Q2 2022 Merck & Co Inc Earnings Call
Yes.
[music].
Operator: Ladies and gentlemen, thank you for standing by.
Ladies and gentlemen, thank you for standing by.
Operator: Good morning.
Alan: My name is Alan and I will be your conference moderator today.
Good morning, My name is Ellen and I will be your conference moderator today.
Alan: At this time, I would like to welcome everyone to the Merck & Co Q2 sales and earnings conference call. All participants are in a listen only mode.
Operator: Please hang up.
At this time I would like to welcome everyone to the Mercury Company Q2 sales and earnings conference call.
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All participants are in a listen only mode.
Later, we will conduct a question and answer session.
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Alan: As a reminder, this conference is being recorded.
As a reminder, this conference is being recorded.
Thank you I would now like to turn the conference over to Peter down and bomb VP Investor Relations. Please go ahead.
Alan: Thank you.
Welcome to Merck's second quarter 2022 conference call speaking on today's call will be Rob Davis, President and Chief Executive Officer, Caroline Litchfield, Chief Financial Officer, and Dr. Dean Lee President of Merck Research Labs.
Before we get started I'd like to point out a few items you will see that we have items in our GAAP results such as acquisition related charges restructuring costs and certain other items.
Should note that we've excluded these from our non-GAAP results and provide a reconciliation in our press release.
I'd like to remind you that some of the statements that we make today may be 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 <unk>.
Line assumptions prove inaccurate or uncertainties materialize actual results may differ materially from those set forth in the forward looking statements, our SEC filings, including item one a in the 2021 10-K identify certain risk factors and cautionary statements that could cause the company's actual results to differ materially from those projected in any of our forward.
Looking statements made this morning.
Merck undertakes no obligation to publicly update any forward looking statements during.
During today's call a slide presentation will accompany our speaker's prepared remarks, the presentation today's earnings release as well as our SEC filings are all posted to the Investor Relations section of <unk> website.
With that I'd like to turn the call over to Rob.
Alan: I would now like to turn the conference over to Peter Dannenbaum, VP Investor Relations.
Thanks, Peter Good morning, and thank you for joining today's call.
Alan: Please go ahead.
Im proud to report that the business continues to perform extremely well.
We remained firmly guided by our strategic priorities to drive long term growth and deliver value to patients and shareholders. We are executing on the opportunities in front of us today, while simultaneously, making the necessary investments to sustain our success long into the future I'm pleased to report that during the second quarter, we achieved Roe.
Peter Dannenbaum: Welcome to Merck's second quarter 2022 conference call.
Thus top and Bottomline growth and made additional important clinical advancements in our pipeline.
Peter Dannenbaum: Speaking on today's call will be Rob Davis, President and Chief Executive Officer, Caroline Litchfield, Chief Financial Officer, and Dr. Dean Lee, President of Merck Research Labs.
Turning first to our results.
We again achieved exceptional performance this quarter led by strong growth of key products, including Keytruda Gardasil and <unk>.
Peter Dannenbaum: Before we get started, I'd like to point out a few items.
Our results were aided by revenue from <unk>, which is helping in the ongoing fight against COVID-19.
Peter Dannenbaum: You will see that we have items in our GAAP results such as acquisition related charges, restructuring costs, and certain other items.
We're confident in the underlying demand for our innovative portfolio as we've continued to see momentum in our business, which we are pleased to reflect in our updated guidance.
Moving to our research organization, we continue to advance our pipeline most significantly across our suite of pneumococcal conjugate vaccines.
Thanks in advance received an expanded approval from the FDA for pediatric use providing an important option for children in the prevention of invasive pneumococcal disease.
We also presented positive results from clinical studies of <unk> hundred six our pneumococcal conjugate vaccine candidate designed specifically to address remaining disease burden in adults and we've initiated pivotal phase III studies.
These milestones reinforce the confidence we have in our population specific approach to address the distinct needs of children and adults.
We've also taken additional steps to help you understand the significant opportunities we see in our pipeline.
In June we hosted an investor event at Astro, which highlighted the depth and breadth of our oncology program.
At the event, we reiterated our ambition to become the leading oncology company by 2025, and our goal of sustaining this success well into the next decade.
As I reflect on my first year as CEO .
I'm very pleased by the significant progress we've made in advancing merchant position as a global biopharmaceutical leader.
And the sense of momentum spreading across our business.
The unwavering focus and dedication of our employees worldwide is driving strong execution on the significant opportunities in front of us.
We're demonstrating impressive resilience across all aspects of our business in a very challenging global environment.
We're achieving record levels of production on our manufacturing operations delivering exceptionally strong revenue growth.
Making meaningful advances in our pipeline and taking important steps to be more transparent about our outlook.
Our strategy is working and our future is bright.
Was very confident in a year ago.
Even more confident today that we are well positioned to achieve our near and long term goals anchored.
Anchored by our commitment to deliver important medicines and vaccines to patients and value to all of our stakeholders <unk>.
Including shareholders.
With that I will turn the call over to Carolyn.
Peter Dannenbaum: You should note that we have excluded these from our non-GAAP results and provide a reconciliation in our press release.
Thank you Rob good morning.
Peter Dannenbaum: I would like to remind you that some of the statements that we make today may be considered forward-looking statements within the meaning of the, safe harbor provision of the U.S.
Peter Dannenbaum: Private Securities Litigation Reform Act of 1995.
Peter Dannenbaum: Such statements are made based on the current beliefs of Merck's management and are subject to significant risks and uncertainties. If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements.
Rob highlighted we are maintaining this strong momentum with another quarter of exceptional performance in both revenue and earnings.
Peter Dannenbaum: Our SEC filings, including item 1A in the 2021 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.
Peter Dannenbaum: Merck undertakes no obligation to publicly update any forward-looking statements.
Peter Dannenbaum: During today's call, a slide presentation will accompany our speakers' prepared remarks.
These results further demonstrate that our focus on science and innovation at the core our strategy is working.
Success is being enabled by the excellent execution of our dedicated colleagues across the globe and continues to deliver value for patients customers and shareholders.
Peter Dannenbaum: The presentation, today's earnings release, as well as our SEC filings are all posted to the investor relations section of Merck's website.
Total company revenues with 14 $6 billion, an increase of 28%.
<unk> contributed $1 $2 billion in revenue.
Excluding the gasoline business delivered very strong growth of 18%.
The remainder of my comments will be on an ex exchange basis.
Human health business continued its strong momentum with growth of 33% or 21% excluding look at gilead driven by our key pillars.
Our animal health business, both brand delivered solid performance with sales, increasing 5% driven by growth across both livestock and companion animal products.
Peter Dannenbaum: With that, I'd like to turn the call over to Rob.
Now turning to the second quarter performance of our key brands.
Rob Davis: Thanks, Peter.
In oncology Keytruda.
Rob Davis: Good morning and thank you for joining today's call.
2% to five $3 billion, driven by robust global demand as well as continued expansion into new indications and to reflect the profound impact it is having on patients across the globe.
Rob Davis: I'm proud to report that the business continues to perform extremely well.
In the U S. Keytruda continues to demonstrate momentum in metastatic indication and is experiencing strong growth from recent launches in early stage cancers, including triple negative breast renal cell carcinoma.
Melanoma.
Keytruda is now approved for six indications in early stage cancers.
We are seeing strong utilization and are confident in its continued success as physician and patient experience right.
We have seen a particularly strong uptake in neo adjuvant adjuvant high risk early stage triple negative breast cancer based on keynote <unk> two to offering a systemic treatment option for patients in an area of significant unmet need.
In the metastatic setting keytruda maintained its leadership position in non small cell lung cancer, capturing eight Apple 10 eligible new patient.
Outside the U S. Keytruda growth was driven by continued uptake in non small cell lung cancer and the ongoing launches in head and neck cancer and renal cell carcinoma.
Initial indicators all signs point to encouraging trends in the earliest stage indications, including triple negative breast cancer and renal cell carcinoma in key European market.
<unk> remains the market, leading PARP inhibitor.
<unk> revenue grew 17% driven by uptake in certain patients with high risk early stage breast cancer. Following FDA approval based on the Olympiad study.
We look forward to potentially expanding our public policy leadership by reaching additional prostate cancer patients based on the propel study.
The FEMA Alliance revenue grew 33% due to strong demand following the launches of keynote <unk> one in advanced renal cell carcinoma, and Kenai 70, 75 in metastatic endometrial cancer.
Patient starts across each of these tumors remains strong.
Lastly, we continue to be encouraged by the uptake of 'twenty, Reg, which is tracking in line with expectation.
Our vaccines portfolio again delivered excellent growth led by Gardasil, which increased 40% to $1 $7 billion.
Outside the U S. Gulf is still significant growth was driven by strong underlying demand, particularly in China as well as increased supply.
In the U S south decreased primarily due to CDC purchasing pattern, although we continue to see some impact from the pandemic unwell visits.
We continue to invest behind activation campaigns to ensure that parents recognize the importance of routine physician world visit so that children, particularly during the back to school season.
Rob Davis: We remain firmly guided by our strategic priorities to drive long-term growth and deliver value to patients and shareholders.
We remain confident in the growth trajectory of got itself pretty.
Our proven ability to help prevent certain HPV related cancers in both females and males.
In our hospital acute care portfolio, Raytheon, South grew 15% driven by greater share among neuromuscular blockade reversal agent and an increase in surgical procedures.
Our animal health business delivered another solid quarter with sales increasing 5%.
Livestock sales grew 6% driven by higher demand in ruminant and poultry.
Companion animal sales increased 3% due to global demand for the <unk> line of products.
I will now walk you through the remainder of our pans out and my comments will be on a non-GAAP basis.
Gross margin was 74, 7% a decrease of one eight percentage points.
The decrease was due to the impact of look embryos.
Higher inventory write ups and increased manufacturing costs.
Partially offset by favorable product mix across the remainder of the portfolio and foreign exchange.
Operating expenses decreased 19% to five $2 billion, reflecting charges primarily related to last year's $1 7 billion dollar acquisition of pantheon, which is reflected in our second quarter 2021 R&D expense.
Operating expenses, excluding these charges increased in line with our plan driven by investments in our key growth drivers and pipeline.
Other expense was approximately $200 million.
Reflecting higher than expected pension settlement expense.
Our tax rate was 13, 8%.
Taken together, we earned $1.87 per share.
Turning now to our 2022 non-GAAP guidance.
