Q2 2021 Merck & Co Inc Earnings Call

Good morning, My name is Melisa and I will be your conference operator today at this time I would like to welcome everyone.

Mary Sarah: My name is Mary Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Merck & Co. second quarter 2021 conference call.

Mike and co second quarter 2021 conference call all lines have been placed on mute to prevent any background noise.

Mary Sarah: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star and the number 1 on your telephone keypad. To withdraw your questions, press the pound key. Thank you. I would now like to turn the call over to Peter Dannenbaum, VP, Investor Relations. Please go ahead.

After the Speakers' 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 1 on your telephone keypad.

2 questions first it down.

Thank you I would now like to turn the call over to Peter Tennenbaum VP Investor Relations. Please go ahead.

Thank you Mary and good morning, welcome to Merck second quarter 2021 Conference call with me today are Rob Davis, our Chief Executive Officer, Dr. Dean.

Peter Dannenbaum: Thank you, Mary, and good morning. Welcome to Merck's second quarter 2021 conference call. With me today are Rob Davis, our Chief Executive Officer; Dr. Dean Lee, President of Merck Research Labs; Frank Clyburn, 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.

We do all your president of Merck Research Labs, Frank Clyburn, President of Human Health, and Caroline Litchfield, Chief Financial Officer before.

Before we get started I'd like to point to 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.

Peter Dannenbaum: You should note that we have excluded these from our non-GAAP results and provided a reconciliation in our press release. I would like to remind you that some of the statements that we make during today's call may be considered forward-looking statements within the meaning of the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995.

And provide a reconciliation in our press release.

I'd like to remind you that some of the statements that we make during today's call maybe considered forward looking statements within the meaning of the safe Harbor provision of the U S. Private Securities Litigation Reform Act of 1095, such statements are made based on the current beliefs of Merck's management and are subject to significant risks and uncertainties if our.

Peter Dannenbaum: Such statements are made based on the current beliefs of Merck's management and are subject to significant risk and uncertainty. If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statement. Our SEC filings, including Item 1A and 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.

Our underlying assumptions prove.

And accurate or uncertainties materialize actual results may differ materially from those set forth in the forward looking statements.

Our SEC filings, including item 1 a in the 2000.10-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.

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 Rob.

To publicly update any forward looking statements are SEC filings today's earnings release, and an investor presentation with highlights of our results are all posted on Merck Dot com.

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

Thanks, Peter and good morning, everyone.

Rob Davis: Thanks, Peter, and good morning, everyone. I'm deeply honored to speak to you today in my new role as CEO. Merck is a special company, and I'm fortunate to be surrounded by talented and dedicated colleagues who are intently focused on bringing important life-enhancing and life-saving medicines and vaccines to people and animals around the world. This long-standing and unwavering commitment to our mission is real, and it is tangible, and is what drives us to perform every day.

I am deeply honored to speak to you today in my new role as CEO Merck as a special.

Company the non.

I'm fortunate to be surrounded by talented and dedicated colleagues who are intently focused on bringing important life, enhancing and life saving medicines and vaccines to people and animals around the world.

This long standing and unwavering commitment to our mission is real is tangible and is what drives us to perform.

Special every day.

The prioritization of investment in research and development under Ken's leadership and.

Rob Davis: The prioritization of investment in research and development under Kim's leadership and the focus of resources behind key growth drivers has put us in a position of strength that I intend to build upon. As I consider Merck's future, I continue to believe investment in research and development with patience at the center of everything we do is core to who Merck is and is our best path to sustainable ongoing success and value creation.

The focus of resources behind key growth drivers as put us in a position of strength.

Instead to build upon.

I consider merck's future.

Continue to believe investment in research and development with patients.

At the center of everything we do is core to who Merck is and is our best path to sustainable ongoing success and value creation.

However, how we go about both delivering the best external and internal scientific opportunities as well as how we bring those innovations to patients must evolve.

Rob Davis: However, how we go about both delivering the best external and internal scientific opportunities, as well as how we bring those innovations to patients, must evolve. As I transition to the role of CEO, I solicited candid feedback from colleagues and external stakeholders. What I heard reaffirms my conviction.

As I transition to the role of CEO.

Hi, solicited candid feedback from colleagues and external stakeholders.

What I heard reaffirms my convictions.

There is broad agreement that investment in R&D should remain our highest strategic priority.

Rob Davis: There is broad agreement that investment in R&D should remain our highest strategic priority, and employees are confident that we are on the right path. We have rebuilt and reinvigorated our discovery research engine and have a growing and robust pipeline. We're successfully executing on clinical development, and we're delivering strong commercial growth across both our human and animal health businesses now and will continue to do so well into the future. While we are on the right path, we need to work with more speed, urgency, and agility, more closely matching the pace of change in the broader environment.

Employees are confident that we're on the right path.

We've rebuilt.

We reinvigorated our discovery research engine and have a growing and robust pipeline.

We're successfully executing on clinical development and we are delivering strong commercial growth across both our human and animal health businesses now and we will continue to do so well into the future.

While we are on the right path we need to.

Work with more speed.

<unk> and agility.

More closely matching the pace of change in the broader environment.

We need to accelerate the delivery of our innovations to the patients who need them and to be leaner and nimbler and more digitally enabled.

Rob Davis: We need to accelerate the delivery of our innovations to the patients who need them and to be leaner, nimbler, and more digitally enabled. We need to leverage the scale and reach we have as a global biopharmaceutical leader while also embracing an commitment to evolve to address new challenges. And we need to move with focus and intentionality, which is a priority for both me and my managers. I know that it's not about promising; it's about performing. Actions speak louder than words.

We need to leverage the scale and reach we have is a global biopharmaceutical leader while all.

<unk> pricing and commitments to evolve to address new challenges.

And we need to move with focus and intentionality, which is a priority for both me and my management team.

I know that it's not about promising.

About performing.

Actions speak louder than words without understanding I pledged to do all I.

Rob Davis: With that understanding, I pledge to do all I can to ensure that Merck remains a global biopharmaceutical leader long into the future, delivering value to current and future patients and growth in value for our charitable. Now, turning to the quarter.

Also wanted to ensure that Merck remains a global biopharmaceutical leader long into the future.

Delivering value to current and future patients and growth and value for our shareholders.

Now turning to the quarter.

We had very good performance with strong growth.

Rob Davis: We have had very good performance with strong growth. Our results demonstrate that the impact of the pandemic on our business is diminishing. Patient access to health care providers has improved, and we expect continued strong growth in the remainder of the year. We're also making meaningful clinical advancements, which Dean will speak about in just a few moments. Our seamless execution during a period in which we successfully completed a complex spinoff without business interruption, underwent leadership transitions, and delivered accelerated growth only increases my confidence in what our organization can achieve in the future.

Our results demonstrate that.

The impact of the pandemic on our business is lessening.

Patient access to health care providers has improved and we expect continued strong growth in the remainder of the year.

We're also making meaningful clinical advancements, which dean will speak to in just a few moments.

Our seamless execution during a period in which we successfully completed.

<unk> are complex spinoff without business interruption underwent leadership transitions.

<unk> delivered accelerated growth.

Only increases my confidence in what our organization can achieve in the future.

Oregon is now an independent company and an important milestone in our company's history.

Rob Davis: Organon is now an independent company, an important milestone in our company's history, and this transaction is a meaningful catalyst to Merck becoming a more focused, more efficient, and faster-growing company. Let me spend a moment speaking about CRUDA, which again experienced very strong growth this quarter.

And this transaction is a meaningful.

For catalysts to Merck, becoming a more focused more efficient and faster growing company.

Let.

Let me spend a moment speaking about the cuda, which again experienced very strong growth this quarter.

I am confident that contributor will continue to be a foundational cancer therapy and achieve strong growth for years to come.

Rob Davis: I'm confident that Keytruda will continue to be a foundational cancer therapy and achieve strong growth for years to come. We are a leader in immuno-oncology and are determined to leverage this and sustain success. We are rapidly advancing a diverse set of oncology assets, many of which we highlighted in our recent ASCO investor presentation. Across our oncology portfolio, we expect over 90 potential new indications by 2028, more than tripling our current base.

We.

Current immuno oncology and are determined to leverage this into sustained success.

We're rapidly advancing a diverse set of oncology assets many of which we highlighted in our recent <unk> industrial presentation.

Across our oncology portfolio, we expect over 90 potential new indications by 2028.

<unk> more than tripling our current base.

We have a wide array of clinical partnerships providing valuable.

Rob Davis: We have a wide array of clinical partnerships providing valuable insights into the biology of disease and into important potential external innovation. With our expanding oncology portfolio outside of Katruda, we will extend our leadership in cancer long into the future. I also strongly believe we will successfully navigate the eventual protruded loss of exclusivity given the breadth of opportunity in areas both within as well as outside of oncology. Internally, our leaders are intensely focused on this period, and efforts are underway.

<unk> insights into the biology of disease and in 2 important potential external innovation.

With our expanding oncology portfolio outside of Keytruda, we will extend our leadership in cancer long into.

For the future.

I also strongly believe we will successfully navigate the eventual contributed a loss of exclusivity given the breadth of opportunity in areas, both within as well as outside of oncology.

Internally our leaders are intensely focused on this period and efforts are underway.

Externally.

Rob Davis: Externally, I understand the importance of providing investors with increased transparency into the breadth of opportunities we see in our pipeline that will help us do this. As we've done recently in highlighting Islatrapir, our broader HIV portfolio, and our next-generation oncology assets, we're planning deep dive investor events with our scientific and commercial leaders focused on other areas of our pipeline that we believe are underappreciated yet hold great promise, such as our suite of vaccine candidates, cardiometabolic assets, as well as others.

I understand the importance of providing investors with increased transparency into the breadth of opportunities we see in our pipeline that will help us do this.

As we've done recently and highlighting as lathrop here, our broader HIV portfolio and our next generation oncology assets, we are planning deep dive investor events with our scientific and commercial.

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Focus on other areas of our pipeline that we believe are underappreciated, yet hold great promise such as our suite of vaccine candidates.

Our cardio metabolic assets as well as others.

Business development plays an important role and we are putting increased emphasis on ensuring we are appropriately aggressive.

Rob Davis: Business development plays an important role, and we are putting increased emphasis on ensuring we are appropriately aggressive in accessing the best external science. Executing value-enhancing BD is a top priority, and we intend to add to our pipeline through acquisitions, partnerships, licensing deals, and collaboration. We will be unbounded by therapeutic areas, though we are mindful of the need to have a balanced portfolio over time and will seek new products, modalities, and platforms that allow us to establish beachheads in important areas.

<unk> and accessing the best external science.

Executing value enhancing BD is a top priority and we intend to add to our pipeline through acquisitions partnerships licensing deals and collaborations.

We will be unbounded by therapeutic area, though we are mindful of the need to have a balanced portfolio over time.

Leaders will seek new products modalities and platforms that allow us to establish beachheads in important areas.

Our recent acquisition of <unk> and its potentially foundational immunology asset is a good example of this well.

Rob Davis: Our recent acquisition of Pandion and its potentially foundational immunology asset is a good example of this. We will look at both early and late stage opportunities, and we have the financial flexibility to consider deals of all sizes, particularly given the $9 billion distribution from the organ on steno. And, given our strong operational momentum, we are most interested in transactions that are easily integrated and less disruptive, where value is principally derived by the introduction of innovative new products that address patient needs instead of through cost synergies.

We will look at both early and late stage opportunities and we have the financial flexibility to consider <unk>.

<unk> of all sizes, particularly given the $9 billion distribution from the Organon spinoffs.

And given our strong operational momentum we are most interested in transactions that are easily integrated in less disruptive where value is principally derived by the introduction of innovative new products that address patient needs instead.

Setup and cost synergies.

Before I turn the call over to Frank to discuss second quarter performance on our human health business.

