma, bladder adjuvant melanoma or MSI high.

<unk> triple negative breast cancer as well as the Q six week dosing regimen.

Chris Schott: The rollout of the COVID-19 vaccines and recommendations against co-administration have also impacted parts of our vaccine business. As a reminder, roughly 70% of our pharmaceutical revenue is comprised of physician-administered products. It is important to keep in mind as well that our year-over-year growth was impacted by the particularly strong first quarter we had in 2020, along with quarterly-to-quarter variability in sales of Gardasil. As a result of these factors, our sales were roughly flat compared to last year, or negative 3% excluding the positive impact of foreign exchange. I'll walk you through some of our expectations for future trends in just a moment, but first, I'll turn to the first quarter performance of our key brands. My comments will be made on an ex-exchange basis.

Outside the United States growth continues to be driven by lung cancer indications and our ongoing launches in head and neck cancer and renal cell carcinoma.

<unk> grew 51% in the quarter benefiting from ongoing launches and broader reimbursement that continued to solidify its position as the leading PARP inhibitor.

<unk> was essentially flat, reflecting competitive entrants and <unk> cellular carcinoma, and a onetime accrual related to the recent <unk> listing for her pet a cellular carcinoma in China.

Our vaccines portfolio was impacted by lower than normal wellness visits, particularly in the United States, along with headwinds related to the rollout of COVID-19 vaccines in adults.

Gardasil sales were negatively impacted by the timing of shipments to China last year, and the timing of the U S public sector purchases in both periods as well as pandemic impacts in the United States and in Europe.

Chris Schott: In oncology, Katrina sales grew 16% to $3.9 billion, reflecting continued strong demand. In the United States, Keytruda continues to maintain its leadership position in lung cancer, including capturing 8 out of 10 eligible new patients, and is benefiting from strong usage across all key tumor types, including renal cell carcinoma, bladder, adjuvant melanoma, or MSI high indication triple negative breast cancer, as well as the Q6 weak Outside the United States, growth continues to be driven by lung cancer indications and our ongoing launches in head and neck cancer and renal cell carcinoma.

Pneumovax sales declined due to a challenging year over year comparison, given the strong demand for pneumococcal vaccination at the start of the pandemic last year and the impact of CDC COVID-19 vaccine co admission administration guidelines, partially offset by higher ex U S sales.

Our hospital business continued its recovery from pandemic impacts.

<unk> sales grew 11% year over year, driven by broader usage, along with updated operating room protocols that allow for more normal levels of elective procedures.

We remain confident in the underlying demand for our innovative portfolio given the meaningful values of our products to patients with a strong rollout of the COVID-19 vaccines, we expect that patients will be more comfortable to seek care in a timely manner.

Chris Schott: Limparza grew 51% in the quarter, benefiting from ongoing launches and broader reimbursement that continue to solidify its position as the leading PARP inhibitor. Limvimal is essentially flat, reflecting competitive entrance into hepatocellular carcinoma and a one-time accrual related to the recent NRDL listing for hepatocellular carcinoma in China.

In fact, we are encouraged by the recovery trends, we saw as we exited the first quarter with March wellness visits in the United States tracking above prepayment emmick levels.

In oncology since the start of the pandemic there hasn't been an unfortunate reduction in the level of cancer screenings, which has resulted in fewer patient diagnosis and reduced new patient starts for many oncology agents, particularly in areas like lung cancer.

Chris Schott: Our vaccine portfolio was impacted by lower than normal wellness visits, particularly in the United States, along with headwinds related to the rollout of COVID vaccines in adults. Gardasil sales were negatively impacted by the timing of shipments to China last year and the timing of U.S. public sector purchases in both periods, as well as the impact of the H1N1/09 flu pandemic in the United States and in Europe. Pneumovax sales declined due to a challenging year-over-year comparison given the strong demand for pneumococcal vaccination at the start of the pandemic last year and the impact of CDC COVID vaccine co-administration guidelines.

With the rollout of the COVID-19 vaccines, especially among the elderly where cancer cancer incidence is highest along with increased awareness campaigns, we believe screenings and diagnosis will soon return to normal levels.

We expect continued strong growth of Keytruda given its leadership position across many current indications. In addition, we're excited by the recent launch in esophageal cancer and by potential additional indications in renal cell carcinoma, including in combination with lymphedema and its mom.

<unk> therapy in the adjuvant setting in.

In vaccines, the recent improvement in wellness visits as encouraging as our awareness campaigns to help raise the potential for catch up vaccinations across the portfolio as patient access improves.

Chris Schott: Although partially offset by higher XUS sales, our hospital business continued its recovery from the pandemic impact. Brion sales grew 11% year-over-year, driven by broader usage along with updated operating room protocols that allowed for more normal levels of elective procedures.

We expect COVID-19 vaccines to be available in the adolescent population in the future and we will monitor the impact on gardasil, especially in the back to school season.

Chris Schott: We remain confident in the underlying demand for our innovative portfolio, given the meaningful values of our products to patients. With the strong rollout of the COVID vaccines, we expect that patients will be more comfortable seeking care in a timely manner. In fact, we are encouraged by the recovery trends we saw as we exited the first quarter, with March wellness visits in the United States tracking above pre-pandemic levels. In oncology, since the start of the pandemic, there has been an unfortunate reduction in the level of cancer screenings, which has resulted in fewer patient diagnoses and reduced new patient starts for many oncology agents, particularly in areas like lung cancer.

That said in the United States in order to enable a safe return to in person learning in the fall there is heavy attention being put on accelerating adolescence physician visits to catch up on missed routine vaccinations and to schedule new vaccinations around the COVID-19 vaccine rollout to this cohort.

We will also monitor many ex U S markets, where the rate of COVID-19 vaccination has been slower than in the United States and where they have been renewed lockdowns that are expected to impact physician well visits and school based vaccination programs.

Overall, however, we believe there is strong global demand for Gardasil, particularly in ex U S markets like China.

We are seeing improvements in our capacity to manufacture this year, which will also benefit our sales given this we expect strong global go growth for Gardasil This year.

Chris Schott: With the rollout of the COVID vaccines, especially among the elderly where cancer incidence is highest, along with increased awareness campaigns, we believe screenings and diagnosis will soon return to normal levels. We expect continued strong growth of Katruda, given its leadership position across many current indications. In addition, we're excited by the recent launch in esophageal cancer and by potential additional indications in renal cell carcinoma, including in combination with lymphoma and as monotherapy in the adjuvant setting.

To conclude we are confident in the strength and resilience of our portfolio of innovative medicines and vaccines. We expect a return to more normal operations later this year and strong full year growth.

There is underlying patient demand for our products and we believe that once we move through the temporary market dynamics created by the pandemic our business will resume to a strong growth trajectory long into the future.

With that I'll turn the call over to Caroline.

Thank you Frank good morning, everyone.

Chris Schott: In vaccines, the recent improvement in wellness visits is encouraging, as are awareness campaigns that help raise the potential for catch-up vaccinations across the portfolio as patient access improves. We expect COVID vaccines to be available in the adolescent population in the future, and we will monitor the impact on Gardasil, especially in the back-to-school season. That said, in the United States, in order to enable a safe return to in-person learning in the fall, there is heavy attention being put on accelerating adolescents' physician visits to catch up on missed routine vaccinations and to schedule new vaccinations around the COVID vaccine rollout to this cohort.

I am extremely honored to be Max New Chief Financial Officer, and work more closely with the team of extraordinary leaders Michele a question for Matt.

I am.

Excited by the opportunity to meet disconnect silicone hydration and help ensure that Merck remains well positioned to make the investments in science and innovation necessary to sustain our unique legacy is making a difference in the world I think creating value for patients and shareholders.

Now turning to our first quarter results.

Total company revenues were $12 $1 billion in the quarter roughly flat year over year on a nominal basis.

Chris Schott: We will also monitor many ex-U.S. markets where the rate of COVID vaccination has been slower than in the United States and where there have been renewed lockdowns that are expected to impact physician well visits and school-based vaccination programs.

One 1% excluding COVID-19.

Texas.

Thanks.

These results were broadly in line with our initial expectation.

Frank describes the underlying strength in the human health business.

As one of the ways in which the <unk> co.

Chad.

We estimate the impact was approximately $600 million.

Chris Schott: Overall, however, we believe there is strong global demand for Gardasil, particularly in non-U.S. markets like China. We have seen improvements in our capacity to manufacture this year, which will also benefit our sales. Given this, we expect strong global growth for Gardasil this year. To conclude, we are confident in the strength and resilience of our portfolio of innovative medicines and vaccines. We expect a return to more normal operations later this year and strong full-year growth.