The underlying strength of our business enables us to raise and narrow our full year revenue guidance.
We now expect revenue to be between 57 five of $58 $5 billion.
Our increased revenue guidance range represents growth of 18% to 20% or 13, 14%, excluding look embryo and the impact from foreign exchange.
The projected impact from foreign exchange and creates an incremental headwind of more than 1% using mid July rates.
Looking at our full year negative impact of approximately 3%.
We are maintaining our gross margin expectation of between 74 and 74, 5%.
We are increasing our operating expense projection to 25 to 21 5 billion, primarily driven by the $290 million upfront payment from the recently announced collaboration with <unk> Corporation.
As an ongoing practice our guidance does not include significant potential business development transactions.
We increased our expectation of other expense to approximately $500 million, reflecting higher than anticipated pension settlement expense.
We continue to assume a full year tax rate between 13, five and 14, 5%.
We assume 254 billion shares outstanding.
Taken together, we have narrowed our expected EPS range to $7.25.
The $7 35.
The operational strength in our business would have led to an approximately 25% increase in our guidance.
The strength is being offset by the upfront payments Lori on higher pension settlement expense and an incremental headwind from foreign exchange more than 1% using mid July rates.
Overall, our guidance reflects our confidence that the strong underlying momentum without business will continue into the second half of the year.
As you can see that your models there are a few things to keep in mind.
First the pandemic with a tailwind to growth in the first half of the year.
We expect the benefits to year over year for us to lessen over the remainder of the year.
Both sides, we actively manage the impact of foreign exchange to have revenue hedging program.
To the extent, we see further negative impact from foreign exchange.
We'll see additional benefit from our hedges in other revenue as we did in this quarter.
Other revenue also includes supply self the organon.
Johnson <unk> Johnson for its COVID-19 vaccine.
One of the receipts related to out licensing arrangements.
In total we expect other revenue to be higher in the second half versus the first half of 2022.
With respect to our product.
For Pneumovax 23, we continue to expect a negative impact to U S sales given the shift towards new adult pneumococcal conjugate vaccines.
On animal health, we are seeing normalized industry growth rate as we anniversary the favorable trends in pet spending, resulting from the pandemic and experienced foreign exchange headwinds.
However, given our broad and innovative portfolio, we are well positioned to continue to drive above market growth in 2022 and beyond.
Finally, we continue to expect the gasoline <unk> full year sales of five to $5 $5 billion with second half south weighted to the fourth quarter.
Our capital allocation priorities remain unchanged, we will continue to prioritize investments in our pipeline and business to realize the value of the many near and long term opportunities in front of us.
We continue to pursue compelling external science through strategic business development to augment our internal pipeline.
Our recent collaboration with <unk> is another example of fast execution of this strategy.
We remain committed to our dividend, which we expect to increase over time.
Finally to the extent, we have excess cash we will return it to shareholders through share repurchases.
Rob Davis: We are executing on the opportunities in front of us today while simultaneously making the necessary investments to sustain our success long into the future.
To conclude as we enter the second half of the year, we remain very confident in the strength of our business driven by global demand for our innovative medicines and vaccines.
Excellent execution will enable us to continue to deliver value to patients and shareholders well into the future.
With that I'd now like to turn the call advocacy.
Rob Davis: I'm pleased to report that during the second quarter, we achieved robust top and bottom-line growth and made additional important clinical advancements in our pipeline.
Thank you Caroline it's my pleasure to provide an update on our progress since the first quarter call.
We continue to execute on our pipeline strategy. We are advancing the latest time to generate medicines and vaccines that provide clear benefit for patients.
Rob Davis: Turning first to our results, we again achieved exceptional performance this quarter, led by strong growth of key products, including Keytruda, Gardasil, and Brition.
Rob Davis: Our results were aided by revenue from Montgomery, which is helping in the ongoing fight against COVID-19.
Today I will highlight recent progress in our vaccine pipeline and provide updates on our oncology program as well as la Gabrielle.
Rob Davis: We're confident in the underlying demand for our innovative portfolio as we've continued to see momentum in our business, which we are pleased to reflect in our updated guidance.
Rob Davis: Moving to our research organization, we continue to advance our pipeline most significantly, across our suite of pneumococcal conjugate vaccines.
As Rob noted, we have made significant progress across our pneumococcal portfolio.
Building upon the approval in the adult indication, we received a year ago.
Rob Davis: Vaccine Advance received an expanded approval from the FDA for pediatric use, providing, an important option for children in the prevention of invasive pneumococcal disease.
Last month, we received FDA approval for our 15 valent pneumococcal conjugate vaccine.
An important new option to help protect pediatric populations against invasive pneumococcal disease.
<unk> is the first pneumococcal conjugate vaccine approved for pediatric populations in almost a decade.
New rents provide comparable immunogenicity for 12 shared serotypes compared to the currently available 13, valent pneumococcal conjugate vaccine <unk>.
Improved immunogenicity for serotype, three and expanded coverage for serotype 22 and 33.
Serotype 322 up from 33 of our key invasive disease, causing serotypes known to be responsible for more than a quarter of all invasive pneumococcal disease in children.
Following FDA approval the Cdc's Advisory Committee on immunization practices voted unanimously endorsed use of vaccine events as an option for children under 19 years of age.
Additionally, the ACI P unanimously voted to include Vacs, DRAM and the vaccines for children program.
We await publication of the final CDC recommendation and the morbidity and mortality weekly report.
Rob Davis: We also presented positive results from clinical studies of V116, our pneumococcal conjugate, vaccine candidate designed specifically to address remaining disease burden in adults, and we've initiated pivotal phase three studies.
Also in June at the International Symposium on Pneumococcus, and pneumococcal diseases in Toronto, We presented positive results from our phase <unk> study evaluating <unk>, our investigational 21, valent pneumococcal conjugate vaccine and pneumococcal vaccine naive.
Ago.
The one six is designed to significantly expand coverage compared to currently licensed pneumococcal vaccines by targeting serotypes that account for 85% of all invasive pneumococcal disease cases in adults, aged 65 and older in the United States as of 2019.
Rob Davis: These milestones reinforce the confidence we have in our population-specific approach, to address the distinct needs of children and adults.
As a strong indicator of our progress we recently enrolled the first patient into the stride three trial evaluating V. One lunch bags and vaccine naive adults. The first of four current phase III trial.
Rob Davis: We've also taken additional steps to help you understand the significant opportunities, we see in our pipeline.
We have taken a thoughtful and tailored approach to establishing a pipeline of pneumococcal vaccine candidate designed to afford a production by targeting strain posing the greatest risk to specific population.
I look forward to providing additional updates on the progress of our pneumococcal program going back a few minutes. We won one six and one seven our investigational candidate specifically targeting pediatric disease.
Rob Davis: In June, we hosted an investor event at ASCO, which highlighted the depth and breadth of, our oncology program. At the event, we reiterated our ambition to become the leading oncology company by 2025, and our goal of sustaining this success well into the next decade.
Turning to oncology, we continue to build on the momentum in earlier stage cancers, we announced that the FDA has accepted our application of Keytruda for the adjuvant treatment for patients with non small cell lung cancer. Following surgical resection based on the results of the ongoing keynote <unk> one trial.
Rob Davis: As I reflect on my first year as CEO, I'm very pleased by the significant progress we've, made in advancing Merck's position as a global biopharmaceutical leader, and the sense of momentum spreading across our business. The unwavering focus and dedication of our employees worldwide is driving strong execution, on the significant opportunities in front of us.
Rob Davis: We're demonstrating impressive resilience across all aspects of our business in a very, challenging global environment.
The FDA has set a prescription drug user fee Act date of January 29, 2023.
Oliver further data may be provided during the review process that may delay this day.
Rob Davis: We're achieving record levels of production in our manufacturing operations, delivering, exceptionally strong revenue growth, making meaningful advances in our pipeline, and taking important steps to be more transparent about our outlook.
At the American Society for clinical oncology meeting in June we provided expanded analyses and presented data on new endpoints and key subgroups for Ciena.
Rob Davis: Our strategy is working, and our future is bright. I was very confident a year ago, and I am even more confident today that we are well, positioned to achieve our near and long-term goals, anchored by our commitment to deliver important medicines and vaccines to patients, and value to all of our stakeholders, including shareholders.
Rob Davis: With that, I'll turn the call over to Caroline.
716 for the adjuvant treatment and stage <unk> and <unk> melanoma keynote <unk>, two and new adjuvant adjuvant high risk early stage triple negative breast cancer and 564 in adjuvant RCC.
Caroline Litchfield: Thank you, Rob.
Caroline Litchfield: Good morning.
Caroline Litchfield: As Rob highlighted, we are maintaining this year's strong momentum with another quarter of, exceptional performance in both revenue and earnings. These results further demonstrate that our focus on science and innovation at the core, of our strategy is working.
Caroline Litchfield: Our success is being enabled by the excellent execution of our dedicated colleagues across, the globe, and continues to deliver value for patients, customers, and shareholders.
Caroline Litchfield: Total company revenues were $14.6 billion, an increase of 28%. Lughevrio contributed $1.2 billion in revenue. Excluding Lughevrio, the business delivered very strong growth of 18%.
Caroline Litchfield: The remainder of my comments will be on an ex-exchange basis.
We are also delivering on our regulatory strategy outside the United States.
Caroline Litchfield: Our human health business continued its strong momentum, with growth of 33% or 21% excluding, LeGevrio's, driven by our key pillars.
Caroline Litchfield: Our animal health business also delivered solid performance, with sales increasing 5%, driven by growth across both our livestock and companion animal products.
Notable actions include four approvals for Keytruda from the European Commission based on 70.
70, <unk> for the adjuvant treatment of patients 12 years and older with completely resected stage <unk> melanoma.
<unk> Q2, and high risk early stage triple negative breast cancer.
No one's explore in keynote 158 in MSI high and our mismatch repair deficient tumors in five different cancer types, and keno eight toothpicks and certain types of persistent recurrent or metastatic cervical cancer.
In addition, we received a positive EU see HMP opinion for adjuvant treatment with one partner for patients with certain types of high risk early stage breast cancer based on the phase III Olympiad trial.
And finally, we are encouraged by the positive readout keynote 869 or EV 103 in first line <unk> cancer, which is in collaboration with CJ.
Caroline Litchfield: Now turning to the second quarter performance of our key brands.