Once you to know that I appreciate and applaud the increasing societal and investor demands on corporations to act responsibly in fact, I believe our strong performance across environmental.

Rob Davis: Before I turn the call over to Frank to discuss second quarter performance in our Human Health business, I want you to know that I appreciate and applaud the increasing societal and investor demands on corporations to act responsibly. In fact, I believe our strong performance across environmental, social, and governance issues has and will continue to create sustainable value for all of our stakeholders. Merck has a long technology record and a history of strong corporate citizenship, and I'm committed to remaining a leader in this area. With that, I'll turn the call over to Frank. Thanks, Rob.

Social and governance issues.

And we will continue to create sustainable value for all of our stakeholders.

Merck has a long track record and history of strong corporate citizenship and I'm committed to remaining a leader in this area.

With that let me turn the call over to Frank.

Thanks, Rob good morning.

As Rob highlighted our human health business continues to regain momentum and we achieved 18% growth in the quarter, excluding the impact of exchange.

Across our business, we've been engaging and investing with urgency to encourage more normal levels of physician office visits oncology screenings.

Frank Clyburn: As Rob highlighted, our human health business continues to regain momentum, and we achieved 18% growth in the quarter, excluding the impact of exchange. Across our business, we've been engaging and investing with urgency to encourage more normal levels of physician office visits, oncology screenings, and vaccination rates, including catch-up from missed doses. The agility demonstrated by our teams around the world to quickly reallocate resources to drive these patient activation programs has benefited our largely physician-administered portfolio.

<unk> vaccination rates, including ketchup from missed doses.

The agility demonstrated by our teams around the world to quickly reallocate resources to drive these patient activation programs has benefited our largely physician administered portfolio.

In the United States, we are.

Interested in wellness visits and surgical procedures have returned to more normal levels and in oncology, we're seeing screening rates continue to improve.

We're confident that these favorable trends and the strong underlying demand for our products will drive accelerated underlying business momentum.

Frank Clyburn: In the United States, we are encouraged that wellness visits and surgical procedures have returned to more normal levels, and in oncology, we're seeing screening rates continue to improve. We're confident that these favorable trends and the strong underlying demand for our products will drive accelerated underlying business momentum in the second half of the year. Now I'll turn to the second quarter performance of our key brands. My comments will be on an exchange basis.

In the second half of the year now.

Now I'll turn to the second quarter performance of our key brands My comments will be on an ex exchange basis.

In oncology Keytruda sales grew 20% to $4.2 billion.

Reflecting continued strong global demand and.

In the United States Keytruda.

I encourage and used to demonstrate strong growth and over the course of the pandemic has increased its market share of new patients within the immuno oncology class.

Frank Clyburn: In Oncology, Keytruda's sales grew 20% to $4.2 billion, reflecting continued strong global demand. In the United States, Kutruda continues to demonstrate strong growth and has increased its market share of new patients within the immuno-oncology class. Couture also maintains its leadership position in lung cancer, capturing 8 out of 10 eligible new patients.

Keytruda also maintains its leadership position in lung cancer, capturing 8 out of 10 eligible new patients we continue to see strong growth.

Across all key tumors, including renal cell carcinoma, bladder adjuvant melanoma, and our MSI high indication.

Additionally, we're off to a very strong start with our launch of keynote 355 in metastatic triple negative breast cancer, and we look forward to adding overall survival to the label.

Frank Clyburn: We continue to see strong growth across all key tumors, including renal cell carcinoma, bladder, adjuvant melanoma, and our MSI high indication. Additionally, we're off to a very strong start with our launch of Keynote 355 in metastatic triple negative breast cancer, and we look forward to adding overall survival to the label. We're also excited by the recent approval and upcoming launch of Keynote 522 in the neoadjuvant and adjuvant settings. Outside the United States, growth continues to be driven by lung cancer indications and ongoing launches in head and neck cancer and renal cell carcinoma.

<unk> also excited by the recent approval and upcoming launch of keynote 522 in the neo adjuvant and adjuvant setting.

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

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<unk> grew 34% in the quarter and remains the leading PARP inhibitor growth continues to be driven by approvals of recent indications and we look forward to a potential future launch in adjuvant breast cancer based on the Olympiad data presented at <unk> This year.

Frank Clyburn: Lymparza grew 34% in the quarter and remains the leading PARP inhibitor. Growth continues to be driven by approvals of recent indications, and we look forward to a potential future launch in adjuvant breast cancer based on the Olympia data presented at ASCO this year. Limbema grew 15% in the quarter, reflecting increased demand and a pathocellular carcinoma following the NRGL listing in China. We're also excited to launch the recently approved combination of Limbema plus Keytruda in endometrial carcinoma and, in the near future, potentially launch in renal cell carcinoma based on Keynote 581.

Lymphedema grew 15%.

Sent in the quarter, reflecting increased demand and had a pattern cellular carcinoma. Following the NRG listing in China.

We're also excited to launch the recently approved combination of lymphedema, plus keytruda in endometrial carcinoma and in the near future to potentially launch in renal cell carcinoma based on keynote.

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Our vaccines portfolio recovered sharply due to the return to more normal level of wellness visits gardasil.

<unk> had a very strong quarter growing 78%.

And United States higher sales were driven by a recovery from the negative impact.

Curious lockdowns outside United States growth was driven by increased demand in China.

Frank Clyburn: Our vaccines portfolio recovered sharply due to the return to a more normal level of wellness. Garda still had a very strong quarter, growing 78%. In the United States, hire sales were driven by a recovery from the negative impact of last year's lockdown. Outside the United States, growth was driven by increased demand in China.

Sales also benefited from increased supply due to improved manufacturing, which I will provide additional details on in a moment.

Our hospital business continued its recovery Radeon sales grew 67.

Atlanta at year over year, driven by increased surgeries is patient access to hospitals improved from last year.

Frank Clyburn: Sales also benefited from increased supply due to improved manufacturing, which I'll provide additional details on in a moment. Meanwhile, our hospital business continued its recovery. Bridean sales grew 67% year-over-year, driven by increased surgeries as patient access to hospitals improved from last year.

Turning to our outlook.

The recovery, we saw in the quarter gives us confidence that we will have a very strong second half, resulting from both market recovery and strong commercial execution.

<unk> over the quarter Merck quickly pivoted, its focus and resources to patient activation campaigns to ensure that patients are putting their health first and recognize the vineyard importance of returning to physicians offices for screenings early detection and routine visits.

Frank Clyburn: Turning to our outlook, the recovery we saw in the quarter gives us confidence that we will have a very strong second half, resulting from both market recovery and strong commercial execution. During the quarter, Merck quickly shifted its focus and resources.

Our efforts in partnership with public.

Per health constituent groups paired with the continued rollout of COVID-19, vaccinations has resulted in meaningful improvements in patients accessing health care providers.

Frank Clyburn: Thank you all for joining us today for the patient activation campaigns to ensure that patients are putting their health first and recognizing the importance of returning to their physicians' offices for screenings, early detection, and routine visits. Our efforts, in partnership with public health constituent groups paired with the continued rollout of COVID-19 vaccinations, have resulted in meaningful improvements in patients accessing health care providers. In adolescence, we've seen more than one-third of teens in the United States vaccinated against COVID-19 with at least one dose.

And then in adolescence, we've seen more than 1 third of teams in the United States vaccinated against COVID-19, with at least 1 dose.

We assume that these rapidly growing vaccination rates and continued commercial execution will help to drive our near normal back to school season.

Merck has also shown increased agility and efficiency across our organization and importantly, we've made improvements that will enable meaningful future growth of.

Public we expect gardasil to significantly benefit from increases in productivity across our supply chain, which will allow us to fulfill demand that we were previously unable to supply.

Frank Clyburn: We assume that these rapidly growing vaccination rates and continued commercial execution will help to drive a near-normal back-to-school season. Merck has also shown increased agility and efficiency across its organization, and importantly, we've made improvements that will enable meaningful future growth. Of note, we expect Gardasil to significantly benefit from increases in productivity across our supply chain, which will allow us to fulfill demand that we were previously unable to supply. Furthermore, as global demand for Gardasil continues to outpace supply, our teams have been working to ensure we have the right regulatory approvals and lead time to appropriately allocate doses to areas of increased demand, particularly as the pandemic continues to force lockdowns in many geographies.

Furthermore, as global demand for Gardasil continues to outpace supply our teams have been working to ensure we have the.

Regulatory approvals and lead time to appropriately allocate doses to areas of increased demand, particularly as the pandemic continues to force lockdowns in many geographies.

These improvements alone will drive very strong sequential and year over year growth regard is still in the back half of the year, especially.

Note ex U S markets such as China.

In oncology, we are encouraged by the recover we've seen to date and our overall performance throughout the pandemic.

We remain confident in the underlying demand for our broad and innovative portfolio, including Keytruda Linde par as a link bema.

<unk>, if approved <unk> and expect to drive strong and sustained growth across key tumor types and stages of disease.

Frank Clyburn: These improvements alone will drive very strong sequential and year-over-year growth for Gardasil in the back half of the year, especially in non-U.S. markets such as China. In oncology, we're encouraged by the recovery we've seen to date and our overall performance throughout the pandemic. We remain confident in the underlying demand for a broad and innovative portfolio, including Katruda, Lenparza, Lenvema, and, if approved, Velzutifan, and expect to drive strong and sustained growth across key tumor types and stages of disease.

Overall the improvements in patient access we are seeing in major markets gives us increased confidence as we look to the second half of the year.

Before I conclude I would like to mention the.

Strong execution of our commercial colleagues around the world that enabled our company to drive strong growth in the first half of the year all the while we're working to successfully complete the spinoff of organized.

We are confident that the spinoff results and meaningful benefits to the commercial organization, including the ability.

Frank Clyburn: Overall, the improvements in patient access we are seeing in major markets give us increased confidence as we look to the second half of the year. Before I conclude, I would like to mention the strong execution of our commercial colleagues around the world that enabled our company to drive strong growth in the first half of the year, all the while we were working to successfully complete the spinoff of Organized. We are confident that the spinoff will result in meaningful benefits to the commercial organization, including the ability to drive even stronger growth through more focused commercial execution.

And by having been stronger growth through more focused commercial execution.

Those are businesses regained momentum and we are well positioned with strategic strong growth in the third and fourth quarters. Our portfolio has rebounded with strength and demonstrated not only its resiliency, but its value to patients globally.

To drive this strong recovery, we saw in the quarter underscores our confidence in the underlying demand for our innovative medicines and vaccines and we look forward to a return to robust long term demand driven growth.

Frank Clyburn: To close, our business has regained momentum, and we are well positioned to achieve strong growth in the third and fourth quarters. Our portfolio has rebounded with strength and demonstrated not only its resiliency but its value to patients globally. The strong recovery we saw in the quarter underscores our confidence in the underlying demand for innovative medicines and vaccines, and we look forward to a return to robust, long-term, demand-driven growth. With that, I'll turn the call over to Caroline. Thank you for your

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

Thank you Frank.

Good morning.

Our business delivered meaningful growth in the quarter, Jason by strong underlying demand for products across our growth pillars, and the continued recovery of the business of patient access and price.

As we exit the quarter, we are confident that our position of financial and operational.

Strength will enable us to drive long term revenue growth and meaningful margin expansion, creating value for our shareholders by delivering on our mission.

Caroline Litchfield: Thank you, Frank. Good morning.

Caroline Litchfield: Our business delivered meaningful growth in the quarter, driven by strong underlying demand for products across our growth pillars and the continued recovery of the business as patient access improved. As we exit the quarter, we are confident that our position of financial and operational strength will enable us to drive long-term revenue growth and meaningful margin expansion, creating value for our shareholders by delivering on our mission to improve the health and wellness of people and animals worldwide.

Improved the health and wellness people at animal worldwide.

Now turning to our second quarter results, which reflect Merck on a continuing.