Adam Health index, as a particularly strong quarter growing 16% year over year driven by demand.

Companion animal and livestock, which grew 24% and 9% respectively.

In companion animal growth was driven by higher global demand for our parasiticide, primarily to perfect. Your line of products as well as strength in vaccines.

The lifestyle mistakes increase demand and international market across amendment, poultry and swine as well as strong growth of our intelligence product.

Chris Schott: There is underlying patient demand for our products, and we believe that once we move through the temporary market dynamics created by the pandemic, our business will resume a strong growth trajectory long into the future. With that, I'll turn the call over to Caroline.

On that one Keith.

Two of our P&L my comments will be on a non-GAAP basis.

Gross margin was 75, 7% in the quarter a decrease of eight day.

Caroline Litchfield: Thank you, Frank. Good morning, everyone.

Largely by higher costs associated with COVID-19 program.

Operating expenses increased 10 fold.

Caroline Litchfield: I am extremely honored to be Merck's new Chief Financial Officer and work more closely with a team of extraordinary leaders who share my deep passion for Merck's mission. I am excited by the opportunity to lead the finance organization and help ensure that Merck remains well-positioned to make the investments in science and innovation necessary to sustain our unique legacy of making a difference in the world and creating value for patients and shareholders.

$4 9 billion.

Driven largely by higher zinc content.

Settlement costs, increasing uptake of 19 program increased investments.

Pipeline and higher promotion costs, Inc.

Of course, a key drive it.

Effective tax rate for the quarter was 14, 1% a day.

Two 8% from the year.

Jason.

Caroline Litchfield: Now turning to our first quarter results. Total company revenues were $12.1 billion in the quarter, roughly flat year-over-year on a nominal basis, or down 1%, excluding the positive impacts of foreign exchange. These results were broadly in line with our initial expectations. Frank describes the underlying strengths in the human health business.

Earnings mix and discrete Titan.

Together, we earned $1 40 per share a decrease of 7%.

Turning to our updated 2021 guidance for match, including all day long.

First quarter revenues was broadly in line with our expectations.

We continue to expect revenue of 51 eight to $53.

Caroline Litchfield: As well as the ways in which the pandemic affected the quarter, and we estimate the impact was approximately 600 million dollars. Animal health delivered a particularly strong quarter, growing 15% year-over-year, driven by demand across both companion animals and livestock, which grew 24% and 9%, respectively. In companion animals, growth was driven by higher global demand for a parasiticide, primarily the Brevetto line of products, as well as strength in vaccines. Performance in livestock reflects increased demand in international markets across ruminants, poultry, and swine, as well as strong growth of our intelligence products.

Ian Dundas, representing growth of 8% to 12%.

20.

The underlying strength of our price.

Good day provides us with confidence that we will see strong acceleration investigators throughout the remainder of the year.

Slightly less favorable impact from foreign exchange and the highest projected impact from the pandemic.

This guidance does not include revenue from the potential launch of <unk>.

Our gross margin is now expected to be roughly 76% slightly less price guidance as a result of the impact of COVID-19.

We now expect operating expenses to go relative to mid to high single digit rate another price rate compared to our price guidance largely driven by efficient management of SG&A expenses.

Caroline Litchfield: I'll now walk you through the remainder of our P&L, and my comments will be on a non-guest basis. Growth margin was 75.7% in the quarter, a decrease of 0.8%, driven largely by higher costs associated with COVID progress. Operating expenses increased 10% year-over-year to $4.9 billion, driven largely by higher clinical development costs, including our COVID-19 program, increased investment in our early-stage pipeline, and higher promotion costs in support of key growth drivers. The effective tax rate for the quarter was 14.1%, a decrease of 2.8% from a year ago, driven by favorable earnings mix and discrete items.

Normalized for the impact of COVID-19 operating expenses would be expected growth closer to mid single digit rate.

Our guidance for other income or expense.

Sure Scott.

Day remain unchanged from last quarter.

Taken together, we continue to expect non-GAAP EPS to be between $6 48 to $6 68.

Collecting growth of 12% to 15%.

This range includes the positive impact from foreign exchange and.

Since we percentage.

With respect to open on on a pro forma basis, assuming Inc.

Operating as an independent company for the full year.

Caroline Litchfield: Together, we earned $1.40 per share, a decrease of 7%. Turning to our updated 2021 guidance for Merck, including Organized. First quarter revenues were broadly in line with our expectations, and we continue to expect revenues of $51.8 to $53.8 billion, representing growth of 8 to 12% versus 2020. The underlying strength of our growth pillars provides us with confidence that we will see strong acceleration in revenues throughout the remainder of the year, despite a slightly less favorable impact from foreign exchange and a higher projected impact from the pandemic. Our revenue guidance does not include revenue from the potential launch of Money Pyramid.

<unk> is now expected to achieve revenue of $6, one to $6 4 billion.

Assuming completion of the spinoff anticipate full year revenues from continuing operations to be 45 to.

47.

Got it.

We continue to expect operating efficiencies enabled by the spin of approximately one 5 billion solid three yes, including $500 million in 2021.

Due to the high profitability of the open on products.

Hello, Matt.

I expect much operating margin from continuing operations to be slightly lower in 2020 volume.

Caroline Litchfield: Our growth margin is now expected to be roughly 76%, slightly less than prior guidance as a result of the impact of COVID. We now expect operating expenses to grow at a mid to high single-digit rate, a lower growth rate compared to our prior guidance, largely driven by diligent management of SG&A expenses. Normalized for the impact of COVID, operating expenses would be expected to grow closer to a mid single-digit rate. Our guidance for other income and expense, the tax rate, and shares outstanding remains unchanged from last quarter. Placing them together, we continue to expect non-GAAP ETS to be between $6.48 and $6.68, reflecting growth of 12 to 15%. This range includes a positive impact from foreign exchange of less than 3%.

It would have been without the spinoff, but to accelerate and be high up within 12 to 24 months.

Whether you would have seen in the accident.

And to be greater than 42% in 2024.

We remain confident the transaction will benefit to patients.

Andrew open onset.

And create value for shareholders.

Let's expect its revenue and earnings growth rates to be higher after the spin offs.

David.

Good luck.

The operating efficiencies, we expect to achieve as a result of this day.

Combined with the growth we.

We expect to be opened up for that to change.

An independent structure, we expect combined EPS of <unk> <unk> Company, Inc.

Yes.

In 12 to 24 months.

What would have been achieved without this day.

Caroline Litchfield: With respect to Organon, on a pro-forma basis, assuming it operates as an independent company for the full year, Organon is now expected to achieve revenues of $6.1 to $6.4 billion. Assuming completion of the spinoff, MoE anticipates full-year revenues from continuing operations to be $45.8 to $47.8 billion. We continue to expect operating efficiencies enabled by the spin-off of approximately $1.5 billion over three years, including $500 million in 2021. Due to the higher profitability of the Organon products versus overall Merck, we expect Merck's operating margins from continuing operations to be slightly lower in 2021 versus what they would have been without the spin-off, but to accelerate and be higher within 12 to 24 months versus where they would have been in the absence of the spin-off, and to be greater than 42% in 2024.

Upon the price of fuel.

Okay.

A special tax free dividend of $9 billion, which we hope to get price in value enhancing strategic business development Cheesecake.

The absence of meaningful business development, we intend to return cash to shareholders through share repurchase day.

As always we remain committed to ensuring appropriate investments in our business I think supportive all key brands.

To drive volume at the integration progressing in our pipeline.

We built that to increase our dividend payout ratio over time.

In summary, I'm excited to embark upon my joining as CFO and Steve you made at the time in which App companies in such a strong financial position, we remain confident in the outlook without this day and I look forward to doing my part to ensure that <unk> remains well positioned financially to drive sustain.

Caroline Litchfield: We remain confident the transaction will benefit the patients that both Merck and Organon serve and create value for shareholders. We must expect its revenue and earnings growth rates to be higher after the spin-off, given the soft growth of Merck and the operating efficiencies we expect to achieve as a result of this spin. Combined with the faster growth we expect the Organon products to achieve in an independent structure, we expect combined EPS of the two companies to be higher within 12 to 24 months versus what would have been achieved without the spin.

Both value to patients and shareholders with that I'd now like to Coca Cola, Inc.

Thank you Caroline for my remarks today, I will cover key regulatory milestones and clinical update initially in oncology and then in our broader pipeline and finally I will discuss recent business development activities.

In the first quarter, the FDA accepted and granted priority review for a new drug application for <unk>, our investigational <unk> two alpha inhibitor that we acquired from peloton for the treatment of certain patients with von Hippel Lindau disease associated renal cell carcinoma with a September produced per day.