Caroline Litchfield: In oncology, Keytruda grew 30% to $5.3 billion, driven by robust global demand, as well as, continued expansion into new indications, and reflects the profound impact it is having on patients across the globe. In the U.S., Keytruda continues to demonstrate momentum in metastatic indications, and is, experiencing strong growth from recent launches in early-stage cancers, including triple negative breast, renal cell carcinoma, and melanoma. Keytruda is now approved for six indications in early-stage cancers.
Next I want to discuss our ongoing efforts to treat prostate cancer.
Caroline Litchfield: We are seeing strong utilization, and are confident in its continued success, as physician, and patient experience grows.
I'll stay cancer impact millions of men and those with advanced disease have low rates a five year survival. We continue to generate insights about prostate cancer from our ongoing work and we remain focused on improving patient outcome.
Caroline Litchfield: We have seen a particularly strong uptake in neoadjuvant, high-risk, early-stage, triple, negative breast cancer, based on Keynote 522, offering a systemic treatment option to patients in an area of significant unmet need.
Caroline Litchfield: In the metastatic setting, Keytruda maintains its leadership position in non-small cell, lung cancer, capturing eight out of 10 eligible new patients.
Caroline Litchfield: We look forward to potentially expanding upon Limpasa's leadership by reaching additional, prostate cancer patients, based on the Propel study.
Caroline Litchfield: Outside the U.S., Keytruda growth was driven by continued uptake in non-small cell lung, cancer, and the ongoing launches in head and neck cancer, and renal cell carcinoma.
Caroline Litchfield: Lenvima Alliance revenue grew 33 percent, due to strong demand following the launches, of Keynote 581 in advanced renal cell carcinoma, and Keynote 775 in metastatic endometrial cancer.
Caroline Litchfield: Initial indicators also point to encouraging trends in the earlier-stage indications, including, triple negative breast cancer, and renal cell carcinoma in key European markets.
Caroline Litchfield: Limpasa remains the market-leading PARP inhibitor.
Caroline Litchfield: Our Alliance revenue grew 17 percent, driven by uptaking certain patients with high-risk, early-stage breast cancer, following FDA approval, based on the Olympia study.
Caroline Litchfield: New patient starts across each of these tumors remain strong.
Caroline Litchfield: Lastly, we continue to be encouraged by the uptake of Wellireg, which is tracking in-line, expectations.
Caroline Litchfield: Our vaccines portfolio again delivered excellent growth, led by Gardasil, which increased 40, percent to $1.7 billion. Outside the U.S., Gardasil's significant growth was driven by strong underlying demand, particularly, in China, as well as increased supply.
Caroline Litchfield: In the U.S., sales decreased primarily due to CDC purchasing patterns, although we continue to see some impact from the pandemic on well visits.
Business development and licensing remains a key element of our strategy to build and maintain a strong and diverse pipeline.
Caroline Litchfield: We continue to invest behind activation campaigns to ensure that parents recognize the importance of routine physician well visits for their children, particularly during the back-to-school season.
Caroline Litchfield: We remain confident in the growth trajectory of Gardasil, given its proven ability to help prevent certain HPV-related cancers in both females and males.
Caroline Litchfield: In our hospital acute care portfolio, Rhegion cells grew 15%, driven by greater share among neuromuscular blockade reversal agents and an increase in surgical procedures.
Caroline Litchfield: Our animal health business delivered another solid quarter, with sales increasing 5%. Livestock sales grew 6%, driven by higher demand in ruminants and poultry. Companion animal sales increased 3% due to global demand for the Prevecto line of products.
Earlier this month, we announced a global development and commercialization agreement with Orient Borg investigational oral steroids synthesis inhibitor ODM to zero eight which is currently in phase III development for the treatment of metastatic castrate resistant prostate cancer.
ODM to zero eight target cytochrome <unk> hundred 50, <unk> 11, a one a novel approach that is complementary to our broad based prostate cancer program, which includes the combination of Keytruda with chemotherapy based on keynote 91, keytruda with anti androgen therapy based on Keene.
641, and keynote 90, 91, and Lynne Parshall with anti androgen therapy based on the per proud trial.
Next to Covid, 19, and La Gabriel dependent.
The pandemic persists and Sars Covid two continues to evolve they were solid emerging evidence for the breadth of resistance to antibody therapies from Omar Crown variance, notably before M D var.
Rate of transmission and increased hospitalizations with these variance where reinforces the need for multiple effective anti viral treatment options, especially for those most vulnerable.
For high risk patients evidence continues to show that prompts therapeutic intervention improves outcomes importantly, a large proportion of high risk individuals including older adults are likely receiving additional medications for chronic conditions.
Like every other low propensity for drug drug interaction avoids the need to adjust existing dosing regiments and monitor liver and kidney functions during treatment.
Which can facilitate timely intervention for appropriate patients.
Recently data reported from Denmark, Hong Kong, and Poland and provided support for the utility of <unk> in real world settings with.
We plan to share more data as they become available.
To conclude I am proud of the advancements across our pipeline to date and look forward to providing further updates on our scientific progress in the future.
Caroline Litchfield: I will now walk you through the remainder of our P&L, and my comments will be on a non-GAP basis.
And now I will turn the call back to Peter.
Caroline Litchfield: Growth margin was 74.7%, a decrease of 1.8 percentage points. The decrease was due to the impact of Le Gevrio, higher inventory write-offs and increased manufacturing costs, partially offset by favorable product mix across the remainder of the portfolio, and foreign exchange.
Caroline Litchfield: Operating expenses decreased 19% to $5.2 billion, reflecting charges primarily related to last year's $1.7 billion acquisition of Pandion, which is reflected in our second quarter 2021 R&D expense.
Caroline Litchfield: Operating expenses, excluding these charges, increased in line with our plan, driven by investments in our key growth drivers and pipelines.
Caroline Litchfield: Other expense was approximately $200 million, reflecting higher than expected pension settlement expense.
Thank you Dean Marilyn we're ready for the Q&A session. If you could please assemble the queue.
Thank you Les.
Caroline Litchfield: Our tax rate was 13.8%.
Ladies and gentlemen.
If you wish to ask a question. Please press one then zero on your telephone keypad.
You may withdraw your question at any time by repeating the one then zero command.
If youre using a speakerphone please pick up the handset before pressing the numbers. Once again, if you have a question you May press. One then zero at this time.
Caroline Litchfield: Taken together, we earned $1.87 per share.
One moment please for our first question.
Caroline Litchfield: Turning now to our 2022 non-GAP guidance.
Our first question will come from Terence Flynn with Morgan Stanley go ahead.
Caroline Litchfield: The underlying strength of our business enables us to raise and narrow our full-year revenue guidance. We now expect revenue to be between $57.5 and $58.5 billion. Our increased revenue guidance range represents growth of 18% to 20%, or 13% to 14%, excluding Le Gevrio and the impact from foreign exchange. The projected impact from foreign exchange includes an incremental headwind of more than 1% using mid-July rates, resulting in a full-year negative impact of approximately 3%.
Caroline Litchfield: We are maintaining our gross margin expectation of between 74% and 74.5%. We are increasing our operating expense projection to $20.5 to $21.5 billion, primarily driven by the $290 million upfront payment from the recently announced collaboration with Orion Corporation.
Caroline Litchfield: As an ongoing practice, our guidance does not include significant potential business development transactions.
Caroline Litchfield: We increased our expectation of other expense to approximately $500 million, reflecting higher than anticipated pension settlement expense.
Maybe a two part one here just wondering if there's a pathway to extend the IP on keytruda of either via either a sub Q formulation or maybe some other type of formulation patents and then is there anything from a technical perspective that would prohibit co formulation of Keytruda.
With an antibody drug conjugate thank you.
Caroline Litchfield: We continue to assume a full year tax rate between 13.5% and 14.5%.
Caroline Litchfield: We assume 2.54 billion shares outstanding. Taken together, we have narrowed our expected EPS range to $7.25 to $7.35. The operational strength in our business would have led to an approximately 25 cent increase in our guidance. This strength is being offset by the upfront payment to Orion, higher pension settlement expense, and an incremental headwind from foreign exchange of more than 1% using mid-July rates.
I guess I will take this this is dean in relationship to a different route of administration I think you've highlighted that especially as we go into early stages of cancer, there will be a demand demand by the patients and the providers to really come up with other formulations. Besides intravenous formulation.
Caroline Litchfield: Overall, our guidance reflects our confidence that the strong underlying momentum of our business will continue into the second half of the year.
Caroline Litchfield: As you consider your models, there are a few things to keep in mind.
Caroline Litchfield: First, the pandemic was a tailwind to growth in the first half of the year. We expect the benefit to year-over-year growth to lessen over the remainder of the year.
Caroline Litchfield: Also, we actively manage the impact of foreign exchange through our revenue hedging program.
Caroline Litchfield: To the extent we see further negative impact from foreign exchange, we will see additional benefit from our hedges in other revenue, as we did in this quarter. Other revenue also includes supply sales to Organon and to Johnson & Johnson for its COVID-19 vaccine, as well as receipts related to out-licensing arrangements.
Caroline Litchfield: In total, we expect other revenue to be higher in the second half versus the first half of 2022.
Caroline Litchfield: With respect to our products, for Pneumovax 23, we continue to expect a negative impact to U.S. sales, given the shift toward newer adult pneumococcal conjugate vaccines.
Caroline Litchfield: With that, I'd now like to turn the call over to Dean.
Caroline Litchfield: On animal health, we are seeing normalized industry growth rates as we anniversary the favorable trends in pet spending resulting from the pandemic and experience foreign exchange headwinds.
Caroline Litchfield: However, given our broad and innovative portfolio, we are well positioned to continue to drive above-market growth in 2022 and beyond.
Caroline Litchfield: Finally, we continue to expect Logevrio full-year sales of $5 to $5.5 billion, with second-half sales weighted to the fourth quarter.
Caroline Litchfield: Our capital allocation priorities remain unchanged. We will continue to prioritize investment in our pipeline and business to realize the value of the many near and long-term opportunities in front of us.
Caroline Litchfield: We continue to pursue compelling external science through strategic business development to augment our internal pipeline. Our recent collaboration with Orion is another example of our execution of this strategy.
Dean Lee: Thank you, Caroline.
Caroline Litchfield: We remain committed to our dividend, which we expect to increase over time.
Dean Lee: It's my pleasure to provide an update on our progress since the first quarter call.
Caroline Litchfield: Finally, to the extent we have excess cash, we will return it to shareholders through share repurchases.