Frank Durations base day.

Total company revenues were $11.4 billion, an increase of 22% or 19%, excluding the positive impact of foreign exchange.

Further adjusting for the estimated impact of the pandemic total revenues grew 8%.

Caroline Litchfield: Now turning to our second quarter results, which reflect Merck on a continuing operations basis. Total company revenues were $11.4 billion, an increase of 22% or 19% excluding the positive impact of foreign exchange. Further adjusting for the estimated impact of the pandemic, total revenues grew 8% year over year, evidence of the underlying strength of our business. The remainder of my comments will be made on an ex-exchange basis.

On a per year evidence of the underlying strength of our business.

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

As Frank highlighted our human health business showed improving momentum growing 18% or 6% when adjusted for the estimated impact.

The pandemic.

Animal health had an outstanding quarter, increasing 27% driven by very strong global demand across companion animal and livestock, which increased 38% and 20% respectively.

Caroline Litchfield: As Frank highlighted, our human health business showed improving momentum, growing 18% or 6% when adjusted for the estimated impact of the pandemic. Animal health had an outstanding quarter, increasing 27%, driven by very strong global demand across companion animals and livestock, which increased 38% and 20% respectively. Animal health sales grew 19% when adjusted for the estimated pandemic impact. In companion animals, growth was driven by higher global demand for vaccines, as well as parasiticides, including the Brevecto line of products. The performance in livestock reflects increased global demand across ruminants, swine, and poultry products, along with higher demand for our animal health intelligence products.

Animal health sales grew 19.

You're right.

When adjusted for the estimated pandemic impact.

In companion animal growth was driven by higher global demand for vaccines as well as parasiticide and creating the perfect co line of products.

Performance in livestock reflect increased global demand across.

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<unk> and poultry products, along with higher demand for our animal health intelligence products.

I will now walk you through the remainder of thought pans out and my comments will be on a non-GAAP basis.

Gross margin was 76, 5% in the quarter a day.

Decrease of 6%, reflecting the unfavorable effects of foreign exchange.

<unk> pressure and higher manufacturing costs, partially offset by favorable product mix.

Caroline Litchfield: I'll now walk you through the remainder of our P&L, and my comments will be on a non-SCEP basis. Growth margin was 76.5% in the quarter, a decrease of 0.6%, reflecting the unfavorable effects of foreign exchange. Pricing Pressure and Higher Manufacturing Costs, Partially offset by favorable product mix. Operating expenses increased 13% year-over-year to $4.8 billion, driven largely by higher clinical development costs, increased investment in our early-stage pipeline, and higher promotion costs in support of return-to-care activities for our key growth drivers. The effective tax rate for the quarter was 14.6%, an increase of 1.3% from a year ago, driven by discrete items last year.

Operating expenses increased 13% year over year to $4.8 billion.

Costs were driven largely by higher clinical development costs.

Increased investment in our early stage pipeline and higher promotion cost Inc.

Supportive with touch care activity for our key growth choices.

The effective tax rate for the quarter was 14, 6% an increase of 1.

2.8% from a year ago, driven by discrete items last year.

Taken together, we had $1.31 per share an increase of 27%.

Before turning to our 2021 guidance I want to remind you briefly of the benefits we expect.

We achieved as a result of the spin off of <unk>.

Caroline Litchfield: Taken together, we add $1.31 per share, an increase of 27%. Before turning to our 2021 guidance, I want to remind you briefly of the benefits we expect to achieve as a result of this spin-off from Organ Arts. With the spin-off completed, Merck is now a more focused company and better positioned to unlock the full potential of our growth pillars and drive accelerated, profitable growth. We are very excited about our future, and as we look out to 2024, we continue to believe that our revenue potential is underappreciated. Now for 2021.

With the spin completed Merck is now a more focused company and better positioned to unlock the full potential of our growth pillars and drive accelerated profitable growth.

We are very excited about our future and as we.

Expect to 2024, we continue to believe that our revenue potential is under appreciated.

Now for 2021.

Health systems and patients have largely adapted to the impacts of the pandemic and we assume this trend will continue.

We are narrowing.

And raising our expected revenue range to $46.4 to $47.4 billion.

Caroline Litchfield: Health systems and patients have largely adapted to the impacts of the pandemic, and we assume this trend will continue. We are narrowing and raising our expected revenue range to $46.4 to $47.4 billion, representing growth of 12 to 14 percent, including a positive impact from foreign exchange of less than 2 percent using mid-July rates. The underlying demand for our growth pillars and our strong commercial execution provide us with confidence that we will continue to see strong momentum throughout the remainder of the year.

Representing growth of 12% to 14%, including a positive impact from foreign exchange of less than 2% using mid July rates.

The underlying demand for our growth.

Growth pillars.

And that strong commercial execution provides us with confidence that we will continue to see strong momentum throughout the remainder of the year.

As such we expect total revenues to be sequentially higher in each consecutive quarter.

Our gross margin.

To be between 76 and 77%.

Caroline Litchfield: As such, we expect total revenues to be sequentially higher in each consecutive quarter. Our gross margin is expected to be between 76 and 77 percent. We expect operating expenses to grow at a high single-digit rate, driven by increased investment in promotion and patient activation programs to accelerate our near-term business momentum, and by increased R&D investment to advance our exciting pipeline to support sustainable, long-term revenue growth. As a reminder, our operating margin from continuing operations will be lower than it was as a combined company.

We expect operating expenses to grow at a high single digit rate.

Driven by increased investment in promotion and patient activation programs to accelerate our near term business momentum.

Increased R&D investment to advance our exciting pipeline to support sustainable long term revenue growth.

As a reminder, our operating margin from continuing operations will be lower than what they were as a combined company.

Okay guidance range implies.

Significant operating leverage in 2021.

Caroline Litchfield: But our guidance range implies significant operating leverage in 2021. In addition, we continue to expect operating margins of greater than 42% in 2024, driven by our accelerated revenue growth and disciplined investment in our business. In other income and expense, we expect an expense of approximately $300 million. We expect our full-year tax rate to be between 14.5% and 15.5%.

In addition, we continue to expect operating margins of greater than 42% in 2024.

And by our accelerated revenue growth and disciplined investment in our business.

In other income.

<unk> expense, we expect expense of approximately $300 million.

We expect our full year tax rate to be between 14, 5 and 15, 5%.

We assume 253 billion shares.

Caroline Litchfield: We assume 2.53 billion shares outstanding. Taken together, we expect non-GAS EPS to be between $5.47 and $5.57, reflecting growth of 21-23%. This range includes a positive impact from foreign exchange of approximately 2% using mid-July rates.

Good day.

Taken together, we expect non-GAAP EPS to be 3 excuse me to be between $5.47.

And $5, 57%, reflecting growth of 21% to 23%.

This range includes a positive impact from foreign exchange of approximately.

<unk>, 2% using mid July rates.

As you consider your modules and the allocation of revenues to various products.

Caroline Litchfield: As you consider your models and the allocation of revenues to various products, there are two areas to focus on: Gardasil and animal health. Fred described the strong acceleration in growth expected for Gardasil, and we also expect continued momentum in our animal health business. Our updated guidance also reflects the benefits of the approval of Keynote 522 and, as a reminder, does not include revenue from the potential launch of Monu Pirovir. Turning to capital allocation,

2 areas to focus on.

Sales and animal health.

Frank described the strong acceleration in growth expected in Gaza sales.

We also expect continued momentum in our animal health business.

Our updated guidance also reflects the benefits of the approval of keynote 522.

And as a reminder, does not include revenue from the potential launch of monitor per event.

Okay.

Turning to capital allocation.

We received a $9 billion cash distribution from <unk>, which we intend to deploy and value enhancing strategic business development opportunities.

Caroline Litchfield: We received a $9 billion cash distribution from Organon, which we intend to deploy in value-enhancing strategic business development opportunities that align with the parameters Rob outlined. In the absence of meaningful business development, we will return cash to shareholders through share repurchases. We remain committed to investing in support of our key brands and progressing our innovative pipeline, and we will look to increase our dividend payout ratio over time. To conclude, as a leaner, more focused, and agile company, Merck is prepared to capitalise on the meaningful opportunities that lie ahead and is better equipped to succeed in an ever-changing landscape.

It's in line with the parameters Rob outlined.

In the absence of meaningful business development, we will.

And with that cash to shareholders through share repurchases.

We remain committed to investing in support of our key brands and progressing our innovative pipeline.

And we will look to increase our dividend payout ratio over time.

To conclude as.

Lena <unk>.

Will recur and agile company Merck is prepared to capitalize on the meaningful opportunities that lie ahead and is better equipped to succeed in an ever changing landscape Merck.

Merck remains in a position of financial and operational strength, which we will leverage to drive long term sustainable.

Caroline Litchfield: Merck remains in a position of financial and operational strength, which we will leverage to drive long-term sustainable growth and value creation for our patients and shareholders. With that, I'd now like to turn the call over to Dean. Thank you, Karen.

<unk> growth and value creation for our patients and shareholders with that I'd now like to turn the call over to day. Thank you Caroline and I'm delighted to be here today to provide an overview of progress made over the past quarter I will cover key regulatory milestones and clinical update initially in oncology.

Dean Y. Li: Thank you, Caroline. I'm delighted to be here today to provide an overview of progress made over the past quarter. I will cover key regulatory milestones and clinical updates, initially on oncology, and then across the broader pipeline. As Rob highlighted, we continue to show strong momentum in our oncology pipeline, which positions us well, and it's worth reiterating our goal. A recent report from the American Cancer Society noted that there was a rapid decrease in lung cancer and melanoma deaths from 2014 to 2018.

Fuzzy and then across the broader pipeline.

As Rob highlighted we continue to show strong momentum in our oncology pipeline, which positions us well and it's worth reiterating our goal.

Potentially deliver 90, plus approvals of new indications by 2028, a recent report from the American cancer.

Our society noted that there's been a rapid decrease in lung cancer and melanoma debt free.

2014 to 2018, 1 factor attributed to this decline is advancements in research, including targeted therapies and immune checkpoint inhibitors.

Dean Y. Li: One factor attributed to this decline is advancements in research, including targeted therapies and immune checkpoint inhibitors. The report also notes there is an urgent need to accelerate a decline in death rates for breast, prostate, and other cancers, where Merck is just beginning to make an impact. We are hopeful that our contributions and the advances being made industry-wide will continue to fuel this decline.

The report also note there is an urgent need to accelerate a decline.

Calling rates for breast prostate and other cancers, where Merck is just beginning to make an impact we are hopeful that our contributions and the advances being made industry wide will continue to fuel this decline.

Notably during the last quarter, we achieved several milestones for treatments targeting women's.

Dean Y. Li: Notably, during the last quarter, we achieved several milestones for treatments targeting women's cancer. For triple negative breast cancer, the most aggressive subtype of breast cancer, where historically treatment options have been limited, I am pleased to announce several advancements which will improve options for patients. The first is FDA approval for a new indication in high-risk, early-stage, triple-negative breast cancer based on results from the Pivotal Phase III Keynote 522 study, where Keytruda was evaluated in combination with chemotherapy as neoadjuvant treatment and then as monotherapy adjuvant treatment post-surgery.

Indefinitely.

In triple negative breast cancer, the most aggressive subtype of breast cancers, where historically treatment options have been limited I am pleased to announce several advancements which will improve options for patients.

First is FDA approval for a new indication in high risk early stage triple negative breast cancer based on results.

Cancer pivotal phase III keynote <unk>, 2 study, where keytruda was evaluated in combination with chemotherapy as neo adjuvant treatment and then there's monotherapy adjuvant treatment post surgery.