We are evaluating this asset further and three ongoing phase III studies in RCC.

Caroline Litchfield: Upon the close of the Organon spin-off, we expect to receive a special tax-free dividend of $9 billion, which we hope to deploy in value-enhancing strategic business development opportunities. In the absence of meaningful business development, we intend to return cash to shareholders through share repurchases. As always, we remain committed to ensuring appropriate investment in our business, both in support of our key brands but also to drive forward the innovation progressing in our pipeline.

We initiated the phase III study evaluating <unk>, our investigational anti <unk> antibody in combination with keytruda in patients with non small cell lung cancer, whose tumors expressed PD L. One. This is one of several co formulated assets. We are on track to advance this year from our oncology portfolio.

That builds on the success of contributor.

Turning to FDA approved growth contributor was indicated in combination with chemotherapy for the treatment of certain patients with advanced esophageal carcinoma, regardless of PD Lone expression based on keynote 590 <unk>. This marks the 11th approved indication based on a clinical study that demonstrated overall survival now.

Caroline Litchfield: And we will look to increase our dividend payout ratio over time. In summary, I am excited to embark upon my journey as CFO and to be stepping in at a time when our company is in such a strong financial position. We remain confident in the outlook of our business, and I look forward to doing my part to ensure Merck remains well positioned financially to drive sustainable value for patients and shareholders. With that, I'd now like to turn the call over to Dean. Thank you, Karen.

Outside the United States, The European Commission approved new indications for Keytruda for adult and pediatric patients with relapsed or refractory classical Hodgkin lymphoma based on results from keynote <unk> four and for patients with microsatellite instability high or a mismatch repair deficient previously untreated colorectal.

Cancer based on keynote 177.

Earlier this month, we announced that following an interim analysis keynote five six for our phase III study evaluating keytruda as an adjuvant monotherapy treatment in patients with renal cell carcinoma met its primary endpoint of disease free survival. These data will be shared with regulatory authorities and present.

Dean Y. Li: Thank you, Caroline. In my remarks today, I will cover key regulatory milestones and clinical updates initially in oncology, and then in our broader pipeline, and finally, I will discuss recent business development activities. In the first quarter, the FDA accepted and granted priority review for a new drug application for Belzutifan, our investigational HIF2-alpha inhibitor that we acquired from Peloton for the treatment of certain patients with von Hippel-Lindau disease-associated renal cell carcinoma with a September PDUFA date.

That <unk> co.

This provides another proof point for the benefit of Keytruda in earlier lines of therapy, where we expect additional readouts and several other tumor types. This year and it also supports our broad development program in patients with renal cell carcinoma.

We recently received a positive opinion for <unk> for Q six week dosing across Keytruda combination regimens for patients in the EU, which builds upon the six week dosing schedule already approved in monotherapy indications at the ACR annual meeting initial results from keynote 555.

Dean Y. Li: We are evaluating this asset further in three ongoing Phase III studies in RCC. We initiated a Phase III study evaluating b-bostolomab, our investigational anti-tiget antibody, in combination with Keytruda in patients with non-small cell lung cancer whose tumors express PD-L1. This is one of several co-formulated assets we are on track to advance this year from our oncology portfolio that builds on the success of Keytruda. Turning to FDA approvals, Keytruda was indicated in combination with chemotherapy for the treatment of certain patients with advanced esophageal carcinoma, regardless of PD-L1 expression, based on Keynote 590.

Evaluating a subcutaneous formulation of Keytruda in patients with metastatic melanoma were presented we are continuing to study this new formulation and other innovative modes of administration and dosing aimed at providing increased benefit and access for patients.

Along with our partners at <unk>, we presented potentially practice changing data demonstrating the benefit of Keytruda plus lymphedema in the first line treatment of patients with advanced renal cell carcinoma and in second line advanced endometrial carcinoma based on results from keynote five day, one and keynote 700.

Dean Y. Li: This marks the 11th approved indication based on a clinical study that demonstrated overall survival. Now, outside the United States, the European Commission approved new indications for Keytruda for adult and pediatric patients with relapsed or refractory classical Hodgkin's lymphoma based on results from Keynote 204 and for patients with microsatellite instability, high or mismatch, repair deficient, previously untreated colorectal Earlier this month, we announced that following an interim analysis, Keynote 564, our Phase 3 study evaluating Keytruda as an adjuvant monotherapy treatment in patients with renal cell carcinoma met its primary endpoint of disease-free survival. These data will be shared with regulatory authorities and presented at ASCO.

75, respectively. These studies demonstrated statistically significant improvements across primary and secondary endpoints and we look forward to working with global regulatory authorities on these filings.

In February in collaboration with Astrazeneca, we announced that following an interim analysis the phase III <unk> Olympiad trial studying <unk> as maintenance therapy in the adjuvant treatment of certain patients with Germline BRCA mutated high risk her two negative early stage breast cancer cross the superiority boundaries.

<unk> for its primary endpoint.

This is disease free survival versus placebo.

Trial continues to evaluate the dual primary endpoints of overall survival and distinct disease free survival and this data will be presented at <unk>.

We are also pleased with the positive outcome of Yesterdays Oncologic Drug Advisory Committee review of our first line advanced bladder cancer indication and recognition of the efficacy and safety that Keytruda has demonstrated in clinical trials with.

Dean Y. Li: This provides another proof point for the benefit of Keytruda and earlier lines of therapy where we expect additional readouts in several other tumor types this year, and it also supports our broad development program in patients with renal cell carcinoma. We recently received a positive opinion from the CHMP for two six-week doses of Keytruda across Keytruda combination regimens for patients in the EU, which builds upon the six-week dosing schedule already approved in mono

We look forward to further discussions with the committee on other accelerated approvals under review.

Last month, we announced the decision to voluntarily withdraw an indication for Keytruda for third line treatment of patients with metastatic small cell lung cancer.

As announced we received a complete response letter from the FDA for a supplemental biologic application for Keytruda for the Neo adjuvant and adjuvant treatment of patients with triple negative breast cancer based on keynote <unk>. Two we anticipate the next interim analysis from this trial in the third quarter of 2021 and we.

Dean Y. Li: And at the AACR annual meeting, initial results from Keynote 555, evaluating a subcutaneous formulation of Keytruda in patients with metastatic melanoma, were presented. We are continuing to study this new formulation and other innovative modes of administration and dosing aimed at providing increased benefit and access for patients. Along with our partners at ACI, we presented potentially practice-changing data demonstrating the benefit of protruded plasmal envema in the first-line treatment of patients with advanced renal cell carcinoma and in second-line advanced endometrial carcinoma based on results from Keynote 581 and Keynote 775, respectively. These studies demonstrated statistically significant improvements across primary and secondary endpoints, and we look forward to working with global regulatory authorities on these filing

Look forward to further discussions with the FDA now turning to our broader pipeline on <unk> nuclear business, along with our partners at Ridgeback Biotherapeutics, We announced interim results from the dose finding phase a phase II <unk> III studies in both outpatient and hospitalized patients.

After analysis of the data we have decided to proceed to phase III in outpatients with enrollment focused on higher risk populations, we will be evaluating <unk> as a post exposure prophylaxis option in our studies starting later this year.

As previously discussed we have made the decision to discontinue the development of MK 70, 110 for COVID-19, and plan to focus our pandemic efforts on advancing mountain your peer group and are producing Johnson <unk> Johnson's COVID-19 vaccines.

In HIV, we continue to make good progress in our development program for its launch or growth or.

<unk> first in class nucleoside reverse transcriptase translocation inhibitor.

Dean Y. Li: In February, in collaboration with AstraZeneca, we announced that, following an interim analysis, the Phase III Olympia trial, studying lympharsa as maintenance therapy in the adjuvant treatment of certain patients with germline BRCA-mutated, high-risk HER2-negative, early-stage breast cancer, crossed the superiority boundary for its primary endpoint of invasive disease-free survival versus placebo. The trial continues to evaluate the dual primary endpoints of overall survival and distant disease-free survival, and this data will be presented at ASCO.

Data presented at the <unk> meeting last month supports the potential over the last year here and long acting dosing regiments in both the treatment and in the prep settings of note was early data supporting the potential for the sub dermal theres lots of repair implants to provide drug concentrations above the target pharmacokinetic threshold.

For at least one year.

We are pleased to build upon our legacy of innovation in HIV through our collaboration with Gilead Sciences to co develop and co commercialize the <unk> Atlantic <unk>. Both have unique properties that we believe have the potential to enable the creation of effective long acting oral and injectable regiment that provide important new.