Dean Lee: We continue to execute on our pipeline strategy.
Caroline Litchfield: To conclude, as we enter the second half of the year, we remain very confident in the strength of our business, driven by global demand for our innovative medicines and vaccines. Our excellent execution will enable us to continue to deliver value to patients and shareholders well into the future.
Dean Lee: We are advancing the latest science to generate medicines and vaccines that provide clear benefit for patients.
Dean Lee: Today, I will highlight recent progress in our vaccine pipeline and provide updates on our oncology program, as well as LeGevrio. As Rob noted, we have made significant progress across our pneumococcal portfolio, building upon the approval and the adult indication we received a year ago. Last month, we received FDA approval for our 15-valent pneumococcal conjugate vaccine, Vaxnuvant, an important new option to help protect pediatric populations against invasive pneumococcal disease. Vaxnuvant is the first pneumococcal conjugate vaccine approved for pediatric populations in almost a decade.
Dean Lee: Vaxnuvant provides comparable immunogenicity for 12 shared serotypes compared to the currently available 13-valent pneumococcal conjugate vaccine, improved immunogenicity for serotype 3, and expanded coverage for serotypes 22F and 33F. Serotypes 3, 22F, and 33F are key invasive disease-causing serotypes known to be responsible for more than a quarter of all invasive pneumococcal disease in children. Following FDA approval, the CDC's Advisory Committee on Immunization Practices voted unanimously to endorse use of Vaxnuvant as an option for children under 19 years of age. Additionally, the ACIP unanimously voted to include Vaxnuvant in the Vaccines for Children Program.
Dean Lee: We await publication of the final CDC recommendation in the Morbidity and Mortality Weekly Report.
Dean Lee: Also in June, at the International Symposium on Pneumococci and Pneumococcal Diseases in Toronto, we presented positive results from our Phase 1-2 study evaluating V116.
Dean Lee: Our investigation of 21-valent pneumococcal conjugate vaccine in pneumococcal vaccine-naive adults.
Dean Lee: V116 is designed to significantly expand coverage compared to currently licensed pneumococcal, vaccines by targeting serotypes that account for 85% of all invasive pneumococcal disease cases in adults aged 65 and older in the United States as of 2019.
Where you have to go to an infusion center. So subcutaneous number of lives and that could be very important serve that need and the innovation required for subcutaneous contributor is is viewed.
Dean Lee: As a strong indicator of our progress, we recently enrolled the first patient into the, STRIDE 3 trial evaluating V116 in vaccine-naive adults, the first of four current Phase 3 trials.
Dean Lee: We have taken a thoughtful and tailored approach to establishing a pipeline of pneumococcal, vaccine candidates designed to afford protection by targeting strains posing the greatest risk to specific populations.
Dean Lee: I look forward to providing additional updates on the progress of our pneumococcal program, for the next events, V116 and V117, our investigational candidates specifically targeting pediatric disease.
Dean Lee: Turning to oncology, we continue to build on the momentum in earlier stage cancers.
Dean Lee: We announced that the FDA has accepted our application of Keytruda for the adjuvant treatment, for patients with non-small cell lung cancer following surgical resection based on the results of the ongoing Keynote-091 trial. The FDA has set a Prescription Drug User Fee Act date of January 29, 2023.
Dean Lee: However, further data may be provided during the review process that may delay this date.
Dean Lee: At the American Society for Clinical Oncology meeting in June, we provided expanded analyses, and presented data on new endpoints and key subgroups for Keynote-716 for the adjuvant treatment in stage 2B and 2C melanoma, Keynote-522 in neoadjuvant, adjuvant high-risk early stage triple negative breast cancer, and Keynote-564 in adjuvant RCC.
Dean Lee: We are also delivering on our regulatory strategy outside the United States.
Dean Lee: Approval actions include four approvals for Keytruda from the European Commission based, on Keynote-716 for the adjuvant treatment of patients 12 years and older with completely resected stage 2B or 2C melanoma, Keynote-522 in high-risk early stage triple negative breast cancer, Keynote-164 and Keynote-158 in MSI high and or mismatched repair deficient tumors and five different cancer types, and Keynote-826 in certain types of persistent, recurrent, or metastatic cervical cancer.
Dean Lee: In addition, we received a positive EU CHMP opinion for adjuvant treatment with lympharza, for patients with certain types of high-risk early stage breast cancer based on the phase three Olympia trial.
Dean Lee: And finally, we are encouraged by the positive readout of Keynote-869 or EV-103 in first, line urothelial cancer, which is in collaboration with CJIT.
Dean Lee: Next, I want to discuss our ongoing efforts to treat prostate cancer.
Dean Lee: Prostate cancer impacts millions of men, and those with advanced disease have low rates, of five-year survival.
Dean Lee: We continue to generate insights about prostate cancer from our ongoing work, and we remain, focused on improving patient outcomes.
Dean Lee: Business development and licensing remains a key element of our strategy to build and, maintain a strong and diverse pipeline. Earlier this month, we announced a global development and commercialization agreement, with Orion for its Investigational Oral Steroid Synthesis Inhibitor, ODM-208, which is currently in phase two development for the treatment of metastatic capillary-resistant prostate cancer.
Through through the past history, and I would imagine that occurred.
Dean Lee: ODM-208 targets cytochrome P450-11A1, a novel approach that is complementary to our broad-based, prostate cancer program, which includes the combination of Keynote 921, Keynote 641, Keynote 991, and, Lymparza with anti-androgen therapy based on the PROPAL trial.
Dean Lee: Next, to COVID-19 and LaGovia.
Dean Lee: The pandemic persists and SARS-CoV-2 continues to evolve. There is solid emerging evidence for the threat of resistance to antibody therapies from Omicron, variants, notably B4 and B5.
Dean Lee: The rate of transmission and increased hospitalizations with these variants reinforces the need for, multiple effective antiviral treatment options, especially for those most vulnerable.
Situation is novel useful and non obvious. So I think there is a path to think about how to think about that innovation.
Dean Lee: For high-risk patients, evidence continues to show that prompt therapeutic intervention, improves outcomes. Importantly, a large proportion of high-risk individuals, including older adults, are likely, receiving additional medications for chronic conditions.
Dean Lee: LaGovia's low propensity for drug-drug interaction avoids the need to adjust existing dosing, regimens and monitor liver and kidney functions during treatment, which can facilitate timely intervention for appropriate patients.
Dean Lee: Recently, data reported from Denmark, Hong Kong, and Poland have provided support for, the utility of LaGovia in real-world settings. We plan to share more data as they become available.
Dean Lee: To conclude, I am proud of the advancements across our pipeline to date and look forward, to providing further updates on our scientific progress in the future.
Dean Lee: And now, I will turn the call back to Peter.
In relationship to cool formulations in general co formulations work well with for example, when we do Io Io with PD ones in detailing for ticket or lag three.
The issue with chemo based our antibody drug conjugate basis, I would be a little bit hesitant to do that oftentimes, they're based on weight based.
So I think that co formulations of for example, any I O agent with any chemotherapy or antibody drug conjugates could be.
Challenging two tenants to take that clinically.
Thank you Terrence next question please.
That will be from Evans segment with BMO capital markets go ahead.
Thanks for taking my question so with the widespread news reports of a potential deal with Senator dose mentioned and Schumer can you provide us with your thoughts on kind of the structure for Medicare to directly negotiate with manufacturers for drug reimbursement and the potential impact on R&D going forward.
Yes. Thanks for the question this is Rob.
As you said there is a reports out really just came out yesterday the potential deal with Senator Schumer.
And mentioned.
And that is elements of what had been part of the build back better plans related to drug pricing. So you know as we look at that.
I think it's important to understand first and foremost we do have significant concern.
One very important element of the.
The provision, which is the fact that there is what we see as price setting it's termed negotiation.
And the third what it is is price setting on drugs for a period of time.
We do believe that will be.
Highly chewing on future innovation, because especially if you think about an area like oncology.
Oncology is an area that the development of the drug continues long after the first approval.
The warrants in 2014 between 2014 and 2022.
Had something like 30 plus indications.
<unk>, we expect to have well more than double that between 2022 and 2028 and our concern is that if you.
You started to have the threat of discounts mandatory discounts there could cause companies to question that innovation, because you'll have to question, whether or not you're going to see the return. So we see a highly chilling effect of that and it's something that we will continue both as mark and as an industry to make sure that we communicated on our concern.
Sure.
And the only other thing.
That is as you think about.
And how we think about this to our business going forward, it's important to understand that as we look at this.
<unk>, obviously will have an impact importantly, as we plan for the future of the business. We have always assumed some form of of course, the crusher common including in the United States I think we've communicated that in the past. So as we look at this and you think of the relative to the guidance we've given in the past of experts.
Patients for strong growth.
Through our long range proves that that continues and includes the assumptions around there. So while I think we the manager I do worry about what it will do the innovation in the industry.
Thank you Kevin next question please.
Will come from Andrew Baum with Citi go ahead.
Thank you a couple of questions firstly.
You've announced.
Announced acceptance of licensing from China of Adcs I think one of them is in late stage development obviously.
Why do you reported that you wouldnt talks with CGM, which.
Has phase three data from eight a M. Another ADC molecule.
To compete with and how to.
In general interest interested jokes passed there seems to have closed the doors on seeking approval in the U S. Using data from Chinese trials that operationally how fast does it enable you to go knowing that you have the efficacy and safety signals and the Chinese population and expedite the move into phase III.
I used to have the sponsorship that you could enable you to catch up with the market leaders in this respective categories and then second question on <unk>, perhaps you would catch or update us how your discussions with gilead in terms of and the FDA in terms of resuming trials is this drug.
Live as a prophylactic and perhaps that's a treatment dose will neither thank you.
Peter Dannenbaum: Thank you, Dean.
Yes. So this is dean thank you very much for those questions tackle your first question related to our recently announced.
Alan: Alan, we're ready for the Q&A session.
Partnership with Keelan.
Alan: If you could please assemble the queue.
I should just emphasize this.
This was recently announced but we've had a productive a really productive partnership for the past two years and most recently they have announced progress in two programs.
Alan: Thank you.
Alan: Ladies and gentlemen, if you wish to ask a question, please press 1, then 0 on your, telephone keypad. You may withdraw your question at any time by repeating the 1, then 0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers.
One that they've declared which relates to trop, two ADC and they were advancing it in China and relationship with breast cancer and non small cell lung cancer.