Dean Y. Li: Practice-Changing Event-Free Survival Results were presented just two weeks ago that demonstrated a remarkable 37% reduction in the risk of progression precluding definitive surgery, local or distant recurrence, second primary malignancy, or death from any cause compared to chemotherapy alone in patients. Additionally, we announced positive clinically meaningful top-line overall survival results from the Phase 3 Keynote 355 study evaluating Keytruda in combination with chemotherapy in patients with untreated metastatic triple negative breast cancer whose tumors express PD-L1 with a combined proportion score greater than or equal to 10. This positions Keytruda to be the first.

These practice changing event free survival results were presented just 2 weeks ago, which demonstrated a remarkable 37%.

<unk> and the risk of progression free.

<unk> definitive surgery, local or distant recurrence second primary malignancy or death from any cause compared to chemotherapy alone in patients.

Additionally, we announced the positive clinically meaningful top line overall survival results from the phase III.

With the free 55 study evaluating keytruda in combination with chemotherapy in patients with untreated metastatic triple negative breast cancer, whose tumors expressed PD L..1 with a combined proportion score of greater than or equal to 10. This positions keytruda to be the first anti PD 1 therapy in combination.

Dean Y. Li: Anti-PD-1 Therapy in Combination with Chemotherapy to Show Statistically Significant Overall Survival in Metastatic Triple Negative Breast Cancer. We will work with regulators to expand the existing indication to include survival benefits and will aim to share full results soon. Also, for early-stage breast cancer, along with our partners at AstraZeneca, we presented results at ASCO from the Phase III Olympia trial evaluating Limparza for the adjuvant treatment of certain patients with germline BRCA high-risk HER2-negative early-stage breast cancer. These findings clearly demonstrated that LENPARSA reduced the risk of invasive breast cancer recurrence, second cancers, or death by 42%.

And with chemotherapy to show statistically significant overall survival in metastatic triple negative breast cancer.

We will work with regulators to expand the existing indications include survival benefit and we will aim to share full results soon.

Now also for early stage breast cancer along.

With our partners at Astrazeneca, we presented results at <unk> from the Phase III <unk> Olympiad trial evaluating <unk> for the adjuvant treatment of certain patients with Germline BRCA high risk her 2 negative early stage breast cancer.

These findings clearly demonstrated that Lynn powers that reduce the risk of invasive breast cancer.

Cancer recurrence second cancers, OIBDA by 42% results will be submitted to global regulatory authorities and the trial continues to evaluate overall survival.

Dean Y. Li: Results will be submitted to global regulatory authorities, and the trial continues to evaluate overall survival. Now also at ASCO, with our partners at CIGEN, we presented additional encouraging data from the HER2 Climb study to Kaiser in patients with early stage HER2 positive breast cancer. It is clear that Merck is establishing an important DCHET in breast cancer with multiple, The progress we are making in this area of significant unmet patient need is one example of our strategy to expand into earlier lines of therapy and our strong conviction that our oncology assets have the We are also making progress across women's cancer more broadly.

Now also at <unk> with our partners at <unk>, we presented additional encouraging data from the her 2 climbed studying.

The Kaiser in patients with early stage her 2 positive breast cancers.

It is clear that Merck is establishing an important beachhead in breast cancer with multiple agents.

Progress we are making in this area of significant unmet patient need is 1 example of our strategy to expand into.

Earlier lines of therapy, and our strong conviction that our oncology assets have the potential to change the way early stage cancers are treated we.

We're also making progress across women's cancer more broadly we received an approval from the FDA for an expanded indication for the combination of Keytruda in lung FEMA for.

Dean Y. Li: We received FDA approval for an expanded indication for the combination of Keytruda and Lamvima for the treatment of certain patients with advanced endometrial carcinoma, where, along with our partners at ACI, we showed results from the confirmatory phase 3 Keynote 775 study earlier this year. And finally, we had positive results from the pivotal phase 3 Keynote 826 trial investigating Keytruda in combination with platinum-based chemotherapy with and without Bevacizumab for the first-line treatment of patients with persistent, recurrent, or metastatic cervical cancer, regardless of their PD-L1 status.

Treatment of certain patients with advanced endometrial carcinoma, where along with our partners at Eisai. We showed results from the confirmatory phase III keynote 775 study earlier this year and finally, we had positive results from the pivotal phase III keynote <unk> 2.6 trial investigating keytruda in combination.

With platinum based chemotherapy with or without Bevacizumab for the first line treatment of patients with persistent recurrent or metastatic cervical cancer, regardless of their PD lone status.

Trial met its dual primary endpoints of overall survival and progression free survival results will be presented at.

The <unk> medical meeting and submitted to regulatory authorities.

Dean Y. Li: The trial met its dual primary endpoints of overall survival and progression-free survival. Results will be presented at an upcoming medical meeting and submitted to regulatory authorities. Additional FDA approvals this quarter included two new indications for Keytruda. The first is in combination with trastuzumab and chemotherapy for the first-line treatment of patients with locally advanced unresectable or metastatic HER2-positive gastric or gastroesophageal junction adenocarcinoma, based on results from the Phase 3 Keynote 811 study.

Additional FDA approvals. This quarter included 2 new indications for Keytruda. The first is in combination with Trastuzumab and chemotherapy for the first line treatment of patients with locally advanced unresectable or metastatic her 2 positive cash Rick or gastroesophageal.

Joe Junction Adenocarcinoma based on results from the Phase III keynote <unk> study the second approval wasn't expanded indication for cutaneous squamous cell carcinoma for patients with locally advanced disease that is not curable by surgery or radiation. This was granted under accelerated approval based on the.

And up to keynote <unk> 2.9 studies.

The FDA also granted priority review based on phase III data from keynote <unk> 8.1 in first line treatment of advanced renal cell carcinoma, and we expect a decision in the third quarter now.

Dean Y. Li: Our second approval was an expanded indication for cutaneous clematis cell carcinoma for patients with locally advanced disease that is not curable by surgery or radiation. This was granted under accelerated approval based on a Phase 2 Keynote 629 study. The FDA also granted priority review based on Phase III data from Keno 581 and first-line treatment of advanced renal cell carcinoma, and we expect a decision in the third quarter. Outside the United States, the European Commission approved a new indication for detrita plus chemotherapy in certain patients with esophageal cancer or HER2 negative gastroesophageal junction adenocarcinoma based on results from Kino 590.

Outside the United States, The European Commission approved a new indication for Keytruda plus.

Plus chemotherapy in certain patients with esophageal cancer are her 2 negative gastro esophageal junction adenocarcinoma based on results from keynote 590 and in China <unk> was granted conditional approval for certain patients with metastatic castration resistant prostate cancer, who progressed following.

Phase of prior treatment with certain new hormonal agents. This is the first PARP inhibitor.

To be approved for advanced prostate cancer in China.

Now also at the <unk> virtual meeting new data supporting the benefit of Keytruda in earlier lines of therapy from the pivotal phase III keynote 564 trial.

For the adjuvant treatment of certain patients with renal cell carcinoma was presented keytruda given after surgery demonstrated a statistically significant and clinically meaningful reduction in the risk of disease recurrence or death by 32% compared to placebo.

Dean Y. Li: And in China, Linfarza was granted conditional approval for certain patients with metastatic castration-resistant prostate cancer who progressed following prior treatment with certain new hormonal agents. This is the first PARC inhibitor to be approved for advanced prostate cancer in China. Also at the ASCO virtual meeting, new data supporting the benefit of Keytruda in earlier lines of therapy from the Pivotal Phase III, Keno 564 trial for the adjuvant treatment of certain patients with renal cell carcinoma were presented.

<unk> will be submitted to global regulatory authorities.

And the trial will continue to evaluate overall survival.

We are making progress on our strategy to extend the benefit of Keytruda to more patients. This includes the initiation of a phase III trial evaluating a subcutaneous formulation of <unk> in combination with chemotherapy in patients with non small cell.

Dean Y. Li: Keytruda given after surgery demonstrated a statistically significant and clinically meaningful reduction in the risk of disease recurrence or death by 32% compared to placebo. Results will be submitted to global regulatory authorities, and the trial will continue to evaluate overall survival. We are making progress on our strategy to extend the benefit of Keytruda to more patients. This includes the initiation of a phase 3 trial evaluating a subcutaneous formulation of Pembrolizumab in combination with chemotherapy in patients with non-small cell lung cancer.

Lung cancer, we believe this new formulation could be an important addition, additional option for patients. This study will be enrolling soon with a readout expected in early 2023, and finally <unk> continues to make good progress with additional phase II data presented at <unk> and an expected FDA.

To date in September and a development program with 3 phase III studies in renal cell carcinoma that are gaining momentum now.

Now turning to our broader pipeline.

In response to the outbreak of Sars Covid 2 in India. We made the decision to enable access to ammonia per rep in low and middle income countries.

Dean Y. Li: We believe this new formulation could be an important additional option for patients. This study will be enrolling soon, with a readout expected in early 2023. Finally, Belzudafan continues to make good progress with additional Phase II data presented at ASCO and an expected FDA action date in September and a development program with three Phase III studies in renal cell carcinoma that are gaining momentum. Now turning to a broader pipeline.

Through voluntary license agreements with several Indian generic manufacturers.

The ongoing study in India are recruiting a different pay per patient populations. We are encouraged by the data being generated and we look forward to continuing to help with the crisis.

We remain excited by the progress ammonia Peterborough in the.

Data, we've seen to date, along with our partner Ridgeback Biotherapeutics, we announced the presentation of full results from the dose finding phase of phase II <unk> III studies in both outpatient and hospitalized patients at the European Congress of clinical microbiology and infectious disease 2021.

Dean Y. Li: In response to the outbreak of SARS-CoV-2 in India, we made the decision to enable access to monoperial in low- and middle-income countries through voluntary license agreements with several Indian generic manufacturers. While the ongoing studies in India are recruiting a different patient population, we are encouraged by the data being generated, and we look forward to continuing to help with the crisis.

We look forward.

The readout from the phase III portion of this study in the October timeframe.

Additionally, we posted a new phase III study evaluating <unk> as a post exposure prophylaxis option and look forward to a readout in the first half of 2022.

In HIV, we continue to progress our Oz Lotto.

Our development program, our investigational nucleoside reverse transcriptase translocation inhibitor.

Dean Y. Li: We remain excited by the progress of MONI-PIRGV and the data we've seen to date. Along with our partner Ridgeback Biotherapeutics, we announced the presentation of full results from the dose-finding phase of Phase 2-3 studies in both outpatient and hospitalized patients at the European Congress of Clinical Microbiology and Infectious Disease in 2021. We look forward to the readout from the Phase 3 portion of this study in October. Additionally, we have started a new Phase 3 study evaluating monupiravir as a post-exposure prophylactic option and look forward to a readout in the first half of 2022.

<unk> data presented at the International AIDS Society meeting a few weeks ago continued to support the safety and Tolerability profile of oral once monthly as last year in the prep setting.

We are continuing to.

Enrolled patients across diverse populations and geographies in the phase III empower trials and are moving forward with studies evaluating is locked and treatment and prevention setting.

And vaccines I am pleased to note the FDA approval of Vacs, new events the first in a suite.

Promising pneumococcal conjugate.

The vaccine candidates for the prevention of invasive pneumococcal disease in adults 18 years and older caused by 15 serotypes.

Along with immune response data showing that backs new wins can maintain progress achieved to date based on non inferiority to serotypes shared with Pcbs 13 ex new.

Dean Y. Li: In HIV, we continue to progress our Islotrovir development program, our investigational nucleoside reverse transcriptase translocation inhibitor. Phase II data presented at the International AIDS Society meeting a few weeks ago continue to support the safety and tolerability profile of oral once-monthly Islotrovir in the PrEP setting. We are continuing to enroll patients across diverse populations and geographies in the Phase III EMPOWER trials and are moving forward with studies evaluating Islotrovir in treatment and prevention settings.

<unk> also induce superior immune response to <unk> 13 per shared serotypes 3 and.