Dean Y. Li: We are also pleased with the positive outcome of yesterday's Oncologic Drug Advisory Committee review of our first-line advanced bladder cancer indication and recognition of the efficacy and safety that Katrina has demonstrated in clinical trials. We look forward to further discussions with the committee on other accelerated approvals under review. Last month, we announced the decision to voluntarily withdraw the indication for Keytruda for the third-line treatment of patients with metastatic small cell lung cancer. As announced, we received a complete response letter from the FDA for a supplemental biologics application for Kutruta for the neoadjuvant and adjuvant treatment of patients with triple negative breast cancer based on Keynote 522.

Treatment options and address the remaining unmet need for people living with HIV.

Our pneumococcal vaccines <unk> four remains on track for potential FDA approval for adults in July and a readout of <unk> pediatric data and associated filing by year end.

101, four is the first of a suite of promising pneumococcal vaccine candidates, which also include <unk> six our adult focus vaccines, where readout from our phase <unk> II study is expected later this year.

Finally, we announced that the FDA accepted our new drug application for <unk>, a potentially first in class <unk> three inhibitor in adult patients with refractory and unexplained chronic cough. The decision is expected in December this application will be subject of an upcoming Advisory Committee meeting.

Dean Y. Li: We anticipate the next interim analysis from this trial in the third quarter of 2021, and we look forward to further discussions with the FDA. Now, turning to our broader pipeline, on MonuPyramid, along with our partners at Ridgeback Biotherapeutics, we announced interim results from the dose-finding phase of Phase 2-3 studies in both outpatients and hospitalized patients. After analysis of the data, we have decided to proceed to Phase 3 in outpatients with an enrollment focused on higher risk populations. We will be evaluating monial perivere as a post-exposure prophylactic option in a study starting later this year.

We continue to pursue business development across the most exciting areas of science, our acquisition of <unk> therapeutics expands and complements our internal pipeline of candidates targeting autoimmune diseases.

<unk> lead IL two candidate has the potential to be meaningfully differentiated based on high single activity and we plan to initiate a phase one b slash II study this year.

We continue to make strong progress with the pipeline. This momentum is due to the passion and commitment of the scientists within our research laboratories to bring life saving medicines and vaccines to patients around the world now I will turn the call back to Peter.

Thank you Jim Lehrer, we're ready for questions I'd like to turn the call today at nine o'clock.

Dean Y. Li: As previously discussed, we have made the decision to discontinue the development of MK-71-10 for COVID-19 and plan to focus our pandemic efforts on advancing monoperivir and on producing Johnson & Johnson's COVID-19 vaccine. In HIV, we continue to make good progress in our development program for Islostravir, our potentially first-in-class nucleoside reverse transcriptase translocation inhibitor. Data presented at the CROI meeting last month supports the potential of Islostravir in long-acting dosing regimens in both the treatment setting and in the prep setting of note, with early data supporting the potential for the subdermal Islostravir implant to provide drug concentrations above the target pharmacokinetic threshold for at least one year.

Ask that questioners limit themselves to one question. Please.

Thank you Sir at this time I would like to remind everyone in order to ask a question you can press Star then the number one on your telephone keypad. If you would like to draw. Your question you can press the pacte.

Your first question will come from the line of Terence Flynn from Goldman Sachs. Your line is now live. Please go ahead Sir.

Great. Thanks, so much for taking the question.

I guess I was just wondering on the Keytruda keynote 564 study in RCC.

If you believe youll be able to file on disease free survival or if FDA will also require survival data and then regarding the commercial opportunity here, maybe a question for Frank I think the current treatment right here in the Neo adjuvant adjuvant setting for RCC is around 10% to 15% can you give us any thoughts on how much higher that might move if.

Dean Y. Li: We are pleased to build upon our legacy of innovation in HIV through our collaboration with Gilead Sciences to co-develop and co-commercialize Tizlachivir and Lenacapivir. Both have unique properties that we believe have the potential to enable the creation of effective long-acting oral and injectable regimens that provide important new treatment options and address remaining unmet needs for people living with HIV. Our new MoCocco vaccine, V114, remains on track for potential FDA approval for adults in July, and a readout of pediatric data and associated filing by year-end.

<unk> approved here. Thank you.

So.

Address the keynote 506 four.

Question.

In relationship to what the regulatory agencies will accept or co.

Are they going to have discussions with them, but the endpoint that we were.

Reported.

Is a is a registrational endpoint.

And we hope to have further discussions with the FDA clearly we are advancing the studies to do the other endpoints that you outlined in terms of overall survival as well.

Yes, Sharon this is Frank on.

The opportunities the majority of renal cell carcinoma patients do present in the adjuvant setting with.

With the remaining in the metastatic setting so think of it about 75% are presenting at the early stage. So it is a very nice opportunity for us when you do look at our study.

Dean Y. Li: V114 is the first of a suite of promising new MoCocco vaccine candidates, which also include V116, our adult-focused vaccine, where a readout from our Phase 1-2 study is expected later this year. Finally, we announce that the FDA has accepted our new drug application for jefapixen, a potentially first-in-class P2X3 inhibitor in adult patients with refractory and unexplained chronic cough. The decision is expected in December.

When we see and evaluate be eligible patients, it's probably about even turns between the adjuvant opportunity in metastatic opportunity, but we are very excited about this opportunity different going forward.

Thank you Karen next question please.

Thank you Sir our next question will come from the line of Omar Saad from Evercore ISI. Your line is now lines go ahead Pete. Thanks, So much for taking my question I just wanted to focus on the Molla pair of air outpatient trial, if I may.

Dean Y. Li: This application will be the subject of an upcoming Advisory Committee meeting. We continue to pursue business development across the most exciting areas of science. Our acquisition of Pandian Therapeutics expands and complements our internal pipeline of candidates targeting autoimmune disease. Pandian's lead IL-2 candidate has the potential to be meaningfully differentiated based on high selectivity, and we plan to initiate the Phase 1B-2 study this year. We continue to make strong progress with our pipeline.

And I have a couple of pieces to that one.

What percentage of the phase two portion of this trial.

The older adults over 60, and I guess, what would the phase III.

A portion what percentage of the phase III has to be older to get to the number of events you have in mind over the target timeframe and also I know the endpoints focused on hospitalizations and death, but the trial sites are primarily in the U S and Europe.

Where there's a lot of vaccination going on so is their openness to perhaps adding sites like India et cetera, where hospitalizations are hi, Thank you very much.

Dean Y. Li: This momentum is due to the passion and commitment of the scientists within our research laboratories to bring life-saving medicines and vaccines to patients around the world. Now, I will turn the call back to Peter. Thank you, Dean. Lara, we're ready for questions. I'd like to end the call today at nine o'clock. We ask that questioners limit themselves to one question, please.

So let me take that question. Thank you very much for that question.

Very competent in our multi layer among the peer of air program.

As you as you outlined we are advancing the outpatient and I should also say that we are poised to start the phase III portion of that outpatient study.

Peter Dannenbaum: Thank you, sir. At this time, I would like to remind everyone that in order to ask a question, you can press the star and then the number one on your telephone keypad. If you would like to review your question, you can press the pound key.

Imminently.

As you know this is a global trial with the recruitment strategy focused in areas.

We are we are looking at vaccination rates that are unfortunately, low. So we are in Africa, we are in south.

South America, those will be very important sites.

Unknown Attendee: Your first question will come from the line of Terence Flynn from Goldman Sachs. Your line is now live, sir. Go ahead, please.

<unk> that there will be more than 100 sites. The contributor this is a global study.

Unknown Attendee: Great. Thanks so much for taking the time to answer the question. I guess I was just wondering, on the Keynote 564 study in RCC, if you believe you'll be able to file on disease-free survival or if FDA will also require survival data. And then regarding the commercial opportunity here, maybe a question for Frank, I think the current treatment rate here in the neoadjuvant-adjuvant setting for RCC is around 10 to 15 percent. Can you give us any thoughts on how much higher that might move if Keytruda is approved here? Thank you.

In terms of your question in relationship with with with India.

We are we have entered into voluntary license agreements with five Indian generic manufacturers expand global access ammonia care here at this time, we are not extending our clinical trial for flow for move out India and then finally, what I would say is our clinical safety and Virologic data.

It gives us great confidence to evaluate ammonia peer growth not just in the <unk> study, but also for a post exposure prophylaxis in our studies starting later this year.

Unknown Attendee: So I'll address the Keynote 564 question. In relationship to what the regulatory agencies will accept, www.globalonenessproject.org is a registrational endpoint. And we hope to have further discussions with the FDA. Clearly, we are advancing the studies to do the other endpoints that you outline in terms of overall survival as, Yeah, Terence, and this is Frank. On opportunity, the majority of renal cell carcinoma patients present in the adjuvant setting, with the remaining in the metastatic setting.