Alan: Once again, if you have a question, you may press 1, then 0 at this time.
In relationship to what you've said it.
Moving those those those molecules.
For example, in the United States I think the FDA and we support this the FDA has been very clear of the importance of doing those trials not in.
Alan: One moment, please, for our first question.
Single geography, such as China, but to have global Global studies that include the United States.
Terrence Flynn: Our first question will come from Terrence Flynn with Morgan Stanley.
So the ability for the for our partners to get US a signal in in in the human population is really important it allows us to navigate how to think about it at a global level and so we.
We are hopeful that.
This partnership will allow us to accelerate the benefits thereof.
This drove through ADC to as many patients as possible.
To your second question in relationship to lots of Avera as you've noted there's lots of errors are in our T. T. I, it's extremely potent that as a resident time and tissue.
High barrier to resistance and we have two phase III studies that had an excellent result.
Nevertheless, we also have reduction in lymphocytes.
Across a number of our programs most of it asymptomatic, but in a combo trial with MK 8507, there was cleaning clinically meaningful reductions in dose dependent we have spent the last six months understanding that we understand with far better. We believe that there is a potential.
Four.
To maintain and to have that efficacy by and also reduced.
The effects on the white blood cells, we are in active discussions with the FDA. So I don't want to get ahead of myself, there and we clearly have active discussions with our partners in relationship to the question of treatment than perhaps I just want to make sure that everyone recognizes we have always thought that this class.
Of molecules in our DTI and has allowed to interject one compound within this class could be broadly used in treatment and in crop and we are interested in buying both of those are advancing both of those are possibilities.
Possibilities, but we are in the midst of discussions with the FDA that I think we should we should.
Provide them the data that they will need.
Terrence Flynn: Go ahead.
Thank you Andrew next question please.
Terrence Flynn: Maybe a two-part one here.
That will be Louise Chen with Cantor go ahead.
Terrence Flynn: Just wondering if there's a pathway to extend the IP on Keytruda via either a sub-q formulation, or maybe some other type of formulation patent.
Alright, Thanks for taking my question here. So I wanted to ask you about the checkpoint inhibitor strategy what are your thoughts on the changing treatment paradigm for checkpoint inhibitors in the new adjuvant and adjuvant cancer setting how do you think about adoption and uptake in the setting and do you think doctors are convinced of the opportunity yet or is there more work to be done.
Terrence Flynn: And then, is there anything from a technical perspective that would prohibit co-formulation, of Keytruda with an antibody drug conjugate?
Terrence Flynn: Thank you.
Thank you.
Dean Lee: I guess I will take this.
Well, let me answer it from a scientific standpoint, maybe we'll have a.
Carolina or Rob answer it from a from a market standpoint, I do think it's really important.
Dean Lee: This is Dean.
Just highlight.
At least for me you know.
The PD ones have been incredible in metastatic through a broad range of tumor types and we keep going earlier.
Stages and its not a priori that a medicine that works in the metastatic patient who has a very different benefit risk ratio will be truly effective only in the early stage and it's been impressive we have six approvals, whether it'd be abreast in renal cell carcinoma and melanoma.
And we have a positive trial and relationships alone and we have.
Many others advancing so I think that part of it is.
I think the uptake has been good but the most important thing is that scientifically the data has been very good.
And and I think the field will adopt it.
I think one of the things that will be critical as the field adopted is that oftentimes you're now talking not necessarily about a medical oncologists. So there will be work for us to do but I think the results speak for themselves.
I would recommend that people look at that data and I think that it's an important advancement in the field, but in terms of the uptake.
Caroline did you want to take care of that thank you James So Louise we are really excited about the opportunities that we have moving into early stage stages of cancer clearly if we can impact patient span the possibilities of further outcomes are greater.
Dean Lee: In relationship to different routes of administration, I think you've highlighted that, especially as we go into early stages of cancer, there will be a demand, demand by the patients and the providers to really come up with other formulations besides intravenous formulations where you have to go to an infusion center.
Dean Lee: So subcutaneous pummelizumab could be very important to serve that need.
Dean Lee: And the innovation, required for subcutaneous Keytruda is viewed, you know, through the past history, and I would imagine the current situation is novel, useful, and non-obvious.
Dean Lee: So I think there is a path to think about how to think about that innovation.
Dean Lee: In relationship to co-formulations, in general, co-formulations work well with, for example, when we do IO-IO with CD1s and CTLA-4, TIGIT, or LAG-free.
Dean Lee: The issue with chemo-based or antibody drug conjugate-based is I would be a little bit hesitant to do that.
Dean Lee: Oftentimes they're based on weight-based, and so I think that co-formulations of, for example, any IO agent with any chemotherapy or antibody drug conjugates could be challenging to advance, clinically.
Dean Lee: Thank you, Terrence.
We have seen in our early stage cancers impressive performance, we're seeing very strong performance in triple negative breast cancer renal cell carcinoma, and melanoma and if I just touch on triple negative breast cancer, we had the keynote <unk> two approval here in the United States.
July of last year during the second part of last year, we saw tremendous uptake in the first segment of treatment. The neo adjuvant treatment a heck of people then getting best gradually some 24 weeks later, what we're now seeing is not only patients coming on to Keytruda.
For Neo adjuvant Triple negative breast cancer. We're also seeing them return to treatment following that surgery. So we're very optimistic about the opportunities we have in the adjuvant setting and the impact that we can have on patients.
Thanks Luis next question please.
Alan: Next question, please, Adam.
We will go to Humira <unk> with Evercore go ahead.
Evan Seigerman: That will be from Evan Zegerman with BMO Capital Markets.
Evan Seigerman: Go ahead.
Hi, guys. Thanks for taking my question I have two here if I may 1st Robin I know you've mentioned M&A is critical to further diversity diversification of the business away from Keytruda.
Evan Seigerman: Thanks for taking my question.
Evan Seigerman: So with the widespread news reports of a potential deal with Senators, Manchin and Schumer, can you provide us with your thoughts on kind of the structure for Medicare to directly negotiate with manufacturers for drug reimbursement and the potential impact on R&D going forward?
Rob Davis: Yeah, Evan, thanks for the question.
Rob Davis: This is Rob.
And you could explore M&A in basically in our non oncology bucket like exceleron or in oncology and I guess that brings me to my first question, which is in oncology. It's a very high quality problem of Keytruda being this foundational treatment across so many different tumors and how do you approach that given the.
Rob Davis: As you said, there is, reports out that really just came out yesterday of a potential deal with Senators Schumer and, Manchin, and in that is elements of what have been part of the Build Back Better plan related to drug pricing.
Increased F T C focus on I'm looking at a lot of deals based on market shares on individual markets considering keytruda. It basically has a market share in so many different tumor then how do you think about oncology deals in general given keytruda as Roland I'm sure you guys have thought about that at length to the extent you're thinking about any capital deployment separately Rob also.
You mentioned drug pricing and mandatory discounts.
And I'm sure you've run exercise internally attempting to quantify how much in discounts and what I'm getting at is for key franchises like you chewed up considering the price of U S and ex U S is fairly comparable wouldnt there'll be not much mandatory discount at all I just want to make sure I'm not off off off track there despite keytruda.
Being a top part b drug thank you.
Yeah, No I appreciate the questions and they are on your first question around <unk>.
Rob Davis: So, you know, as we look at that, I think it's important to understand, first and foremost, we do have significant, concern on one very important element of the provision, which is the fact that there is what we see as price setting.
The M&A space and what we've seen in the oncology field.
No I would just start by saying obviously, we are very proud of the success, we've had with Keytruda and the fact that it's been able to impact so many people's lives as you sit across.
Many different tumor types.
It's important to understand that oncology continues to be an incredibly competitive field.
And importantly, it is not monolithic.
We'll look to move by tumor and even modalities, whether it's auto or targeted therapy. So there are multiple different approaches multiple modalities and it is a very tumor specific and as you know we have to develop these drugs indication by indication of investing in the science to bring each of those.
Rob Davis: It's terms of negotiation, but in effect what it is is price setting on drugs after a period of time, and we do believe that will be highly chilling on future innovation, because especially if you think about an area like oncology, oncology is an area that the development of the drug continues long after the first approval.
Forward.
In that regard.
As we looked at it and as we've thought about it we continue to believe the walgreen environment is more complex and obviously, we'll have to be very thoughtful how we navigated.
Rob Davis: If you take Keytruda that launched in 2014, between 2014 and 2022, we had something like 30 plus indications approved.
Believe we believe as long as we're doing deals with our science, driven where we accelerate innovation and we can show that we can expand access to patients around the world and in the United States to medicines.
There are still deals to be done and there is a path to move forward and so that's very much where we're focusing in and while we continue to believe the opportunity exists to continue to expand treatments for patients and for the bedroom furniture, and frankly, all stakeholders, including shareholders.
Rob Davis: We expect to have well more than double that between 2022 and 2028, and our concern is that if you start to have the threat of discounts, mandatory discounts, it could cause companies to question that innovation because you'll have to question whether or not you're going to see the return.
On your second question.
So I think it depends on the way you look at it.
As far as the <unk>.
The upcoming regulation, obviously, if you look across what is being proposed.
Speaking specifically to the potential for mandatory price discounting at some point.
The language has to be finalized, but if you look at where it is today.
The way it is being proposed is that for a period of time. After the drug is approved during its period of exclusivity for right now it's roughly seven years to 10 negotiation for small molecules 11 years for large molecules you are able to operate with no discount.
The time.
There would be a discussion and opportunity for Hs us to select the drug's depending on.
The determination of whats drugs to to look at right. Now is the languages discussed will pick 10 drugs a year.
And to the HSR to determine what's relatively cook, but importantly, then renegotiation itself. Once it is done in a discount as determined and that discount as outlined in the legislation would take effect that your non core small molecule youre 13 for a large molecule. So as you think of something like Keytruda.
We're really talking about approves the time boudreau out around the time of loss of exclusivity in 2028.
And obviously theres other language, that's being proposed potentially to allow for an exception if their biosimilar products in development coming in but then you would not be subject to it. So the reality of it is it's unclear what the impact will be in the short term, we don't see impacts.
From that specific part of the regulation it will be longer term.
As it relates to our important drugs keytruda and Gardasil.
Obviously, we have to see how the final language comes out but in those words in the language Jordan the specified discount so it'll be said so it's not it's not a reference price and the way they are setting it up right now and then obviously beyond that there is what they have around the the.