And for the 2 serotypes unique to vaccines events 22, and 33 of these.

These immunogenicity data position this vaccine to offer an important new option and protection of adults from invasive pneumococcal disease.

Again, we look forward to further engagement with the ACI P, including discussing the positive results, we achieved through our robust development program.

<unk>, a broad range of adult populations and clinical circumstances, including.

Dean Y. Li: And vaccines, I am pleased to note the FDA approval of vaccine events, first in a suite. Thomas & Pneumococcal Conjugate Vaccine Candidates for the Prevention of Invasive Pneumococcal Disease in Adults 18 Years and Older Caused by 15-serotype, Along with immune response data showing that VaxNuVents can maintain progress achieved to date based on non-inferiority to serotypes shared with PCV13, VaxNuVents also induce superior immune response to PCV13 for shared serotypes 3 and for the two serotypes unique to VaxNuVents, 22F and 33F.

Adult at increased risk.

Building on our clinical evidence for vaccines.

We also announced that 2 of our phase III pediatric study.

Met their primary Immunogenicity and safety endpoints and supporting potential use in healthy infants, who may have previously started a pneumococcal vaccination series with PCV 13, and then a catch upsetting for healthy children, who have either not received pneumococcal vaccine.

<unk> received a full or partial regimen with lower valency pediatric Pcbs, we continue to anticipate data from our phase 1 slashed II program evaluating <unk> 6 adult focused vaccines to read out later this year.

Dean Y. Li: These immunogenicity data position this vaccine to offer an important new option in protection of adults from invasive pneumococcal disease. We look forward to further engagement with the ACIP, including discussing the positive results we achieved through our robust development program, studying a broad range of adult populations and clinical circumstances, including adults at increased risk. Building on our clinical evidence for vaccine events, we also announced that two of our phase 3 pediatric studies, at their primary immunogenicity and safety endpoints, support potential use in healthy infants who may have previously started a pneumococcal vaccination series with PCV 13 and in a catch-up setting for healthy children who have either not received pneumococcal vaccine or have received a full or partial regimen with lower valency pediatric PCVs

To conclude.

Main excited about the progress.

<unk> and our broader pipeline and effort stemming from Merck Merck research labs that contribute to improving options and treatments for diseases that affect people globally. We continue to deliver on our strategy with speed and urgency to harness the benefits of our cancer therapies for as many patients as.

As possible.

Now advancing a broad pipeline of promising vaccines and therapeutic candidates now I will turn the call back to Peter.

Thank you Dean Mary will you. Please start the question and answer session.

To help to give some more questioners today, we ask that each analyst limit themselves to 1 question. Thank you.

Dean Y. Li: We continue to anticipate data from our Phase 1-2 program evaluating V116, our adult-focused vaccine, to read out later this year. To conclude, I remain excited about the progress in our broader pipeline and efforts stemming from Merck Research Labs that contribute to improving options and treatments for diseases that affect people globally. Thank you.

Yeah.

As a reminder, cash a question you will need to press star 1 on your telephone.

Our first question comes from the line of Chris Schott.

From JP Morgan Your line is open.

Great. Thanks, so much for the question.

But for my 1 question here.

A bigger picture 1 for Rob.

Just elaborate a little bit more on the business development environment, I guess not your post the Oregon on transaction that youre, highlighting R&D as a priority kind of bringing more innovation to the company as a priority, but how are you thinking about deals that would accelerate the company's kind of investment in oncology.

Mary Sarah: Thank you, Dean. Mary, will you please start the question and answer session? And to help to get some more questioners today, we ask that each analyst limit themselves to one question. Thank you.

Mary Sarah: As a reminder, to ask a question, you will need to press star 1 on your telephone. Our first question comes from the line of Chris Schott. From J.P. Morgan, your line is open.

Where they obviously have a competitive strength versus more therapeutic area diversification and can you maybe just walk through the pros and cons as you consider and think about larger transactions versus a series of smaller deals I know youre looking at everything, but I'm trying to get a sense of all else equal is there a bias kind of 1 way or the other at this point. Thanks, so much.

Chris Schott: Great, thanks so much for the question. I guess for my one question here, just a bigger picture one for Rob, could you just elaborate a little bit more on the business development environment? I guess now that you're post-Organon transaction and that you're highlighting R&D as a priority, kind of bringing more innovation to the company as a priority, but how are you thinking about deals that would accelerate the company's kind of investment in oncology, where they obviously have a competitive strength versus more therapeutic area diversification, and can you maybe just walk through the pros and cons as you consider and think about larger deals?

Sure sure no I appreciate the question, Chris and good morning.

As we.

And as I said in the prepared remarks.

We focused on business development.

And it's something that we recognize we need to do we need to augment the pipeline, but I also just want to reinforce and I think hopefully you heard it through.

Dean just walked through we also have a strong internal pipeline and I don't want to lose sight of that and we really do have a lot of confidence in what we can bring forward across the breadth of both oncology assets as well as assets outside of oncology and vaccines.

unknown: Transcribed by https://otter.ai

Rob Davis: Thank you so much. Sure. Sure. No, I appreciate the question, Chris. And good morning.

Obviously in HIV all of the areas that the.

The Dean touched upon.

With that said, we know we need to add more.

Rob Davis: You know, as I said in my prepared remarks, we're very focused on business development. And it's something that we recognize we need to do. We need to augment the pipeline. But I also just want to reinforce, and I think you heard it through what Dean just walked through, we also have a strong internal pipeline. And I don't want to lose sight of that.

And build upon that and we're very focused there clearly we see ourselves and I made a comment about this in the prepared remarks with the strength in oncology and we want to build upon that strength and actually see ourselves as a company that over time can be a broad player.

Layer across oncology really leveraging the foundational position, we have with keytruda, but going well beyond keytruda and we're already starting to do that so as we think about business development.

We always will look at that because if you look right now in the space of of where there is still 1 of the largest unmet needs. Despite.

Rob Davis: We really do have a lot of confidence in what we can bring forward across the breadth of both oncology assets as well as assets outside of oncology and vaccines, obviously in HIV, all the areas that Dean touched upon. But with that said, we know we need to add more and build upon that. And we're very focused there.

Upon the advances we've made with Keytruda and other new agents, which are phenomenal and what they're delivering for patients. The truth is the majority of patients still.

Don't have a solution you have for the cancers. They face. So this is still an area of unmet need there is a ton of science being done in this area of focus.

Rob Davis: Clearly, we see ourselves, and I made the comment about this in the prepared remarks, as having a strength in oncology. And we want to build upon that strength and actually see ourselves as a company that, over time, can be a broad player across oncology, really leveraging the foundational position we have with Keytruda, but going well beyond Keytruda, and we're already starting to do that. So as we think about business development, I will always look at that because if you look right now at where there's still one of the largest unmet needs, despite the advances we've made with Keytruda and other new agents, which are phenomenal in what they're delivering for patients, the truth is that the majority of patients still don't have a solution yet for the cancers they face. So this is still an area of unmet need

Spite this area and as I said, we have the strength to leverage the position of Keytruda and really the data we have within our oncology space to really be a differentiated and I think unique observer of the space to be able to select the best opportunities. So that will be a focus but I also recognize we have.

Do more than that we need to be balanced.

And we are looking to areas outside of oncology as well.

And I would like to see us do things in both so build the strong foundation continued to lead in oncology leverage the data we have there, but look to where can we balance that and augment the portfolio.

And this slide areas on the second part of the question on the pros and cons between large and small deals and in a perfect World We would.

We think we bring the greatest value is if you get assets that are a little bit earlier in development, where we can bring the promise we have from a clinical side to bring those through and really.

Rob Davis: There's a ton of science being done in this area, focused on this area, and as I said, we have the strength to leverage the position of Keytruda and really the data we have within our oncology space to really be a differentiated and, I think, unique observer of the space to select the best opportunity. So that will be a focus, but I also recognize we have to do more than that. We need to be balanced.

And our value those are the deals we've been doing historically, but we are not foreclose to doing larger deals and as we've always said and I continue to believe it's more about.

Finding the right science.

Driven first with science as the key component.

Add formed by the portfolio impact, where we believe we add value and if we can find those deals we will move on them, whether they are large or small that's clearly 1 of the areas. We continue to believe we do not need to go is to the very large synergy driven deals I think we have enough firepower in our own pipeline.

Rob Davis: And we are looking to areas outside of oncology as well, and I would like to see us do things in both. So build a strong foundation, continue to lead in oncology, leverage the data we have there, but look to where we can balance that and augment the portfolio in other areas. On the second part of the question, on the pros and cons between large and small deals, in a perfect world, where we think we bring the greatest value is if you get assets that are a little bit earlier in development, where we can bring the prowess we have from a clinical side to bring those through and really add value.

And through what we can add across the portfolio with deals focused on the science, we don't need to go to those large type of deals at this time.

Thank you Chris next question please.

Our next question is from Omar Saad with Evercore ISI. Your line is open.

And for you guys. Thanks, so much for taking my question I thought I'd focus a little bit on long appear there since that's the trial, that's coming up and presumably it's also the biggest needle mover on numbers for next year.

Rob Davis: Those are the deals we've been doing historically, but we are not foreclosed to doing larger deals. And as we've always said, and I continue to believe, it's more about finding the right science. [inaudible] I think we have enough firepower in our own pipeline, and through what we can add across the portfolio with deals focused on the science, we do not need to go to those large types of deals at this time. Thank you, Chris. Next question, please.

As we as we think about it. So my question is this the 0.5 to 7 log antiviral benefit that youre seeing what feedback.

Feedback are you hearing on that magnitude of viral load drop and and and and and what's the feedback on the clinical benefit observed with that into more of that trial.

Because it looks like even though you are limiting your primary analysis to patients enrolled in less than 5 days I still think.

Theres, a fair amount of zero positives embedded within the way.

Umer Raffat: Our next question is from Umer Raffat with Abercor ISI. Your line is open. Hi guys, thanks so much.

Looking at the data and I almost wonder zero negative is probably that population will youll, probably see the most cleanest signal I'd be very curious thank you.

Umer Raffat: Hi guys, thanks so much for taking my question. I thought I'd focus a little bit on molnupiravir since that's the trial that's coming up and, presumably, it's also the biggest needle mover on numbers for next year as we think about it. So my question is this, the 0.5 to 0.7 log antiviral benefit that you're seeing, what feedback are you hearing on that magnitude of viral load drop? And what is the feedback on the clinical benefit observed with that in the MOVE-OUT trial?

Yeah. This is gene let me take that question. So we are advancing ammonia per <unk> in a phase III clinical trial it.

It is focused on the outpatient setting and we are focusing on high risk patients. The reason I emphasize that is your observations in relationship to viral load and the such.

<unk> observations.

But I would just call out that at least with on the U S regulatory framework.

So low if not the critical.

Umer Raffat: And I ask because even though you are limiting your primary analysis to patients enrolled in less than five days, I still think there's a fair amount of seropositives embedded within the way you're looking at the data. And I almost wonder if seronegatives are probably the population where you'll probably see the cleanest results. I'd be very curious. Yeah, this is Dean.

Issue for the regulatory framework is whether or not we can affect clinical events and so the need to focus on high risk patients is a critical issue that we want to focus on in relationship to that trial.

The virus. It has a primary completion date, that's listed as October and we are very enthusiastic of how this trial is progressing and we hope to see data over the coming months.

Dean Y. Li: Let me take that question. So we are advancing monupiravir in a phase three clinical trial. It is focused on the outpatient setting, and we are focusing it on high-risk patients. The reason I emphasize that is your observations in relationship to viral load and that such are important observations. But I would just call out that, at least within the U.S. regulatory framework, viral load is not the critical issue for the regulatory framework.

For the trial I would emphasize that this is a blinded global study.

And it is focused on high risk and many of that.