Thank you <unk> next question please.

Thank you for your next question will come from the line of Chris Schott from Jpmorgan. Your line is now let go ahead. Please.

Great. Thanks, so much I just had a two part question on BD.

Youre getting $9 billion with the organon spin the company, obviously generates a lot of cash I guess, if we continue the current pace of these tuck in type acquisitions. It seems like Merck at some point becomes overcapitalized. So I guess when you look at the BD landscape are you confident that there are actionable opportunities to deploy this capital into transactions.

Unknown Attendee: So think of it, about 75% are presenting at the early stage. So it is a very nice opportunity for us. When you do look at our study, when we see and evaluate the eligible patients, it's probably about even, Terence, between the adjuvant opportunity and the metastatic opportunity. But we are very excited about this opportunity if it is approved going forward. Thank you, Terence. Next question, please.

Or does it reach a point, where we need to think about further capital returned to shareholders and maybe as you talk about the BD landscape I just would've distribution the landscape environment Youre seeing I guess I guess is a string of smaller tuck ins kind of more likely from Merck given the environment, we have or is there still the opportunity to think about larger for later stage acquisitions over the near to ensure.

Mediate term thanks, so much.

Unknown Attendee: Thank you. So your next question will come from the line of Umer Raffat from Evercore ISI. Your line is now open. Go ahead. Thanks so much for taking my question. I just wanted to focus on

Yeah, Chris.

Chris This is Rob maybe I'll address the question as you pointed out the company is very well capitalized.

We are looking forward to getting the $9 billion special dividend.

Part of the spin off of organ on.

Unknown Attendee: Thanks so much for taking my question. I just wanted to focus on the Malno-Perovera outpatient trial, if I may. And there are a couple of pieces to that.

As we look at it and as.

Sterling made in her prepared comments, we intend to use that capital both for business development and potential share repurchase, but our clear priority is business development.

We believe that's the most value enhancing.

Unknown Attendee: One, what percentage of the Phase 2 portion of this trial had older adults over 60? And I guess, what percentage of the Phase 3 portion has to be older to get to the number of events you have in mind over the target time frame? And also, I know the endpoints are focused on hospitalizations and deaths, but the trial sites are primarily in the US and Europe, where there's a lot of vaccination going on, so is there openness to perhaps adding sites like India, etc., where hospitalizations are high? Thank you very much. So, let me take that question.

Of our capital long term to the question of whether or not I think there is enough assets out there.

There are a lot of opportunity. So our goal is to deploy that capital to BD more more time, we'll have to pass to be able to see how that evolves, but that is our goal but to your other question. If we do not ultimately use that capital for business development I'm not looking.

Two.

Sure.

Build excess cash or improve our ratings, we would return that to shareholders and then to the last part of your question about size. We've been very clear. We are we were open to any opportunity to add a meaningful asset size is not determined by dollars size is determined by complexity and the.

Unknown Attendee: Thank you very much for that question. We're very confident in our Monu-PIRVIR program. As you outlined, we are advancing the outpatient study, and I should also say that we are poised to start the phase three portion of that outpatient study imminently. As you know, this is a global trial with a recruitment strategy focused on areas where we are looking at vaccination rates that are, unfortunately, low. So, we are in Africa. We are in South America.

Disruption that brings to our business. So as we looked at it we are open to all forms of deals and we have the capital to go after all forms of deals. We continue to believe where we have a lot of value is in products that are in earlier stages of development, which is what's driven a lot of the deals we've done.

But we're not limiting ourselves to that and we're looking at all opportunities.

Thank you Chris next question please.

Larry next question please.

Oh, sorry, I was on your next question will come from the line of Andrew Baum from Citi. Your line is now likely go ahead. Please.

Many thanks, thanks to Ken for the strong leadership within Merck or more broadly.

Unknown Attendee: Those will be very important sites. We anticipate that there will be more than 100 sites to contribute. This is a global study. In terms of your question in relation to India, we have entered into a voluntary license agreement with five Indian generic manufacturers to expand global access to MoNuPyriVir. At this time, we are not extending our clinical trial for move-out into India. And then, finally, what I would say is our clinical safety and virologic data gives us great confidence to evaluate MoNuPyriVir not just in the move-out study but also for post-exposure prophylaxis in a study starting later this year. Thank you, Umer. Next question, please.

Question.

Rob I conversations with investors of Merck Unsurprisingly dominated by the Keytruda concentration risk, particularly post open on.

My question is do you believe the market is anywhere close to reflecting the revenue potential of that.

Current pipeline products at drug such as.

<unk> to find the ticket with Merck kind of think about it.

Giving an accurate forecast for the existing pipeline, we even as GSK has intended to do give a 2013 guidance just to help investors gain some visibility about the ability to manage the pending.

Associated with Keytruda many thanks.

Yes.

Moving to maybe just.

Unknown Attendee: Thank you. So your next question will come from the line of Chris Schott from J.P. Morgan. Your line is now live. Go ahead. Great. Thank you so much.

The nail on the head of the first part of your question I do think that our belief and confidence in the older about overall value of our pipeline. Both what we have in the mid to late stage and I can go into more specifics from that what that is as well as in the early stage on top of what we see is continued opportunities to expand in oncology.

Unknown Attendee: Great, thanks so much. I just had a two-part question on BD. You're getting $9 billion with the organ on spin. The company obviously generates a lot of cash. I guess if we continue the current pace of these tuck-in type acquisitions, it seems like Merck at some point will become overcapitalized. So I guess when you look at the BD landscape, are you confident that there are actionable opportunities to deploy this capital into transactions? Or does there reach a point where we need to think about further capital return to shareholders? And maybe, as you talk about the BD landscape, I would be interested in the environment you're seeing.

And the new adjuvant and adjuvant spaces in combinations and co formulation. If you look at the totality of everything.

We continue to believe and overtime I recognize we're going to have to demonstrate that we continue to believe that frankly the street is underestimating the potential in our pipeline and thus while we are very aware of the potential <unk> of Keytruda.

We do not see the cliff and the same with the Street does I think we're very well positioned with what we have internally to address a meaningful part of that.

Then obviously as we've said we understand we need to continue to be convergent in looking at business development.

To continue to augment that but I do think.

Unknown Attendee: I guess, is a string of smaller tuck-ins kind of more likely for Merck, given the environment we have? Or is there still the opportunity to think about larger or later stage acquisitions over the near to intermediate term? Thanks so much.

There is a disconnect that over time, I'm confident we will be able to demonstrate.

As it goes to long term guidance.

Don't want to take a specific position today on whether or not we would ever do that but I can tell you historically.

You agree with the position Merck has had which is that can paint you into corners that caused you to make decisions that are not always.

And the best long term interest and so on.

Rob Davis: Yeah, Chris, this is Rob. Maybe I'll address the question. As you point out, the company is very well capitalized, and we are looking forward to getting the $9 billion special dividend as part of the spinoff of Organon. You know, as we look at it, and as Caroline made in her prepared comments, we intend to use that capital both for business development and potentially share repurchase. But our clear priority is business development.

I doubt, you're going to see us, giving tenure guidance and what you've heard from others.

But.

We'll have to see I think what is important to understand is I recognize also though over time, we're going to have to pull to cover back in a balanced way.

Our portfolio I respect our science I want to make sure we keep the integrity of our science pure and that's very important to Merck is but I also understand that there is a balance to give some sense of understanding of what's in the pipeline to share our confidence over time.

Rob Davis: We believe that's the most value-enhancing use of our capital over the long term. To the question of whether or not I think there are enough assets out there, you know, there are a lot of opportunities. So our goal is to deploy that capital to BD, and more time will have to pass to be able to see how that evolves. But that is our goal.

Thank you Andrew next question please.

Yes.

Your next question will come from the line of Geoff Meacham from Bank of America. Your line is now lifestyle go ahead. Please.

Good morning, everyone and thanks for the question.

Just had a follow up on a month on a multi unit peer there as you guys get closer to the phase III results.

Are you thinking about the commercial picture, assuming that it'll have a rest of world bias, especially given the case burden in India.

Rob Davis: But to your other question, if we do not ultimately use that capital for business development, I'm not looking. To build excess cash or improve our ratings, we would return that to shareholders. And then to the last part of your question about size, you know, we've been very clear: we are open to any opportunity to add a meaningful asset. Size is not determined by dollars.