Part D reforms, which actually we support because we believe that will reduce the out of pocket costs.
For patients.
Rob Davis: So we see a highly chilling effect of that, and it's something that we will continue, both at Merck and as the industry, to make sure that we communicate our concerns there.
The counter but are the reason we continue to oppose the overall legislation is a strong belief that the focus on a mandatory discounts for a prudent time is chewing through innovation. So I'm not sure I got your question, but I think that's what you were trying to do that.
Thank you and our next question please.
That would be from Geoff Meacham with bank of America.
Rob Davis: And the only other thing I might add is, you know, as you think about how we think about this to our business going forward, it's important to understand that as we look at this, while obviously it will have an impact, importantly, as we plan for the future of the business, we have always assumed some form of price pressure coming, including in the United States.
Good morning, everyone. Thanks for the question I just had a couple of quick ones Dean I wanted to ask you on on piano for 12.
The recent.
It didn't have significance to the CRT add complexity to the study in terms of your assumptions and more broadly if you look at other indications.
Desert CRT backbone present, any particular challenges when you look at other other keynote studies and then on uncovered the recent infection trends just over the course of this year or the emergence of many new variance.
Does that change the strategy about these future investments you guys are gonna make an mcgough Rio or even other oils. Thank you.
Rob Davis: I think we've communicated to that in the past.
Alright.
I'll take the I'll take both of them I would take the keynote 412, so youre speaking about the you know.
Rob Davis: So as we look at this, and you think of a relative to the guidance we've given in the past of expectations for strong growth through our long-range period, that continues and includes the assumptions around this.
Rob Davis: So, you know, while I think we will manage it, I do worry about what it will do to innovation in the industry.
Just trying to go into the early stage head and neck.
And you're speaking about the fourth well, which you know as you emphasize there was improvement in event free survival for patients who received the keytruda regimen compared to the placebo plus DRP. However, these results did not meet statistical significance based on our pre specify values.
Statistical plan, so there's clearly a positive signal.
It did cross the line and relationship that cause.
Think about C R T or or radiation in other indications in this.
I would not say that it gives you.
Extra complication will have to see.
In these other trials with win.
Just us but other people relationship due to the combination there, but I would just emphasize that that it was an improvement in <unk>. So I wouldn't say that it was a complicating issue for us we just didn't need to go.
Significant I do want to make sure that everyone recognizes that this isn't the only foray into head and neck are early stage. You know we have a keynote 689. That's also in the neo adjuvant and adjuvant treatment as well. So we're cautiously optimistic that we can break it into early <unk>.
Page had a neck.
Despite the fact that fourth wells, though it had a positive <unk> did not reach statistical significance and.
In relationship to the to the.
Pandemic I need to be a little bit careful because everyone who's predicted what will happen with the pandemic.
Have all had one common thread.
<unk> been not so right.
And so we'll have to see what happens with the pandemic.
We'll have to see what the emergence of resistance is but I would emphasize the importance of having multiple mechanisms of action is clear I would just emphasize that it is quite surprising to me how quickly. This virus can mutate around those therapies for example focused on the fight.
Protein that's actually it takes many amino acid change it could do it.
It might take very few amino acid.
Changes to to get resistance to for example, other other therapies, but we'll have to see what it is but I just want to also emphasize that especially outside of the United States. We are spending a great use of it and uptake and it's really based on the fact that.
If you have a patient population, where you believe that fit extremely vulnerable and you can give this drug and you're most interested in reducing mortality, which this drug has an impressive impact on mortality and you want to be such that you can really see the patient.
Who may be on multiple not of things they have other complicated medical issues.
We feel pretty that you can give them.
Those are the important sort of attribute then we have found that <unk> does quite well in the real world evidence through throughout the world has begun to substantiate.
And Jeff This is Caroline the only thing I would add in terms of further investment is our belief in the molecule muggy terrific as being a molecule that could be impactful not only against price at 19, but also pan Corona virus, RSV and flu and as a result, we willing.
First inappropriate programs to try and prove that out.
Thank you Jeff next question please.
That will be from Mara Goldstein with Mizuho. Please go ahead.
Firstly I just wanted to understand the statement about Keytruda supplemental Oh did you suffer any adjuvant non small cell lung cancer and have you been asked for additional data or are you planning for a major amendment and then secondarily I just wanted to also get some clarity on the on the comment about excess cash.
For share repurchase and at at what threshold should we be thinking about that if you were also committed to raising dividend.
Yeah.
This is Dan I'll take the keynote 90 191, so that's the lung adjuvant and just remind everyone that had dual primary endpoints and the reason I want to emphasize that it is a dual primary means that if you fit on one.
The end points you have a positive trial and this is the distinction from those trials at our co primary where you have to hit on both so this is a positive trial.
Because in the disease free survival is positive in all comers, regardless of PD L. One.
Our cope they do.
<unk> primary of DFS in terms of those.
Those with a TPS greater than 50.
There is a positive trend, but it's not significant and the OS has got a favorable trend as we move forward I would imagine as as as the data matures people may want to see those data and I just want to emphasize that in relationship to early stage.
Lung cancer, we have other trials as well, which is 671867 in keeling 012, so I could imagine that that as people deliberate on this they will be interested in understanding how the data is maturing. These are event driven and they are part of our FDA discussions.
And they produce the data as you said is January 29, 2023, but we could see a situation. There is nothing formally that's been asked of us, but we could see a situation where we're at.
Evolving data as is.
Ask for.
And Laura in response to your question on our utilization of excess cash.
Capital allocation priorities of our company are unchanged, we continue to invest first and foremost in our business and the great opportunities that are in front of us.
Business development is a strategic priority for us and we will invest in business development as we have done in the past we intend to continue to raise our dividend over time, and we will then return any excess cash to our shareholders via share buyback, we do not Intel.
And to sit with multiple.
Capacity on our balance sheet for periods of time and not to use that cash in this regard so I hope that addresses the use of our.
That will be from Seamus Fernandez with Guggenheim go ahead. Please.
So maybe just one M&A question can you just clarify.
Whether any acquisition plans or that Merck will consider it.
Like would it be all cash or if there would be a potential use of equity that would be or could be considered.
Potential transaction and then separately just wanted to get a little bit of that vision.
Or b 116.
And and where and how you see B 116, competing in the overall market.
Or are we really just looking at that as a potential opportunity solely for adults or do you envision that 'twenty, one balan actually being you know a high use target opportunity and and the pediatric patient population as well and then just trying to get a sense of timing of when.
And we could see B 116 actually competing in market.
And how you see the overall market evolving over time, thanks, so much.
Yeah. Thanks, Seamus for the question.
Obviously, the business development remains a priority for us as we'll discuss and importantly.
We look to add wherever we can find the best science and innovation that enhance our pipeline and drive long term growth and value for shareholders I don't want to speculate on specific future transactions or the specific combination of cash or equity we would use because it really would be factors specific to the deal.
At hand, and so in that sense I think we'd have to worry about the broader point I think I don't want to enforce and sort of consistently as we have the capital and the balance sheet strength.
To go out for anything that we feel strategically important that brings that scientific innovation.
I mentioned.
That will allow us to continue to augment what we have in our own internal pipeline. So we have because of the capacity and the flexibility to structure. It how we see best to optimize the business how do you do that between cash.
Debt and equity is really deal specific.
Yeah in relationship to the questions that you've had about V. One six I just want to read it.
Iterate reemphasize the strategy that we think which is in different age groups are different population. The serotypes that are most troublesome for different populations is very different so the whole focus of <unk> six the whole focus of the V. One fixes to.
The serotypes that are specifically important for adults and to target that and that's what we want to fix it and that's why we had the first of four phase III trials that have to run. Its course, there is not a view from my standpoint and scientifically that this is a this.
The vaccine that I would drive into the pediatric population.
Cause the epidemiology as of right now would suggest that that would not be the right place to put this vaccines, we want to put the vaccines, where the serotype match what is happening to that patient population.
I might just add to that if you look at it as we think about the future commercially we see a real opportunity. When you think about this the spoke approach where you have the.
Actually advanced that we think will be highly effective in combating the.
Zero.
Cause disease in infants and children as our pediatric approach and then you have a separate approach would be one six aimed at the adult market. We will go after the 85% of the residual disease understanding that if you've treated it in peace and children. You, obviously have a different set of <unk>.
Zero clubs.
That are driving it in adults and we're focusing on both of those of the spoke therapies into what.
As most aligned with the needs in those populations I think this will be highly effective.
And will allow us to be very competitive in fact cover more than what the competitor products cover.
The disease, causing serotypes.
You see today either in what they have.
Both the pediatric and adult market. So I think this is something we're very excited about and in fact, we seem to be 11116.
Bringing to fruition that strategy. So we're excited about it and we're going to drive it with speed because I do think this is going to be an area, where we can definitely be highly competitive and successful.
That will come from Carter Gould with Barclays go ahead.
Ross Great question Dean just real quick wanted to ask you a come back to the subcutaneous formulation of Umbro is that phase III in non small cell still on track to read out early next year and how should we think about sort of the clinical measures in that study not just sort of a I think the primary endpoints were around some of the biomarker endpoints and should that study alone.
Sort of be warranty a filing or should we think be thinking about it differently. Thank you.
Yeah. So I just want to emphasize that that trial is is on track and that trial should.
Our intention is it should support filings I should also emphasize that we have more than just one subcutaneous program.
And different Uh huh.
Images and different subcutaneous because we think that there may be a different patient population that will be important for different sort of formulations.
Formulations I should also emphasize that just like we have Q3 weeks in Q3 weeks Q3 weeks in Q six weeks for intravenous I think it's also important that we open up the possibility of a subcutaneous range as well.
Great.
Thank you very much garner Rob any closing comments.
Alan: Thank you, Evan.
Andrew Baum: Next question, please, Alan.
Well I'd just like to thank everyone for joining us today, and maybe I'll just conclude by reiterating my appreciation for the tremendous efforts of our team and really one of them.
Andrew Baum: That will come from Andrew Baum with Citi.
Andrew Baum: Go ahead.
Andrew Baum: Thank you.
Andrew Baum: A couple of questions.
Andrew Baum: Firstly, you've announced a couple of licensing from China of ADCs. I think one of them is in late-stage development.
Andrew Baum: It's obviously widely reported that you're in talks with Sijin, which has, say, three data from another ADC molecule, which would compete with and hurt you.