<unk> keeps shifting and so it's not just within the U S and the EU, but important countries like South Africa, Brazil, Colombia. Those countries are extremely important for our ability to show not just a reduction of viral load.

But a big impact on clinical effect, that's what we need to look for in that trial.

Dean Y. Li: It is whether or not we can affect clinical events. And so the need to focus on high-risk patients is a critical issue that we want to focus on. In relationship to that trial, it has a primary completion date that's listed as October, and we are very enthusiastic about how this trial is progressing, and we hope to see data in the coming months for the trial. I would emphasize that this is a blinded, global study, and it is focused on high-risk, and many of the pandemics keep shifting.

Great. Thanks Omer next question please.

Our next question comes from the line of Luke.

Louise Chen with Cantor. Your line is open hi, Thanks for taking my question My question for you.

So how we should think about your margin expansion opportunities I know, you've given some longer term guidance, but let's say over the next 12 months how would that progress. Thank you.

Luis This is Caroline Thank you for your question.

Dean Y. Li: And so it's not just within the U.S. and the EU but important countries like South Africa, Brazil, Colombia. Those countries are extremely important for our ability to show not just the reduction of viral load but a big impact on clinical outcomes.

First I'll start with al.

Pipeline is rich.

And therefore, that's a company we are focused in growing expenses to support the near term and long term opportunities that we have which will enable us to drive long term revenue growth.

Dean Y. Li: That's what we need to look for in this trial. Great. Thanks, Umer. Next question, please. Our next question comes from the line of Lou.

That said, we are also expecting to drive margin expansion and that margin expansion.

Louise Chen: Our next question comes from the line of Louise Chen with Canter. Your line is open. Hi, thanks.

It comes from a few different factors it will come straight from the rest and you provided it will also come from a change in our product to make and it will also come through efficiencies across that business and our commitment to deliver $1.5 billion of operating efficiency.

Caroline Litchfield: Louise, this is Caroline. Thank you for your question. So first, I'll start with our pipeline is rich. And therefore, as a company, we are focused on growing expenses to support the near-term and long-term opportunities that we have, which will enable us to drive long-term revenue growth. That said, we are also expecting to drive margin expansion, and that margin expansion will come from a few different factors. It will come through from revenue growth.

Steve It's an ex 3.

3 year period.

Finally, we do expect an increase in margin in 2024 as a result of the step down of royalties.

Caroline Litchfield: It will also come from a change in our product mix, and it will also come through efficiencies across our business and our commitment to deliver $1.5 billion of operating efficiencies over the three-year period. Finally, we do expect an increase in margin in 2024 as a result of the step-down of royalties specific to Keytruda and Gardasil. So as I think about margin expansion, our guidance for this year at the midpoint of the range assumes a 2 percentage point increase in margin. And I expect that margin expansion to continue to grow as we look out to the coming years.

Keytruda and got itself, so as I think about margin expansion of guidance.

<unk> at the midpoint of the range assumes that 2 percentage point increase in margin.

And I expect that margin expansion to continue to growth as you look out to the coming yet.

Great. Thanks Louise next question please.

Our next question comes.

Comes from the line of Terence Flynn with Goldman Sachs. Your line is open.

Great. Thanks for taking the question.

2 parter I guess, Rob just curious if youre seeing any internal timelines for use of the organ on proceeds and would welcome your latest view of asset valuations and then for Dean Theres, obviously been a tremendous amount of progress.

Caroline Litchfield: Great. Thanks, Louise.

Terence Flynn: Next question, please. Our next question comes from the line of Terence Flynn with Goldman Sachs. Your line is open. Great, thanks for taking the question, two-parter. I guess, Rob, I was just curious if you're setting any internal timelines.

The value platforms over the last 12 months to 18 months and Rob you touched on some of these but any of that particularly stand out to you as having the potential to be as transformative as antibodies were 20 years ago. Thank you.

Terence Flynn: Our next question comes from the line of Terence Flynn with Goldman Sachs. Your line is open.

Rob Davis: Yeah, so Terence, thanks for the question. You know, as we look forward, we're actively looking and want to move with speed. I don't want to put a time limit on how fast we do this because obviously some of it is based on market factors and where assets are in their own life cycle and discussions we're having. So right now, we're focused on trying to find ways to deliver to the pipeline through BD, but it's not time-bound.

Yeah. So.

Thanks for the question you know as we look forward.

We're actively looking and.

With months to move with speed I don't want to put a time limit on how fast because obviously some of it is based on on market factors and where assets are in their own lifecycle and discussions we're having so right now we're focused on trying to find the ways to deliver to the pipeline through BD, but its not time bound I think what Caroline.

Rob Davis: I think what Caroline's really trying to say is, eventually, if we don't find those opportunities, we're not going to sit on the cash forever. But I want to make sure that we put the priority on BD first before we make that determination.

Line is really trying to say is eventually if we don't find those opportunities we're not going to sit on the cash forever, but I want to make sure that we put the priority on BD first before we make that determination.

Yeah.

In relationship to your second question, it's almost there's such a laundry list of of advancements in.

Dean Y. Li: In relation to your second question, there's such a laundry list of advancements in data and technology that whatever I say, I'm going to miss saying something. And I will just focus not so much on platforms; there's a lot of movement in data platforms that I think are critically important, but also in what I would call technology platforms that are important for making molecules, as you said, such as antibodies. Clearly, there's a lot of movement in protein engineering. Similarly, there's movement in protein degradation. Clearly, there is a movement for antibody drug conjugates, and we are interested in all of them.

And the technology that that.

Whatever I say I'm going to Miss saying something.

And I will just focus not so much in in platform. There's a lot of movement in data platforms.

Our critically important but also in what I would call. It technology platforms that are important for making molecules as you said.

Data antibody clearly theres a lot of movement in protein engineering, clearly theres movement and protein degradation clearly there was movement in antibody drug conjugates and we are interested in all of them I think 1 of the critical questions that often people think about especially in relationship to us as.

Dean Y. Li: I think one of the critical questions that often people think about, especially in relationship to us as a vaccine company, is in relation to mRNA, and really, the success of a monovalent SARS-CoV-2 vaccine is something that's demonstrated the speed, which we've always recognized, but also the scalability. And we were one of the first to invest in mRNAs for vaccines, for ID, and for oncology. And so we're taking some of those lessons, and we're prioritizing programs where we believe that mRNA will be important.

Such as any company isn't relationship to mrna and and really the success of our monovalent Sars Covid..2 vaccines is something that's demonstrated the speed, which we've always recognized but also scalability and we were 1 of the first to invest in mrna 4.4 vaccines.

<unk> for IV and for oncology and so we're taking some of those lessons and we're prioritizing programs, where we believe that mrna will be important.

I will do want to emphasize that those program that said programs such as pneumococcal vaccines I don't think is a place where mrna vaccines.

Dean Y. Li: I do want to emphasize that those programs, that is said, programs such as pneumococcal vaccines, I don't think it's a place where mRNA vaccines are a good idea to take them, and complex multivalent vaccines with profound and proven clinical benefits such as Gardasil, I'm not so sure that that's where I would drive an mRNA vaccine. Outside of infectious disease, we continue to have a very productive partnership with Moderna in oncology, where we're a little bit more careful outside of the use of vaccines; we watch with interest the progression of that technology. So, and...

<unk> is a place to take it and complex multi veiling vaccines with profound and proven clinical benefits such as.

Got it so I'm not so sure that that's where I would drive an mrna.

Vaccines outside of infectious disease, we continue to have a very productive partnership with low doing on oncology.

Where we're a little bit more careful is outside of the use of vaccines.

Watch with interest the progression of that technology.

No.

In terms of my apologies I recognize I didn't answer the last part of your question on valuation. So what we are seeing in the marketplace and things.

Dean Y. Li: So, and Terence, my apologies. I recognize that I didn't answer the last part of your question on valuation. So, what we are seeing in the marketplace, things tend to still be fully valued, and as we know, there's a lot of capital flowing into the biotech space. So, that obviously presents a challenge, but I would just point to you that, you know, we recognize we need to be appropriately aggressive as we go after these opportunities, and I continue to believe that if we apply what we see as a differential opportunity based on our scientific read of what Next question, please. Our next question comes from the line of Andrew Baum.

And there is still be fully valued and as we know theres a lot of capital flowing into the.

The biotech space so that obviously.

Presents a challenge, but I would just point to you that we recognize we need to be appropriately aggressive.

We go after these opportunities and I continue to believe that if we.

We apply where we see differential opportunity.

On our scientific read of what's out there we can still create value, while we're strategically adding to the pipeline and that's really where we're focused thank.

Thank you Sarah next question please.

Our next question comes from the line of Andrew Baum from Citi. Your line is open.

Andrew S. Baum: Our next question comes from the line of Andrew Baum from CB. Your line is open. The market doesn't credit the pipeline that you have for treatment drugs, such as blaster therapy.

The market doesn't credit pipeline that you're increasing growth such as after.

With it.

But I'll say some yogurts made.

So the animal shoot it.

The decade, the reason I say that.

Andrew S. Baum: The reason I say that is, previously Rob, you highlighted Merck recognizes the need to raise the curtain on its pipeline access to a greater degree than it has done historically. So you have a very large safe space on T4, C2A4, among others. When should we expect to see that curtain being raised? And then, just to add on, a yes or no question: Merck has a prodrug for islatrovir.

<unk> growth, you've highlighted muck recognizes needs to raise the capacity on the pipeline.

Assays to the greatest degree of the central pharmacy.

So it's pretty low.

Is it Iot foresee today for among others.

When should we expect to see that cuts in day rates.

And then just an add on.

Yesterday question.

If approved drugs.

That's taking.

Do you believe infringes intellectual property. Thank you.

Andrew S. Baum: Andrew, we'll try to answer the questions. To be honest with you, you came through very garbled.

And Andrew we will try to answer the question to be honest with you came through very very garbled. So.

Rob Davis: So I think your question, the first part of the question was about pipeline transparency and when we were going to be showing more information on that. As I said, that is an area of focus. We did that when we showed you the broader HIV portfolio and the work we did recently to give some insights into our broader early stage oncology portfolio outside of Petruta. Our thinking is, probably as we approach, probably closer to the end of the year, I think we're going to plan to have another session and then, obviously, we'll think about it as we move into next year.

To your question. The first part of the question was about pipeline transparency and when are we going to be showing more information.

Well, Matt as I said that is an area of focus we did that with what we showed you the broader HIV portfolio and the work. We did recently to give some insights to our broader early stage oncology portfolio outside of Keytruda are thought to thinking is probably as we approach probably closer to the end of the year I think.

If we plan to have another session.

And then obviously, we will think about as we move into next year, but there is we wanted to highlight as we move forward clearly as I mentioned cardio metabolic is an area, where we have growing.

Rob Davis: But areas we want to highlight as we move forward, clearly, as I mentioned, cardiometabolic is an area where we have growing conviction and interest. We're very interested in our broader vaccines portfolio and see a lot of opportunity there. So those will be some areas we'll be focusing on in the future. And then I think you're asking if we saw a prodrug IP issue with Zolatribirol. I'll turn that over to Dean if he's aware if I got the question right.

Conviction and an interest.

Net interest in a broader vaccines portfolio and see a lot of opportunity there so those.

There will be some areas, we'll be focusing in the future and then I think youre asking if we saw a prodrug.

IP issue with those larger bill I'll turn it over to Dean to pieces, where if I got the question right right. So.

Dean Y. Li: Right. So first of all, lots of areas is a foundational element that one could build on. And that's what our strategy is built on Monotherapy for Prevention and Combination in terms of Treatment. So the interest in methilatrovir, I kind of take it as validation of how strong we believe in methilatrovir and this method.

So first of all as lateral there is is a founder.

Foundational element that 1 can build on and that's what our strategy is built on.

We're gonna monotherapy for prevention and combination income.

Treatment, so the interesting with Wachovia.