Then when you guys look at the prophylaxis or the outpatient setting whats the right way to stage patients from either a viral load or inflammation perspective, I'm just trying to think about the as the pandemic moves on you know how can you more broadly address to maximize the number of patients that you could that you could address thank you.

Rob Davis: Size is determined by complexity and the disruption it brings to our business. So as we look at it, we are open to all forms of deals, and we have the capital to go after all forms of deals. We continue to believe that products that are in earlier stages of development add a lot of value, which is what's driven a lot of the deals we've done. But we're not limiting ourselves to that, and we're looking at all opportunities. Thank you, Chris. Next question, please.

Okay.

Yes, that's a great question. This is dean I'll try to give a scientific point of view and then I'll.

Send it to Frank to give them more commercial.

Point of view in relationship to flow new pair of era.

Inc.

We are imminently going to do the phase III trial in the outpatient setting.

As was noted in the previous.

A previous question.

Unknown Attendee: transcript Emily Beynon

We're tightening up the inclusion criteria.

Unknown Attendee: Larry, next question, please.

Unknown Attendee: The next question will come from the line of Andrew Baum from Citi. Your line is now live, sir. Go ahead.

Using the allowable symptom duration for enrollment to be less than five day, and we're trying to enroll.

Unknown Attendee: Many thanks. Thanks to Ken for the strong leadership within Merck more broadly. And a question for Rob.

Patients early in the course of disease, who have a high risk for poor outcomes that include age and other risk factors, such as obesity and diabetes.

Unknown Attendee: Our conversations with investors about Merck are unsurprisingly dominated by the Q3 deconcentration risk, particularly post-organon. My question is, do you believe the market is anywhere close to reflecting the revenue potential of the current pipeline products, drugs such as bis-lat-revir, dulzutifan, and TIGIT? Would Merck ever think about giving an aggregate forecast for the existing pipeline, or even, as GSK intended to do, give a 2030 guidance just to help investors gain some visibility about the ability of Merck to manage the pending LOE associated with Keytruda? Many thanks.

We think that will be critically important to have a successful.

And timely trial in relationship to the post exposure prophylaxis Theres a number of ways. One can design that trial, but if I can just take it as a higher elevation. We think that this move out Canada prophylaxis studies is going to be very important not just for Merck, but for the world.

As one sees the different places.

Oxidation.

Rob Davis: Well, I think to maybe just hit the nail on the head of the first part of your question, I do think that our belief and confidence in the overall value of our pipeline, both what we have in the mid-to-late stage, and I can go into more specifics on what that is, as well as in the early stage, on top of what we see as continued opportunities to expand in oncology and the neoadjuvant-adjuvant spaces in combinations and co-formulations, We continue to believe, and over time, I recognize we're going to have to demonstrate, but we continue to believe that, frankly, the street is underestimating the potential in our pipeline, and thus, while we are very aware of the potential LOE of Katruda, we do not see the cliff in the same way the street does. But I do think there is a disconnect that over time I'm confident we will be able to demonstrate.

Albeit extremely low creating a reservoir for various the ability to have a small molecule that can impact that.

That can easily be delivered orally.

Orally is going to be really important for the world. So that's what we've been focused on but let me turn it to Frank to focus on the framework that you've you've asked in terms of the commercial.

Yeah, I think you covered it well.

Obviously, we'll have to see how the endemic phase.

The bulbs around the world and vaccination rates, but we see this as a really important therapeutic to Dean's point, having a small molecule oral option.

Especially in many markets outside the U S. We have significant commercial.

Experienced strong execution and getting our therapeutics vaccines to patients around the world and that will be a significant focus for us. So we think this is a really important opportunity, especially.

<unk> markets.

Think about what's happening not only in India, but you think about the low to middle income countries you think about.

Rob Davis: As it goes to long-term guidance, I don't want to take a specific position today on whether or not we would ever do that. But I can tell you historically that I do agree with the position Merck has had in the best long-term interest. So I doubt you're going to see us giving 10-year guidance based on what you've heard from others. But we'll have to see.

What's happening in Europe. So.

Upon if we're successful we think this is a really important opportunity for us as we go forward.

Thanks, Jeff next question please.

Thank you for your next question will come from the line of Ronny Gal from Bernstein. Your line is now live go ahead. Please.

Good morning, and thank you for taking my question.

It's a question of the mrna technology can you can you, let us know a little bit how you're thinking about integrating messenger RNA vaccine technology into your into your business or not and can you speak specifically about Garda cell and do messenger RNA technology.

Rob Davis: I think, though, what is important to understand is that I also recognize, though, over time, we're going to have to pull the cover back in a balanced way around our portfolio. I respect our science. I want to make sure we keep the integrity of our science pure, and that's very important. That's who Merck is. But I also understand that there is a balance to give some sense of understanding of what's in the pipeline to share our confidence over time. Thank you. And your next question, please, Laura?

That can they reached their necessary reported fully violently.

To develop those vaccines and.

It seems to be just simply a cheaper way of making the same vaccines.

So Matt I think the cost.

Manufacturing perspective.

Thank you for that excellent question.

Unknown Attendee: Your next question will come from the line of Geoff Meacham from Bank of America. Your line is now live, so go ahead.

Let me give a little bit framework for the mrna.

Reemphasize that Merck has been very interested in mrna and other nucleic acid technology and specifically in the vaccine in mrna for the past five years to six years Merck is partner with low Donna on vaccines for infectious disease and vaccines for cancer.

Unknown Attendee: Morning everyone. Thanks for the question. I just had a follow-up on Mollina-Perevere. As you guys get closer to the Phase 3 results, how are you thinking about the commercial picture, assuming that it'll have a rest of the world bias, especially given the case burden in India? And then when you guys look at prophylaxis or the outpatient setting, you know, what's the right way to stage patients from either a viral load or inflammation perspective?

The validation of the mrna technology and COVID-19 is impressive in and at least personally it's deserving of admiration and things we continue to be interested in RNA and other nucleic acid based technologies, including viral based platforms for vaccines.

Unknown Attendee: Just trying to think about how, you know, as the pandemic moves on, you know, how can you more broadly address the, maximize the number of patients that you could, that you could address? Thank you. Yeah, that's a great question. This is Dean.

I would highlight and specific to your question about Garda sale. When you have multiple sort of antigens that you have to deliver I think there is a role for the whole sort of platforms protein based.

Dean Y. Li: I'll try to give a scientific point of view, and then I'll send it to Frank to give a more commercial sort of, In relation to Monu-Piravir, we are imminently going to do the Phase 3 trial in the outpatient setting, as was noted in the previous slide. Previous question. We're tightening the inclusion criteria, reducing the allowable symptom duration for enrollment to be less than five days, and we're trying to enroll patients early in the course of disease who have a high risk for poor outcomes. That includes age and other risk factors such as obesity and diabetes.

I think theres going to be many different platforms that need to be done specifically for the vaccine in the press that you're trying to prevent.

So RNA and other nucleic acid based technology is important tests, including viral based platforms.

But we also think that broader speaking.

There are other.

Protein sub unit other vaccine platforms that will still be relevant moving forward.

Thank you Brian next question please.

Thank you. Thank you. Your next question will come from the line of Luisa Hector from <unk>. Your line is now live.

Thank you for taking my question.

Dean Y. Li: So, we think that will be critically important to have a successful and timely trial. In relation to the post-exposure prophylaxis, there's a number of ways one can design that trial, but if I can just take it as a higher level, we think that this move out and the prophylaxis studies are going to be very important, not just for Merck but for the world. As one sees the different places of vaccination, some of them will be extremely low, creating a reservoir for variants, the ability to have a small molecule vaccine that can easily be delivered orally is going to be really important for the world.

Tony Pneumovax franchise, I, just wonder whether we should expect.

2020 as it peaks.

Specifically.

And how should we think about the competitive landscape here, especially with your own pipeline suite with seaborne mindful imagine very soon on that and then everything else behind that just the competitive thank you.

Yeah. So on Pneumovax is what I would say is that.

Yeah. If you look at what's happened in the first quarter of this year, we were down versus prior year because of a strong 2020, and the prioritization of pneumococcal vaccination we.

We do anticipate as you go throughout the rest of 2021 pneumococcal vaccination will start to be prioritized along with flu vaccination. So we do anticipate as you get to the back half of the year.

Dean Y. Li: So that's what we've been focused on. But let me turn it to Frank to focus on the framework that you've asked for in terms of a commercial. Yeah, I think you covered it well. Obviously, we'll have to see how the endemic phase evolves around the world in terms of vaccination rates, but we see this as a really important therapeutic, to Dean's point, having a small molecule oral option.

Youll see pneumovax really have an important.