Andrew Baum: In general, I'm just interested, Dr. Paz has seemed to have closed the doors on seeking approval in the U.S. using data from Chinese trials.
Andrew Baum: But operationally, how fast does it enable you to go, knowing that you have efficacy and safety signals in a Chinese population in expediting the move into phase three?
Andrew Baum: Is there an advantage here that could enable you to catch up with the market leaders in the respective categories?
Andrew Baum: And then second question, on Islatrovir, perhaps you'd care to update us how your discussions of Gilead and the FDA in terms of resuming trials.
Andrew Baum: Is this drug alive as a prophylactic in PrEP as a treatment, both or neither?
<unk> to perform exceedingly well in a tough environment to advance our science and ensure our important medicines and vaccines to patients around the world that are counting on us. So I appreciate that and I can tell you I remain very confident in the underlying momentum and I look forward to continuing to give you updates on our progress as we move forward with that have a great day.
Andrew Baum: Thank you.
Dean Lee: Yeah, so this is Dean.
Dean Lee: Thank you very much for those questions.
Dean Lee: Tackle your first question related to our recently announced partnership with Keelan.
Dean Lee: I should just emphasize, this was recently announced, but we've had a productive, a really productive partnership for the past two years.
Dean Lee: And most recently, they have announced progress in two programs. One that they've declared, which relates the trope to ADCs, and they're advancing it in China in relationship to breast cancer and non-small cell lung cancer.
Dean Lee: In relationship to what you've said in moving those molecules, for example, in the United States, I think the FDA, and we support this, the FDA has been very clear of the importance of doing those trials not in a single geography such as China, but to have global studies that include the United States.
Dean Lee: And so the ability for our partners to give us the signal in a human population is really important.
Rob Davis: So, I appreciate that, and I can tell you I remain very confident in our underlying momentum, and I look forward to continuing to give you updates on our progress as we move forward.
Dean Lee: It allows us to navigate how to think about it at a global level.
Rob Davis: With that, have a great day.
Dean Lee: And so we are hopeful that this partnership will allow us to accelerate the benefits of this trope to ADCs to as many patients as possible.
Dean Lee: To your second question in relationship to his latch of error, as you've noticed, his latch of error is our NRTTI.
Dean Lee: It's extremely potent.
Dean Lee: It has a residence time in tissue and has a high barrier to resistance.
Dean Lee: And we had two phase three studies that had excellent results.
Dean Lee: Nevertheless, we also had reduction in lymphocytes across a number of our programs, most of it asymptomatic, but in a combo trial, with MK8507, there was clinically meaningful reduction that's still dependent.
Dean Lee: We have spent the last six months understanding that.
Dean Lee: We understand it far better.
Dean Lee: We believe that there is a potential path forward to maintain and to have that efficacy and also reduce the effects on the white blood cells.
Dean Lee: We are in active discussions with the FDA, so I don't want to get ahead of myself there.
Operator: Ladies and gentlemen, that will conclude your conference call for today.
Dean Lee: And we clearly have active discussions with our partners.
Operator: Thank you for your participation and for using AT&T event teleconferencing.
Dean Lee: In relationship to the question of treatment and PrEP, I just want to make sure that everyone, recognizes, we have always thought that this class of molecules, NRTTIs, and his latch of error is just one compound within this class could be broadly used in treatment and in PrEP.
Operator: You may now disconnect.
Dean Lee: And we are interested in applying both of those, advancing both of those possibilities.
Ladies and gentlemen that will conclude your conference call for today. Thank you for your participation and for using AT&T event Teleconferencing you may now disconnect.
Alan: But we are in the midst of discussions with the FDA that I think we should provide them, the data that they will need.
Louise Chen: Thank you, Andrew.
Louise Chen: Next question, please, Alan.
Louise Chen: That will be Louise Chen with Canter.
Louise Chen: Go ahead.
Louise Chen: Hi.
Louise Chen: Thanks for taking my question here.
Louise Chen: So, I wanted to ask you about the checkpoint inhibitor, strategy.
Louise Chen: What are your thoughts on the changing treatment paradigm for checkpoint inhibitors in the neoadjuvant and adjuvant cancer setting?
Louise Chen: How do you think about adoption and uptake in the setting?
Louise Chen: And do you think doctors are convinced of the opportunity yet, or is there more work to be done?
Louise Chen: Thank you.
Dean Lee: Well, let me answer it from a scientific standpoint.
Dean Lee: Maybe we'll have Caroline or Rob answer it, from a market standpoint.
Dean Lee: I do think it's really important to just highlight, at least for me, you know, PD-1s have been incredible in metastatic through a broad range of tumor effects, and we keep going into earlier stages.
Dean Lee: And it's not a priori that a medicine that works in the metastatic patient, who has a very different benefit-risk ratio, will be truly effective in the early stage.
Dean Lee: And it's been impressive.
Dean Lee: We have six approvals, whether it be in breast, in renal cell carcinoma, and melanoma.
Dean Lee: And we have a positive trial in relationship to lung, and we have many others advancing.
Dean Lee: So I think that part of it is, I think the uptake has been good, but the most important thing is that scientifically the data has been very good.
Dean Lee: And I think the field will adopt it.
Dean Lee: I think one of the things that will be critical as the field adopts it is that oftentimes you're now talking not necessarily about a medical oncologist.
Dean Lee: So there will be work for us to do, but I think the results speak for themselves.
Dean Lee: I would recommend that people look at that data, and I think that it's an important advancement in the field.
Dean Lee: But in terms of the uptake, Caroline, did you want to take care of that?
Caroline Litchfield: Thank you, Dean.
Caroline Litchfield: So, Louise, we are really excited about the opportunities that we have moving into earlier stages of cancer. Clearly, if we can impact patients then, the possibilities of better outcomes are greater.
Caroline Litchfield: We have seen in our early stage cancers impressive performance. We're seeing very strong performance in triple negative breast cancer, renal cell carcinoma, and melanoma.
Caroline Litchfield: And if I just touch on triple negative breast cancer, we had the Keynote 522 approval here in the United States July of last year.
Caroline Litchfield: During the second part of last year, we saw tremendous uptake in the first segment of treatment, the neoadjuvant treatment, ahead of people then getting their surgery some 24 weeks later. What we're now seeing is not only patients coming on to Keytruda for neoadjuvant triple negative breast cancer, we're also seeing them return to treatment following their surgery.
Caroline Litchfield: So, we're very optimistic about the opportunities we have in the adjuvant setting and the impact that we can have on patients.
Alan: Thanks, Louise.
Yuma Rafet: Next question, please, Alan.
Yuma Rafet: We will go to Yuma Rafet with Evercore.
Yuma Rafet: Go ahead.
Yuma Rafet: Hi, guys.
Yuma Rafet: Thanks for taking my question.
Yuma Rafet: I have two here, if I may.
Yuma Rafet: First, Rob, I know you've mentioned MNA is critical to further diversification of the business away from Keytruda.
Yuma Rafet: You could explore MNA basically in a non-oncology bucket like Acceleron or in oncology.
Yuma Rafet: And I guess that brings me to my first question, which is, in oncology, it's a very high-quality problem of Keytruda being this foundational treatment across so many different tumors.
Yuma Rafet: And how do you approach that, given the increased FTC focus on looking at a lot of deals based on market shares on individual markets, considering Keytruda basically has a market share in so many different tumors?
Yuma Rafet: And how do you think about oncology deals in general, given Keytruda's role?
Yuma Rafet: And I'm sure you guys have thought about that at length to the extent you're thinking about any capital deployment.
Yuma Rafet: Separately, Rob, also, you mentioned drug pricing and mandatory discounts.
Yuma Rafet: And I'm sure you've run exercises internally attempting to quantify how much in discounts.
Yuma Rafet: And what I'm getting at is, for key franchises like Keytruda, considering the price of U.S. and ex-U.S. is fairly comparable, wouldn't there be not much mandatory discount at all?
Yuma Rafet: I just want to make sure I'm not off track there, despite Keytruda being a top Part B drug.
Yuma Rafet: Thank you.
Rob Davis: Yeah, no, I appreciate the questions.
Rob Davis: And on your first question around the M&A space and what we see in the oncology field, no, I would just start by saying, obviously, we are very proud of the success we've had with Keytruda and the fact that it's been able to impact so many people's lives, as you say, across so many different tumor types.
Rob Davis: But I think it's important to understand that oncology continues to be an incredibly competitive field.
Rob Davis: And importantly, it's not monolithic.
Rob Davis: You have to look tumor by tumor and even modalities, whether it's I.O.
Rob Davis: or targeted therapy.
Rob Davis: So there are multiple different approaches, multiple modalities, and it is a very tumor-specific.
Rob Davis: And as you know, we have to develop these drugs indication by indication, investing in the science to bring each of those forward.
Operator: We're sorry, your conference is ending now.
Rob Davis: And in that regard, you know, as we look at it and as we've thought about it, we continue to believe that while the environment is more complex, and obviously we'll have to be very thoughtful in how we navigate it, I believe, we believe, as long as we're doing deals that are science-driven, where we accelerate innovation and we can show that we can expand access to patients around the world and in the United States to medicines, that there are still deals to be done and that there's a path to move forward.
Rob Davis: And so that's very much where we're focusing and why we continue to believe the opportunity exists to continue to expand treatments for patients and for the benefit of, frankly, all stakeholders, including shareholders.
Rob Davis: On your second question, and I think it depends on the way you look at it as far as the upcoming regulation, you know, obviously if you look across what is being proposed, if you're speaking specifically to the potential for mandatory price discounting at some point, obviously the language has to be finalized.
Rob Davis: But if you look at where it is today, the way it is being proposed is that for a period of time after a drug is approved, during its period of exclusivity, or right now it's roughly seven years for negotiation for small molecules, 11 years for large molecules, you are able to operate with no discount.
Rob Davis: At that period of time, there would be a discussion, an opportunity for HSS to select the drug depending on their determination of which drugs to look at.
Rob Davis: Right now, as the language has discussed, we'll pick 10 drugs a year, and it will be up to the HSS to determine which drugs they pick.
Rob Davis: But importantly then, the negotiation itself, once it is done and the discount is determined and that discount is outlined in the legislation, would take effect at year nine for a small molecule, year 13 for a large molecule.
Rob Davis: So if you think of something like Keytruda, we're really talking about periods of time that are out around the time of loss of exclusivity in 2028.