I kind of take it as is.

Validation of how strong we believe in this large and this mechanism.

Carter said that.

Dean Y. Li: In terms of the legal status, we're very comfortable with where we sit in the relationship with Isla Chavira. I don't want to speak directly about freedom to operate and all of that in relationship to other people's compounds until we see the details of structure and all of this. But we are very confident in our investment and our patent position in relation to Isla Chavira. Thank you, Andrew. Next question, please.

Uh huh.

Legal.

We're very comfortable in where we sit and relationship with its launch of air.

I don't want to speak directly to to freedom to operate and all of that in relationship to other people's compounds.

Until we see the details that structure and all of this.

But we are very confident in.

Our investment and our and.

And our patent position and relationship there's lots of great. Thank.

Thank you Andrew next question please.

Daina Michelle Graybosch: Our next question comes from the line of Daina Graybosch with SBB in the ring. Your line is open. Hi, thanks for the question.

Our next question comes from the line of Dana Great Boss with SBB Leerink. Your line is open.

Alright, Thanks for the question and ask 1 on pneumococcal.

Daina Michelle Graybosch: Thanks for the question. I wonder if you could give us your base and best case for the October AICP meeting given the sort of June preview analysis I didn't consider some of the strengths of yours.

I Wonder if you could give us your base and that's the case for the October AICPA meeting given the sort of the June preview analysis.

Didn't consider some of the strength.

Your vaccine.

I'm sure. It has 3 in other and other stocks.

Dean Y. Li: Yeah, let me first take it, and then I'll pass it on to Frank. We're very confident in the clinical program of our B.1.1.4 vaccine event. And the strength of the data that serves as the basis for the filing, which showed broad protection against disease-causing stereotypes and improved immune performance for serious stereotypes that persist. This will be an important point. Not all stereotypes are equal. There are certain stereotypes that are far more important than others.

Yeah, let me.

First take it and then I'll.

Pass it on to Frank we're very confident in the clinical program of our B 1.1 for vaccines event and the strength of the day to that serves as the basis for the filing which showed broad protection against disease, causing serotypes and improved immune performance.

Let me serious stereotypes that persist this will be an important point not all serotypes are equal there are certain serotypes that are far more important than others and so I think it will be very important at the ACI P to understand the epidemiology and how 1 thinks through that now we've demonstrated that the immune response data.

Dean Y. Li: And so I think it will be very important at the ACIP to understand the epidemiology and how one thinks through that. Now, we've demonstrated that the immune response data, you know, really shows, you know, that we have non-inferiority to stereotypes shared with PCV13 and that we have superior for three that are quite important from an epidemiologic I think the other issue that I just want to sort of also elevate is that we also are advancing V114 or VaxNuVent not just in relationship to adults, but we're advancing it aggressively in relationship to the pediatrics, and we are also advancing a more bespoke adult-focused vaccine, V116, that we hope to share data on over the next year or so.

That really shows.

You know that we have non inferiority to stereotypes share with PCV 13, and that we have superior 443 that are quite important from an epidemiologic standpoint, I think the other issue that that I just want to sort of also elevate is that we also are.

Advancing the 1 for our vaccines events not just in relationship to adult, but we're advancing it aggressively in relationship to the pediatrics and we are also advancing of more bespoke adult focused vaccines. The 1.6 that we hope to share data on over the next year or so.

Frank Clyburn: Frank?

Frank.

And what I would say is 1 we're very we're excited about the opportunity we have overall for pneumococcal franchise.

Dean Y. Li: In conclusion, what I would say is, one, we're excited about the opportunity we have overall for a pneumococcal franchise. To your question on the ACIP, we are waiting to better understand the future recommendations for all the vaccines, Pneumovax, VacuVax, and Prevnar 20. You saw some of the information that came out in June.

To your question on the ACI P. We are waiting to better understand the future recommendations really of all of the vaccines pneumovax.

Vacuum Vance and prep and our 'twenty and you saw some of the information that came out in June at.

At this time, there may be a shift in some preference towards some of the newer pneumococcal vaccines. If they go with an age based recommendation.

Frank Clyburn: At this time, there may be a shift and some preference towards some of the newer pneumococcal vaccines if they go with an age-based recommendation. There are a number of populations that they're looking at in their recommendations, and right now, we're focused on really making sure they understand our data and the benefits of our offerings across them, both Pneumovax 23 and VacuVance. So if there is some risk to Pneumovax, as I mentioned, we'll have to see how that plays out.

Number of populations that they are looking at in.

In their recommendations and right now we're focused on really making sure they understand.

Our data and the benefits of our offerings across some arent both pneumovax 23, ambac events. So if there is some risk to pneumovax as I mentioned, we'll have to see how that plays.

But I would also highlight that this is for Ron us, especially get back advances being talked about sort of the beginning we think we have a very competitive offering in adults were very excited about the opportunity we have for pediatrics and you heard Dan mentioned in our 2 phase III trials in pediatrics as well.

Daina Michelle Graybosch: But I would also highlight that this is for us, especially VacuVance, as Dean talked about sort of the beginning. We think we have a very competitive offering in adults. We're very excited about the opportunity we have for pediatrics, and you heard Dean mention our two phase, three trials in pediatrics as well, as we're continuing to develop B.1.1.6 for adults and also B.1.1.7. So when we look at the overall pneumococcal franchise, and I would say vaccines as a growth pillar for our company, we're very confident in the continued growth of vaccines for the company, both near term and in the long term. Thank you, Daina. Next question, please.

As we're continuing to develop the 116, Inc. For adults and also be 117. So when we look at the overall pneumococcal franchise and I would say vaccines as a growth pillar for our company, we're very confident in.

And the continued growth for vaccines for the company.

As that term and the long term thank.

Thank you Dana next question please.

Geoffrey Meacham: Our next question comes from the line of Geoff Meacham from Bank of America. Your line is open.

Our next question comes from the line of Geoff Meacham from Bank of America. Your line is open.

Geoffrey Meacham: Hey guys, good morning. And thanks for the question. Rob, I want to ask you another strategy question just coming off the completion of the spin. And to see what the guardrails are when you think about BD. So the question is, you know, would diversifying the revenue mix away from oncology take priority over the operating margin expansion you're expected to have? And then to put a finer point on therapeutic areas, I know you lead where the science takes you, but what are your thoughts on the orphan drug arena?

Hey, guys. Good morning, and thanks for the question Rob.

Rob I wanted to ask another strategy question, just coming off the completion.

<unk> of the spin and to see what the Guardrails are when you think about BD. So the question is with diversifying the revenue Miss mix away from oncology take priority over the op margin expansion you expected to have.

And then to put a finer point on therapeutic areas I know you'd need where where the science takes you.

But what are your thoughts on the orphan drug arena or expanding the footprint of neuroscience now that there's apparently a more favorable FDA environment. Thank you.

unknown: Transcribed by https://otter.ai

Rob Davis: Jeff, I appreciate the question. So, you know, as we think about business development and how we think about that relative to the off-margin goals we have for the company, a couple of comments. One, it's important to say, you know, we do believe over time, as I said, we need to have a balanced, more balanced portfolio, and we'd like to bring that diversification.

Jeff I appreciate the question. So as we think about business development and how we think about that relative to.

The op margin goals.

The company a couple of comments 1.

It's important to say you know we do believe over time as I said, we we need to have a balanced more balanced portfolio and we'd like to bring that diversification I would make 1 clarification to your point I see a difference in diversification.

Rob Davis: I see a difference in diversification away from Katrina versus diversification away from oncology. Obviously, oncology is a broad field, and, as I said earlier, huge unmet needs still lie there. So that's an area where we can leverage the strength we have with Katrina, the foundational position we have, the data we have, the insights we get from basically being tested either combined with or against pretty much every agent out there. And so, you know, I see expansion and diversification across broader oncology as an important goal for us in the future.

We have put them keytruda versus diversification away from oncology, obviously oncology is a broad field and as I said earlier with you.

John met need still still rest there. So that's an area, where we can leverage the strength, we have with keytruda. The foundational position we have the data we have the inc.

Sites would get.

Away from basically being tested either combined with or against pretty much every agent out there.

And so I see expansion and diversification across broader oncology as an important goal for us future into the future and then I do believe we also should look for other therapeutic areas. We.

Rob Davis: And then I do believe we also should look for other therapeutic areas. We have a strong position in vaccines. We're looking there. We've mentioned cardiometabolic as an area. I believe we can both deliver that and bring operating margin expansion to the business. But if it's a matter of driving cost reduction or investing in growth, I will always invest in growth.

From bond position in vaccines, we're looking there we've mentioned cardio metabolic is an area and in fact, Dean can make a comment on neuroscience, but we actually have several ongoing early stage programs in the neuroscience space. So we're excited about that to your question on where do we prioritize first and foremost I'd prioritize long term.

<unk> sustainable growth.

And that and our business is about innovation and investment in science and so we always will prioritize that I believe we can both deliver that and bring operating margin expansion to the business, but if it's a matter of driving cost reduction or investing in growth I always will invest in growth.

Let me take a shot at that question that you had in relationship to orphan disease in neuroscience.

Dean Y. Li: Let me take a shot at the question that you had in relation to orphan diseases and neuroscience. I would highlight that if we're looking at rare diseases, I do like rare diseases because they're a very quick way to understand proof of concept and to move quickly. And then once you're in that situation, the ability to expand from that sort of beachhead is very important.

Highlight that if we're looking at rare diseases I do like rare diseases, because it's a very quick way to understand proof of concept that can move quickly and then once you're at that situation the ability.

Expand from that sort of a beachhead is very important in the reais and I want to emphasize that as deals like bell food event, although in oncology is really a rare disease play with the possibility of expanding into broader cancers. So whether we see that in cancer or in non cancer.

Dean Y. Li: And the reason I want to emphasize that is deals like Delsudevan, although an oncology, are really a rare disease play with the possibility of expanding into broader cancers. So whether we see that in cancer or in non-cancer, Assets, Pathways, and Possibilities, that's something that we're very interested in replicating.

Habits and pathways and possibilities that's something that we're very interested to replicate in relationship to Neurosciences, you're right. There has been movement recently of the FDA and the importance of Biomarkers, but I do want to sort of level set that that the importance of biomarker.

Dean Y. Li: In relation to neurosciences, you're right. There has been a recent movement in the FDA regarding the importance of biomarkers, but I do want to sort of level set that, that the importance of biomarkers must also be balanced by the importance of being able to show changes in important clinical events for patients. It has changed, and we're very anxious to understand how we can best utilize that movement for biomarkers. And especially, for example, our phospho-tau program, which we're very enthusiastic about advancing, how that should proceed, and how we should think about, for example, biomarkers such as tau biomarkers in that clinical strategy are of intense interest to us, given the shifting landscape.

Markers must also be balanced by the importance of being able to show changes in important clinical events for patients.

It has changed and we're very anxious to understand how we can best utilize that movement per biomarkers and especially for example.

A possible Tau program, which we're very enthusiastic of advancing how that should navigate and how we should think about for example, biomarkers purchase how biomarkers in that clinical strategy is of intense interest to us given the shifting landscape we have other neuroscience.

Dean Y. Li: We have other neuroscience programs; MK-8189 is in phase two for schizophrenia, and we have MK-1942 that we're advancing for treatment-resistant depression. So the regulatory landscape changing in neuroscience is important. It is something that we take into account, and it is affecting how we navigate the field and accelerate the programs that we have, and it also changes how we look at business development as well.

Program.

Programs, MK 889, nursing phase III schizophrenia, with MK 1942 that we're advancing for treatment resistant depression. So the regulatory landscape changing in neuroscience is important it is something that we take into account and it is affecting how we navigate.

The field and accelerate the programs that we have and it also changes how we look at business development as well.