We'll have to play we have also mentioned that we were supply constrained.

As you look at Pneumovax, especially in some of our markets around the world, but overall, we see it as a very important product going forward as we introduce <unk> four and <unk> six and the initial introduction of the 114, we still see pneumovax, playing a very important role for pneumococcal disease.

Chris Schott: [inaudible] countries. You think about what's happening in Europe. So, you know, if we're successful, we think this is a really important opportunity for us as we go forward. Thanks, Geoff. Next question, please, Laura.

Forward.

Thank you Luis next question please.

Our next question will come from the line of Gregg Gilbert from Suntrust. Your line is now lines go ahead. Please.

Unknown Attendee: Your next question will come from the line of Ronny Gahl from Bernstein. Your line is now live, go ahead.

Unknown Attendee: Good morning. Thank you for taking my question. This question is about mRNA technology. Can you let us know a little bit how you're thinking about integrating messenger RNA vaccine technology into your business, or not? And can you speak specifically about Gardasil? And does messenger RNA technology pose a risk to that? Can they reach the necessary polyvalency to develop those vaccines? And it seems to be simply a cheaper way of making the same vaccine, at least for the cost of manufacturing. Thank you. Thank you for that excellent question. This has been, let me give you a little bit of a framework for the MRNA.

Thank you Ken Good luck and hope to see in happy Valley from time to time in for Rob We've heard from Merck, how the working on spin will benefit Merck in terms of complexity and focus but what are some of the tangible things Merck has done the setup.

That spin for success beyond the obvious stuff and I realize we're going to hear more on Monday, but I know you've been familiar with separations in the past.

So curious with some of those less obvious.

Features are.

That you think are working on is poised to benefit from.

Well.

As you look at again just to reiterate what you've just commented on.

Dean Y. Li: Merck has been very interested in mRNA and other nucleic acid technology, and specifically in the vaccines in mRNA. For the past five to six years, Merck has partnered with Moderna on vaccines for infectious diseases and vaccines for cancer.

Paul on Monday, it's really solely focused on building out in helping explain the growth story for Oregon on but if you look at where Merck has been over the last few years.

<unk> been in a situation, where we've been blessed with the.

Dean Y. Li: The validation of the mRNA technology in COVID is impressive, and at least personally, it's deserving of admiration and thanks. We continue to be interested in RNA and other nucleic acid-based technologies, including viral-based platforms for vaccines. I would highlight, and specific to your question about Gardasil, when you have multiple sorts of antigens that you have to deliver, I think there is a role for those sort of protein-based platforms. I think there will be many different platforms that need to be done specifically for the vaccine and the threat that you're trying to prevent. So, RNA and other nucleic acid-based technologies are important to us, including viral-based platforms, but we also think that, broader speaking, there are other vaccine platforms that will still be relevant moving forward.

The benefits of what <unk> has been able to do that has required us to do heavy investments to build out our oncology platform to invest in the clinical studies for oncology and now more broadly as we look at all of what we have going on in vaccines and even now with this launch appear in infectious diseases. So.

The challenge has been in many ways, we had to prioritize and we made the decision to de prioritize some of the assets that sit within the Oregon on portfolio. Many of those are still very good assets and as you know, particularly in the women's health area.

An opportunity for real growth, so I believe through focus through being able to actually drive their own capital allocation aimed at building those businesses and the focus there'll be able to bring they will accelerate the growth across not only the women's health business.

Unknown Attendee: Thank you, Ronnie. Next question, please, Laura. Thank you. Your next question will come from the line of Luisa Hector.

Unknown Attendee: Thank you, sir. Your next question will come from the line of Luisa Hector from Berenberg. Your line is now live. Go ahead, please. Thank you for taking my question. It's on the Pneumovax franchise, and I just wonder whether we should effectively

Segment around what they have in their Biosimilars business and then there are several areas.

If you look that don't highlight next week, where I think they can get to a point.

Growth. So a lot of it is really about focus and capital allocation in a way that we haven't been able to do well on our side, we believe with the spin the simplification that brings will allow us to go after a lot of and I've talked about this in the past a lot of the enzyme called if you will to think of it as the muscle of the fab.

Unknown Attendee: I wonder whether we should effectively look at 2020 as a peak for Pneumovac specifically, and then how...

Chris Schott: Yeah, so on Pneumovax, what I would say is that You know, if you look at what happened in the first quarter of this year, we were down versus the prior year because of a strong 2020 and the prioritization of pneumococcal vaccination. We do anticipate, as you go throughout the rest of 2021, pneumococcal vaccination will start to be prioritized along with flu vaccination. So we do anticipate that as you get to the back half of the year, you'll see pneumovacs really have an important role to play.

That is strewn throughout the muscle in this company given the complexity of our structure that's been built up over time.

Looking at those.

Those areas that sit between our divisions as we think about manufacturing and commercial as we think about supply chain.

All of those are opportunities for us to simplify and to take out unneeded bureaucratic complexity.

Simplification and focus is going to allow us to bring more resources to bear against our innovative portfolio and to drive faster growth.

Chris Schott: We have also mentioned that we are supply-constrained as you look at pneumovacs, especially in some of our markets around the world. But overall, we see it as a very important product going forward. As we introduce V114 and V116 in the initial introduction of V114, we still see pneumovacs playing a very important role for pneumococcal disease going forward. Thank you, Luisa. Next question, please.

<unk> commented on so I think both businesses youre going to see grow better as independent businesses than they would.

Bind entity and I am confident in the story for both and frankly I'm excited about having a women's health focused business at this time.

Where we are as a society I think theres, a real opportunity for us to lead there and Thats, what I am looking forward to see you are working on too.

Thank you Gregg next question please.

Thank you Sir our next question will come from the line of Seamus Fernandez from Guggenheim. Your line is now lines that go ahead. Please.

Unknown Attendee: Your next question will come from the line of Greg Gilbert from Truist. Your line is now live. Go ahead, please.

Hey, Thanks, So just wanted to follow up on the 2024.

Unknown Attendee: Thank you. Ken, good luck, and I hope to see you in Happy Valley from time to time.

42% operating margin target, hoping you could just walk us through the pushes and pulls as it relates to.

Rob Davis: And for Rob, we've heard from Merck how the Organon spin will benefit Merck in terms of complexity and focus, but what are some of the tangible things Merck has done to set up that spin for success beyond the obvious stuff? And I realize we're going to hear more on Monday, but I know you've been familiar with separations in the past. I am curious about some of those less obvious features that you think Organon is poised to benefit from. Thanks.

The reduced royalty burdens.

As well as.

What's happening with the Remicade Symphony agreement at that point in time, I know that comes with a very high royalty burden as well.

And it was our understanding that there are several sunsets in that period that will that will bolster margin mean.

Meaningfully without necessarily coming from top line leverage.

Rob Davis: Well, you know, as you look, and again, just to reiterate what you just commented on our poll on Monday, it's really solely focused on building out and helping explain the growth story for Organon. But if you look at where Merck has been over the last few years, we've been in a situation where we've been blessed with the benefits of what Katruda has been able to do. That has required us to do heavy investments to build out our oncology platform, to invest in the clinical studies for oncology, and now, more broadly, as we look at all of what we have going on in vaccines and even now with Zlativir and infectious diseases. So, you know, the challenge has been that, in many ways, we have had to prioritize, and we made a decision to deprioritize some of the assets that sit within the Organon portfolio.

Separately the question.

As it relates to the type of business development that's occurring.

Wanted to get a better sense of when you feel we're really going to start to see some of the various.

Smaller tuck in deals start to produce data.

That's let's call it phase two compelling.

From the earlier stage deals.

We're really going to drive the next leg of growth is that sort of in a similar 2020 for 2025 time frame.

It's just that the visibility on the pipeline currently to the street remains I think relatively modest thanks.

Caroline.

Thank you for the question, let me first start with the near term.

Rob Davis: Many of those are still very good assets, and, as you know, particularly in the women's health area, an opportunity for real growth. So I believe through focus, through being able to actually drive their own capital allocation aimed at building those businesses, and the focus they'll be able to bring, they will accelerate growth across not only the women's health business but excitement around what they have in their biosimilars business. And then there are several areas, if you look, that they'll highlight next week where I think they can get to a point of growth.

Company's guidance of EBITDA.

Implied margin of 38% a growth of 120 basis points compared with last year in it and driving that growth.

As a result of strong revenue and you may now a business that's what it is.

Continued diligent but focused investments within our business.

As we look out over the coming years, we will see margin improvement as a result of the $1 $5 billion.

Productivity, we expect to achieve as a result, this thing and we are well on track towards that with $500 million increases in 2021.