Rob Davis: And obviously there's other language that's being proposed potentially to allow for an exception if there are biosimilar products in development coming that then you would not be subject to it.
Rob Davis: So the reality of it is it's unclear what the impact will be in the short term.
Rob Davis: We don't see impacts from that specific part of the regulation.
Rob Davis: It will be longer term as it relates to our important drugs, Keytruda and Gardasil.
Rob Davis: And then obviously we have to see how the final language comes out.
We're sorry your car.
Rob Davis: But in the language are then the specified discounts that will be set.
Rob Davis: So it's not a reference price in the way they're setting it up right now.
Princess ending now please hang up.
Rob Davis: And then obviously beyond that there's what they have around the Part D reforms, which actually we support, because we believe that will reduce the out-of-pocket costs for patients at the counter.
Rob Davis: But the reason we continue to oppose the overall legislation is a strong belief that that focus on mandatory discounts after a period of time is chilling to innovation.
Rob Davis: So I'm not sure I got your question, but I think that's what you were trying to get at.
Geoff Meacham: That will be from Geoff Meacham with Bank of America.
Geoff Meacham: Good morning everyone.
Geoff Meacham: Thanks for the question.
Geoff Meacham: I just had a couple of quick ones.
Geoff Meacham: Dean, I, wanted to ask you on Keynote 412, the recent data that didn't hit significance, did CRT add complexity to the study in terms of your assumptions?
Geoff Meacham: And more broadly, if you look at other indications, you know, does a CRT backbone present any particular challenges when you look at other Keynote studies?
Geoff Meacham: And then on COVID, the recent infection trends just over the course of this year or the emergence of any new variants, does that change a strategy about the future investments you guys are going to make in Montgomery or even other orals?
Geoff Meacham: Thank you.
Dean Lee: All right.
Dean Lee: I'll take both of them.
Dean Lee: I'll take the Keynote 412.
Dean Lee: So you're speaking about the, you know, us trying to go into early stage head and neck.
Dean Lee: And you're speaking about that 412, which, you know, as you've emphasized, there was improvement in event-free survival for patients who received the protruder regimen compared to the placebo plus CRT.
Dean Lee: However, these results did not meet, you know, statistical significance based on our pre-specified statistical plan.
Dean Lee: So there's clearly a positive signal, but it did cross the line.
Dean Lee: In relationship to how to think about CRT or radiation and other indications in this, you know, I would not say that it gives you extra complication.
Dean Lee: We'll have to see, you know, in these other trials when, not just us, but other people, in relationship to the combination there.
Dean Lee: But I would just emphasize that it was an improvement in EFS.
Dean Lee: So I wouldn't say that it was a complicating issue for us.
Dean Lee: We just didn't meet statistical significance.
Dean Lee: I do want to make sure that everyone recognizes that this isn't our only foray into head and neck early stage.
Dean Lee: You know, we have a keynote 689 that's also in the neoadjuvant and adjuvant treatment as well.
Dean Lee: So we're cautiously optimistic that we can break into early stage head and neck despite the fact that, you know, 412 had a positive EFS, did not meet statistical significance.
Dean Lee: In relationship to the pandemic, I need to be a little bit careful because everyone who's predicted what will happen with the pandemic have all had one common thread.
Dean Lee: They've all been not so right.
Dean Lee: And so we'll have to see what happens with the pandemic.
Dean Lee: We'll have to see what the emergence of resistance is.
Dean Lee: But I would emphasize the importance of having multiple mechanisms of action is clear.
Dean Lee: I would just emphasize that it is quite surprising to me how quickly this virus can mutate around those therapies, for example, focused on the spike protein.
Dean Lee: That's actually, you know, it takes many amino acid changes to do it.
Dean Lee: And it might take very, few amino acid changes to get resistance to, for example, other therapies.
Dean Lee: But we'll have to see what it is.
Dean Lee: But I just want to also emphasize that especially outside the United States, there's been a great use of it in uptake.
Dean Lee: And it's really based on the fact, that, you know, if you have a patient population where you believe that they're extremely vulnerable and you can give this drug and you're most interested in reducing mortality, which this drug has an impressive impact on mortality, and you want speed such that you can really and and feel free that you can give this if those are the important sort of attributes then we have found that LeGuevara does quite well and the real world evidence through throughout the world has begun to substantiate.
Caroline Litchfield: And Jeff this is Caroline the only thing I would add in terms of further investment is our belief in the molecule monopyrrhoea as being a molecule that could be impactful not only against COVID-19 but also pan-coronavirus, virus and flu.
Caroline Litchfield: And as a result we will invest in appropriate programs to try and prove that out.
Alan: Thank you Jeff.
Mara Goldstein: Next question please Alan.
Mara Goldstein: That will be from Mara Goldstein with Mizuho.
Mara Goldstein: Please go ahead.
Mara Goldstein: Firstly I just wanted to understand the statement about Keytruda supplemental PDUFA for in the adjuvant non-small cell lung cancer and have you been asked for additional data or are you planning for a major amendment?
Mara Goldstein: And then secondarily I just wanted to also get some clarity on the comment about excess cash for share repurchase and at what threshold should we be thinking about that if you're also committed to raising dividend?
Mara Goldstein: Yeah so I'll, this is Dean, I'll take the keynote 91091.
Dean Lee: So that's the lung adjuvant and just to remind everyone that had dual primary endpoints and the reason I want to emphasize that is a dual primary means that if you fit on one of the endpoints you have, a positive trial and this is a distinction from those trials that are co-primary where you have to hit on both.
Dean Lee: So this is a positive trial and because in the disease-free survival it's positive in all comers regardless of PD-L1.
Dean Lee: The dual primary of DFS in terms of those with a TPS greater than 50 there is a positive trend but it's not significant and the OS is got a positive or low trend as we move forward.
Dean Lee: I would imagine as data matures people may want to see those data and I just want to emphasize that in relationship to early stage lung cancer we have other trials as well which is Keynote 671, Keynote 867 and Keylink 012.
Dean Lee: So I could imagine that as people deliberate on this they will be interested in understanding how the data is maturing.
Dean Lee: These are event-driven and they're part of our FDA discussions and the PDUFA date as you said is January 29, 2023 but we could see a situation.
Dean Lee: There's nothing formally that's been asked of us, but we could see a situation where evolving data is asked for.
Caroline Litchfield: Amara, in response to your question on our utilization of excess cash, the capital allocation, priorities of our company are unchanged.
Caroline Litchfield: We continue to invest first and foremost in our business and the great opportunities that are in front of us.
Caroline Litchfield: Business development is a strategic priority for us and we will invest in business development as we have done in the past.
Caroline Litchfield: We intend to continue to raise our dividend over time and we will then return any excess cash to, our shareholders via a share buyback. We do not intend to sit with multiple, Capacity on our balance sheet for periods of time and not use that cash in this regard.
Caroline Litchfield: So I hope that addresses the use of our cash.
Alan: Thank you, Mara.
Seamus Fernandez: Next question, please, Alan.
Seamus Fernandez: That will be from Seamus Fernandez with Guggenheim.
Seamus Fernandez: Go ahead, please.
Seamus Fernandez: So maybe just one M&A question.
Seamus Fernandez: Can you just clarify whether any acquisitions planned or that Merck would consider is likely to be all cash, or if there would be a potential use of equity that that would be or could be considered in a potential transaction?
Seamus Fernandez: And then separately, just wanted to get a little bit of the vision for V116 and where and how you see V116 competing in the overall market.
Seamus Fernandez: Are we really just looking at that as a potential opportunity solely for adults or do you envision the 21-valent actually being, you know, a high-use target opportunity in the pediatric patient population as well?
Seamus Fernandez: And then just trying to get a sense of timing of when we could see V116 actually competing in market and how you see the overall market evolving over time.
Seamus Fernandez: Thanks so much.
Rob Davis: Yeah.
Rob Davis: Thanks, Seamus, for the question.
Rob Davis: You know, obviously, business development remains a priority for us as we've discussed.
Rob Davis: And importantly, you know, we look to add whatever we can find the best science and innovations that enhance our pipeline and drive long-term growth and value for shareholders.
Rob Davis: You know, I don't want to speculate on specific future transactions or the specific combination of cash or equity we would use because it really would be fact-specific to the deal at hand.
Rob Davis: And so in that sense, I think we'd have to wait.
Rob Davis: The broader point I think that I want to enforce, and we've said it consistently, is we have the capital and the balance sheet strength to go after anything that we feel is strategically important that brings that scientific innovation that I mentioned that will allow us to continue to augment what we have in our own internal pipeline.
Rob Davis: So we have the capacity and the flexibility to structure it how we see best to optimize the business.
Rob Davis: How you do that between cash, debt, and equity is really deal-specific.
Dean Lee: Yeah, in relationship to the questions that you had about V116, I just want to reiterate or reemphasize the strategy that we think, which is in different age groups or different populations, the stereotypes that are most troublesome for different populations is very different.
Dean Lee: So the whole focus of V116, the whole focus of the V116 is to recognize the stereotypes that are specifically important for adults and to target that.
Dean Lee: And that's what V116 is, and that's why, you know, we have the first of four current phase three trials that have to run its course.
Dean Lee: There is not a view from my standpoint scientifically that this is a vaccine that I would drive into the pediatric population.
Dean Lee: Dean, just real quick wanted to ask you, come back to the subcutaneous formulation of FEMBRO is that phase 3 in non-small cells still on track to read out all of the subcutaneous formulation of FEMBRO, and is that phase 3 in non-small cells still on track to read out all of the subcutaneous formulation of FEMBRO?
Dean Lee: Early next year, and how should we think about sort of the clinical measures in that study, not just sort of the, I think the primary endpoints are around some of the biomarker endpoints, and should that study alone sort of be warranting a filing, or should we be thinking about it differently?
Dean Lee: formulations.
Dean Lee: The formulations, I should also emphasize that just like we have Q3 weeks and Q3 weeks, Q3 weeks and Q6 weeks for intravenous, I think it's also important that we open up that possibility in the subcutaneous range as well.
Dean Lee: Great.
Caroline Litchfield: Thank you very much, Carter.
Rob Davis: Rob, any closing comments? Yeah, well, I'd just like to thank everyone for joining us today, and maybe I'll just conclude by reiterating my appreciation for the tremendous efforts of the Merck team, and really what, continuing to perform exceedingly well in a tough environment to advance our science and ensure our important medicines and vaccines reach the patients around the world that are counting on us.