Geoffrey Meacham: Thank you, Geoff. We realize it's 9 o'clock, but we're willing to go a few minutes late to get some more questions. Next question, please, Mary. Our next question comes from the line for Rani Gong with Bernstein. The line is open. Good morning, and thank you for squeezing me in. I was

Thank you, Jeff we realize it's 9 o'clock, we're willing to go a few minutes late to get some more questions next question. Please.

Our next question comes from the line of Ryan Gal with Bernstein. Your line is open.

Good morning, and thank you for squeezing me in I was wondering if you can talk a little bit about more about using mrna on multi valent approach you kind of noticed that it's a hard problem is this a theoretically impossible issue. It's just engineering issue of getting message RNA.

Rani Gong: Our next question comes from the line of Rani Gong with Bernstein. The line is open.

Vaccines to be multivalent.

Rani Gong: I'll take that question, The issue with multivalency is that the more valence that you have in any vaccine, it becomes a more complicated issue. The other issue is the dose that you need and what we would call the reactogenicity every time that you add something. So, I don't, you know, it would be remiss for me to say that anything's impossible; science and technology change, but the framework that I was trying to lay out is that there are places where I think the field will race in relationship to mRNA to have an impact clinically, and then there are other parts of the field where I think more discovery and development of the technology will lead to an intense interest to overcome some of those initial barriers.

Okay.

Hum.

I take that question the issue with multi valency is it's the more valent that you have in any in any vaccines.

It becomes more complicated issue. The other issue is the dose that you need and what we would call. The reactor Genesis every time that you add to that.

So so I don't you know it would be remiss for me to say that anything is impossible.

Science and technology changes, but the framework that I was trying to lay out is that there are places where I think the field would race in relationship to mrna have an impact clinically and then.

There are other parts of the field, where I think more.

Discovery and development of the technology there'll be an intense interest per paid overcome some of those initial barriers.

Dean Y. Li: Thank you, Ronnie. Next question, please. Our next question comes from the line of Mara Goldstein from Missouri. Your line is open. Oh, great, thank you for taking the question. Um, you know, I had a question on pricing and, last, you know, as we rounded in came into the beginning of this year.

Thank you Ronny next question please.

Our next question comes from the line of Mara Goldstein.

Your line is open.

Oh, great. Thank you for taking the question you know I have a question on pricing and less you know as we rounded it came into the beginning of this year 1 of the things that Merck had commented on was it pricing was a potentially a major you know continues to be a major issue for the pharmaceutical.

The history on that question, but you're only going to increase you saw a few days ago, a little bit of hand, waving I think on the part of the bite and administration about tell me about the.

Mara Goldstein: Our next question comes from the line of Mara Goldstein with Mizzou Law. Your line is open. Oh, great. Thank you for taking the question.

The federal government being able negotiate pricing in the Medicare system. So I'm just wondering you know as a rounding out of 2021 and 2022, what the company's thoughts around pricing are.

Mara Goldstein: Yeah, thank you. I'll take that question. Clearly, we continue to expect to see ongoing pressure on prices, and I think the dialogue that you're pointing to right now with Congress and then also with the Biden administration only reinforces that that threat continues to be there. But I think, you know, as we focus on it, a couple of points. One, as we look forward, all of the expectations we have for our growth as a company that we've communicated in the past assume we face meaningful price pressure.

Great. Thank you I'll take that question.

Clearly, we continue to expect to see ongoing pressure on price than you might think the dialog that you're pointing to that's happening right now with Congress.

And then also with the volume administration only reinforces that that the threat continues to be there but.

But I think as you know as we focus on it a couple of points..1 is we look forward.

All of the expectations, we have for our growth as a company that we've communicated in the past does it assume we face a meaningful price pressure. So we continue to believe our growth will be driven by more by volume and price and I think.

Mara Goldstein: So we continue to believe our growth will be driven more by volume than price. And I think that's important as you think about the long-term position of the company. As we look out over the next five plus years, we're largely de-risked to our revenue goals, and I think we can achieve them regardless of price.

That's important as you think about the long term risk position of the company as we look out over the next 5 plus years were largely derisked to our to our revenue goals and I think can achieve regardless of price putting that aside.

Rob Davis: Putting that aside, as you think about it from a policy perspective, you know, we are very willing to engage with the U.S. government in discussions about how best to achieve a goal of reducing out-of-pocket costs for patients. That is our foremost goal. We actually recognize that need and are willing and want to work with them around that goal, understanding that we want to protect innovation because we also want to be able to ensure that we can bring the innovations to the next generation of patients that need them.

As you think about it from a policy perspective, we're very willing to engage with the U S.

In discussions about how best to achieve our goal of reducing the out of pocket costs for patients that is our foremost goal, we actually recognize that need and are willing and want to work with them around that that goal understanding we want to protect innovation because we also want.

Government able to ensure we can bring the innovations for the next generation of patients that need them I think the whole situation with Covid has shown.

Rob Davis: I think the whole situation with COVID has shown why you want a robust and innovative industry because, at the moment, you need it. It's important that it's here in our country, and we can invest in and drive it. So, that's our focus. But, you know, again, it's really about where we can see reductions in out-of-pocket costs, areas where they look either legislatively or otherwise that don't shift any kind of savings to the patient in their pocketbook. We're opposed to that.

Why you want a robust and innovative industry because at the moment you need it it's important that it's here in our country and we can invest and drive it so that's our focus.

B you know again, it's really about where is it that we can see reductions in out of pocket cost areas, where they look either legislatively or otherwise that don't shift any kind of savings to the patient in their pocket book, we're opposed to.

Mara Goldstein: Thank you, Mara. Next question, please. Our next question comes from the line of Carter Gould with Barclays. Your line is open. All right, good morning. Thanks for taking the question. I wanted to touch on the performance in China. You had a very nice quarter there.

Thank you Martin next question please.

Our next question comes from the line of Carter.

But for growth with Barclays. Your line is open.

Hi, good morning, Thanks for taking the question I wanted to touch.

On the performance in China, you had a very nice quarter there.

Was hoping to get a little bit more color on exactly kind of what drove that performance was a car to sell more or Mortland V might I ask it really in the context.

Carter Lewis Gould: Our next question comes from the line of Carter Gould with Barclays. Your line is open.

If your messaging around sort of the car to sell performance do you expect in second half and it's just the additional supply capacity coming on line. So some color on those funds would be helpful. Thank you.

Frank Clyburn: Yeah, hi Chris, Frank. Yeah, China grew very strong this quarter. I think it was 42% if you exclude foreign exchange. It was really driven by Gardasil. Very strong growth, as we've mentioned, and we anticipate that will continue as we move forward because of the significant number of patients and still the relatively small penetration that we have for Gardasil in China. So clearly, we see opportunities there. I'd also like to highlight that we did see very strong growth again within oncology.

Yeah.

Yeah, Hi, Chris It's Frank.

China grew a very strong this quarter I think it was 42 per Sam if you exclude foreign exchange.

So it was really driven by Gardasil very strong growth as we mentioned and we anticipate that will continue.

As we move forward because of the significant <unk>.

Number of patients and still a relatively small penetration that we'd have for gardasil in China. So clearly we see opportunities there.

I'd also like to highlight that we did see very strong growth again within oncology with bema when par as a contributor grew a very strong this quarter. So a number of our growth drivers and in addition.

Frank Clyburn: Linvima, Linparza, and Contruda grew very strongly this quarter, so a number of our growth drivers. And in addition to that, we also are still seeing strong growth for Januvia Janument in diabetes in China as well. So we anticipate that this will continue to see growth. I think this ties very well with our strategy where we pivot and focused more on our innovative portfolio of products for China, and that's why we're very confident in future growth within China.

To that we also are still seeing strong growth for Januvia Janney.

Matt in diabetes in China as well so we anticipate that we will continue to see growth I think this ties very well to our strategy, where we pivoted and focus more of our innovative.

Portfolio of products for China, and that's why we're.

Very confident in the future growth within China.

Carter Lewis Gould: Thank you, Carter. We have time for one last question.

Hey, Carter.

We have time for 1 last question.

Steve Scala: Our last question comes from the line of Steve Scala with Cohen. Your line is open.

Our next question comes from the line of Steve Scala with Cowen Your line is open.

Steve Scala: Thank you very much. Can you provide an update on the anti-ILT4 antibody? A number of new trials have been initiated recently. What is it that Merck sees in this target that is interesting? Thank you. Yeah, this is Dean.

Thank you very much can you provide an update on the anti <unk> 4 antibody a number of new trials have been initiated recently what is it that Merck sees in.

And this target that is interesting. Thank you.

Yeah.

Yeah. This is a this is dean.

Iot for is is that it is.

Dean Y. Li: IOT4 is a program that we're watching very carefully in our own pipeline. It is a program that was initiated by us looking at patient data from clinical trials with Temporalizumab and looking at those patients who are responsive, but more importantly, those patients who are not responsive, and understanding what possible mechanisms. The other point that I would just emphasize is ILT4, in some sense, is a checkpoint inhibitor, but it is not a T-cell checkpoint inhibitor, and there's always been a discussion of whether another class of immune cells, such as myeloid cells, could be really important.

As a program that we're watching very carefully and our own pipeline. It is a program that was initiated by us looking at.

Patient data from clinical trials with timber lithium map and looking at those patients who are.

Who are responsive, but more importantly, those patients who are not force a sponsored and understanding what our possible mechanisms.

A point that I would just emphasize as Iot.

For in some sense is a checkpoint inhibitor, but it is not a T cell checkpoint inhibitors and Theres always been a discussion of whether another class of immune cells, such as myeloid cells could be really important and so that's the second reason why were very interested but quite frankly the.

Dean Y. Li: And so that's the second reason why we're very excited. But, quite frankly, the third point I would make is that all of that is interesting science and is a great hypothesis, but fundamentally, we have to have clinical trials that show that we are advancing clinical trials for ILT4, and I think that the interest in other companies to follow our lead in ILT4 is based on the fact that. Thank you.

Third point I would make this.

All.

All of that is interesting science and is a great hypothesis, but fundamentally we have to have clinical trials that show that we are advancing clinical trials for Iot for and I think that the interest in other companies to follow our lead and Iot for is based on the fact that.

They see.

Advancing it and we believe that our data will support us advancing it and we'll just have to see what that benefit is but it is a highly differentiated first in class mechanism not just in the molecule, but in the cellular sort of approach of Howard.

Steve Scala: Thank you, Steve, and thank you all for your really good questions today. I'll turn it over to Rob for some closing remarks. Great. Thanks, Peter.

Rob Davis: As we've discussed today, hopefully, what you get a sense of is that we do have significant opportunities for growth and value creation. I'm committed to making it happen, and I know my team is as well. And importantly, we're confident we'll be able to do so. Merck is a company that matters, and as we think about that, we know we need to evolve, that we hold a special place in the world, and we're committed to delivering for the patients who count on us and, frankly, to deliver the sustainable growth that I know our shareholders want to see, and I'm confident we will do so. So I look forward to giving you updates on our progress as we move forward, and I wish you all a great rest of your day.

<unk> asking cancer broadly.

Thank you Steve and thank you all for your really good questions today, I'll turn it to Rob for a simple.

Remarks, great. Thanks, Peter as we've discussed today hopefully when you get a sense of is that we do have significant opportunities for growth and value creation I'm committed to make it happen and.

Our Italian team has as well and importantly, we're confident we'll be able to do so.

Merck is a company that matters and you know as we think about that we know we need to evolve.

We hold a special place in the World and we're committed to delivering for the patients who are calling us and frankly to deliver the sustainable growth that I know our shareholders want to.

I know I'm confident we will do so so I look forward to giving you updates on our progress as we move forward and I wish you all to have a great rest of your day. Thank.

Thank you very much.

Mary Sarah: This concludes today's conference call. Thank you for participating. You may now disconnect.

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

Okay.

See you.

[music].

Yes.

Okay.