Rob Davis: So a lot of it is really about focus and capital allocation in a way that we haven't been able to do, while on our side, we believe with the spend, the simplification it brings will allow us to go after a lot of, and I've talked about this in the past, a lot of the, as I've called it, if you will, think of it as the muscle, the fat that is strewn throughout the muscle in this company, given the complexity of our structure that's been built up over time, that looking at those areas that sit between our divisions, as we think about manufacturing and commercial, as we think about supply chain, all of those are opportunities for us to simplify and to take out unneeded bureaucratic complexity. And I think that simplification in focus is going to allow us to bring more resources to bear against our innovative portfolio and to drive faster growth that Caroline commented on.

As we move forward over time, the real strength the operating margin for Mac will primarily come from the growth opportunities we have with us.

Asset in oncology in vaccines.

In addition, you will see continued investment in our business. We are confident in achieving the 42% as you know we also have the tailwind of a step down in the volume.

Right I think pertain to key.

Key trade zone is actually got itself and that will help in the achievement of the 42%, which we are very confident and I think that's.

Thanks to the product mix over time, our company has been diligent and focused in the types of business development. We are doing and peloton is an ideal example, but I think we have the opportunity to see self interest day impact the top line of our company. Therefore, the bottom line as well as the courts.

Rob Davis: So I think both businesses you're going to see grow better as independent businesses than they would as a combined entity, and I'm confident in the story for both. And frankly, I'm excited about having a women's health-focused business at this time in our society. I think there's a real opportunity for us to lead there, and that's what I'm looking forward to seeing Organon do. Thank you, Greg. Next question, please.

The patient.

Yes.

Final point on Amendment rent case in Symphony, it's really not a major contributor to that bottom line expansion.

Rob anything else to add maybe I'll just start and then I'll turn it over to Dean as you looked at.

Unknown Attendee: Thank you. So your next question will come from the line of Seamus Fernandez from Guggenheim. Your line is now live, so go ahead.

The opportunities I do think youre going to see in the 24 to 25 timeframe more information. The Best example, you can look at it is what's happened with peloton and most recently, we're already seemed to hit two alpha move forward in important ways. There's many data coming out from that and she does a meaningful opportunity, but maybe alternative today.

Unknown Attendee: Thanks. So just wanted to follow up on the 2024 42% operating margin target, hoping you could just walk us through the pushes and pulls as it relates to the reduced royalty burdens, as well as what's happening with the Remicade Symphony Agreement at that point in time. I know that comes with a very high royalty burden as well, and it was our understanding that there are several sunsets in that period that will boost their margin meaningfully without necessarily coming from top line leverage.

To give a sense because I do bill.

Believe you are going to see more information as we get into the timeframe youre talking about from a lot of these business development deals given the nature of lot of the oncology assets.

Thank you for that question, let me just take it.

High level of enhancer that temporal question that was asked.

That's sort of the opportunities that we look forward both in our internal pipeline and external pipeline we like.

Unknown Attendee: And then separately, a question as it relates to the type of business development that's occurring. Just wanted to get a better sense of when you feel we're really going to start to see some of the various smaller tuck-in deals start to produce data that's, let's call it phase two compelling, you know, from the earlier stage deals that are really going to drive the next leg of growth. Is that, you know, sort of in a similar 2024-2025 timeframe? It's just that the visibility on the pipeline currently to the street remains, I think, relatively modest. Thanks.

Right.

Assets that given the concentration leverage foundational drags were clear monotherapy efficacy. It gives me a fault growth.

Combination and specifically in relationship to cancer that allows us to expand and deepen and extend.

And we look for these foundational medicine and in the recent discussions with Gilead and handy.

It just shows that that that sort of attitude of how we want to soda proceed where we're taking foundational medicine, and we're matching up with internal and external pipeline. So that we can diversify that.

Caroline Litchfield: Thank you for the question. Let me first start with the near term. Our company's guidance for this year implies a margin of 38%, a growth of 120 basis points compared with last year, and we're driving that growth as a result of the strong revenue and mix of revenue in our business, as well as continued diligent but focused investment within our business. As we look out over the coming years, we will see margin improvement as a result of the $1.5 billion of productivity we expect to achieve as a result of the spin And we are well on track towards that goal, with $500 million included in 2021.

Pipeline and specific to your question I would look at the 21% to 24 range as a whole slew of Lin parcel in Vietnam protruded.

Studies that you will see a lot of it driving to adjuvant in earlier stages I think there's at least 20 registrational trials sort of laid out maybe four so that youll see in the next year.

In relationship to the business development, what you will see us in the 'twenty four 'twenty five timeframe things like has lots of various day low season, and also <unk> four lag three digit all of them will be in striking range to cannot Jesse.

Sort of phase III.

Caroline Litchfield: As we move forward over time, the real strength for operating margins for Merck will primarily come from the growth opportunities we have with our assets in oncology and vaccines. In addition, you will see continued investment in our business, but we are confident in achieving 42%. As you note, we also have the tailwind of a step down in the royalty rate as it relates to Keytruda and actually Gardasil, and that will help in the achievement of the 42%, which we are very confident in.

Studies, but potentially interim analysis or even complete analysis of those assets in that timeframe. So you'll see the different waves going through.

Thank you everybody we're right at the top of the hour. We appreciate the questions. This morning in the discussion and we look forward to any follow ups and the coming day. Thank you all very much.

Thank you Sir and thank you. So much presenters then again. Thank you everyone for participating. This concludes today's conference you may now disconnect.

And have a lovely day.

Caroline Litchfield: As it pertains to the product mix, over time, our company has been diligent and focused in the types of business development we are doing, and Peloton is an ideal example, where we have the opportunity to see those benefits impact the top line of our company, and therefore the bottom line, as well as support the patients that we serve. Your final point on Remicade and Symfony is that it's really not a major contributor to that bottom line expansion. Dean, Rob, anything else to add?

Okay.

Yes.

[music].

Okay.

Yes.

Moving.

[music].

[music].

Yes.

Yes.

[music].

Okay.

Yes.

Sure.

[music].

Rob Davis: Dean, Rob, anything else to add? Maybe I'll just start, and then I'll turn it over to Dean. You know, as you look at the opportunities, I do think you're going to see more information in that 24 to 25 timeframe. The best example you can look at is what happened with Peloton. And most recently, you know, we're already seeing HIP 2 Alpha move forward in important ways. There's a lot of data coming out from that, and we see that as a meaningful opportunity.

Yes.

Yes.

Okay.

[music] zone.

Yes.

[music].

Thank you.

Rob Davis: And maybe I'll turn it to Dean to give you a sense because I do believe you are going to see more information as we get in the timeframe you're talking about from a lot of these business development deals, given the nature of a lot of the oncology assets. Yeah, thank you for that question. Let me just take it high level and then answer the temporal question that was asked.

Yes.

Sure.

Okay.

Okay.

[music].

Dean Y. Li: The sort of opportunities that we look for both in our internal pipeline and external pipeline, we like, or I like, assets that give me concentration leverage, foundational drugs where clear monotherapy efficacy gives me a fulcrum for combinations, and specifically in relation to cancer, that allows us to expand, deepen, and extend. And we look for these foundational medicines, and the recent discussions with Gilead and Pandia just show that that sort of attitude of how we want to proceed where we're taking foundational medicines and we're matching them with internal and external pipelines so that we can diversify the pipeline. In specific to your question, I would look at the 21 to 24 range.

Okay.

Thanks.

Okay.

Yes.

[music].

Okay.

[music].

Sure.

Okay.

[music].

Okay.

Okay.

Okay.

Sure.

Sure.

Yes.

[music].

Yes.

Dean Y. Li: There's a whole slew of Lenparza, Lenvima, and Katruda studies that you will see, a lot of it driving to adjuvant and earlier stages. I think there are at least 20 registrational trials. I sort of laid out maybe four or so that you'll see in the next year. In relation to business development, what you will see is, in the 24-25 timeframe, things like Izlatrovir, Velos, Tigen, also CTLA-4-LAG, 3-digit. All of them will be in the striking range to not just see sort of phase two studies but potentially interim analysis or even complete analysis of those assets in that timeframe.

[music].

[music].

Sure.

Sure.

Hum.

Okay.

[music].

Okay.

[music].

Dean Y. Li: So you'll see these different waves going on. Thank you, everybody. We're right at the top of the hour. We appreciate the questions this morning and the discussion, and we look forward to any follow-ups in the coming days. Thank you all very much.

Peter Dannenbaum: 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.

Unknown Attendee: BF-WATCH TV 2021 BF-WATCH TV 2021

Yes.

Sure.

[music].