Q2 2023 Merck & Co Inc Earnings Call

Speaker 2: Thank you for standing by. Welcome to the Merck & Co Q2 Sales and Earnings Conference call. At this time, all participants are in a listen-only mode until the question-and-answer session of today's conference. At that time, to ask a question, press star 1 on your phone and record your name at the prompt.

Speaker 2: This call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Peter Danubaugh, Vice President, Investor Relations. Sir, you may begin.

Speaker 3: Thank you, Cedric, and good morning, everyone. Welcome to Merck's second quarter 2023 conference call. Speaking on today's call will be Rob Davis, Chairman 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.

Speaker 3: You will see that we have items in our gap results, such as acquisition-related charges, restructuring costs, and certain other items. You should note that we have excluded these from our non-gap results and provide a reconciliation in our press release.

Speaker 3: 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 United States Private Securities Litigation Reform Act of 1995. 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.

Speaker 3: actual results may differ materially from those set forth in the forward-looking statements. Our FCC filings, including item 1A in the 2022 10-K, identified certain risk factors and cautionary statements that could cause the company's actual results to differ materially from those projected in any of our forward-looking statements made this morning.

Speaker 3: Merck undertakes no obligation to publicly update any forward-looking statements. During today's call, a slide presentation will accompany our speakers' prepared remarks. These slides, along with the earnings release, today's prepared remarks, and our SEC filings are all posted to the investor relations section of Merck's website. With that, I'd like to turn the call over to Rob.

Speaker 3: Thanks, Peter. Good morning and thank you for joining today's call. We continue to make great progress in bringing forward compelling science to help address the world's most urgent unmet medical needs.

Speaker 3: Thanks to the unwavering commitment and discipline of our global teams, we're advancing our innovative pipeline in executing operationally in support of our key growth drivers.

Speaker 4: Our science-led strategy is generating innovations that save and improve the lives of patients and animals around the world and is delivering strong underlying growth for our business.

Speaker 4: We're building on our strong track record and advancing our strategic priorities. We're progressing our deep pipeline, including Sirtadarsep, for which we have completed our FDA submission, and augmenting it with further strategic business development, where we can add value by applying our clinical expertise and leveraging our global scale to accelerate broad access to patients.

Speaker 4: An excellent example of this is our acquisition of Prometheus Biosciences, which we completed in June .

Speaker 4: We're now actively integrating the talented team and are moving with speed toward initiation of a Phase III clinical trial.

Speaker 4: The addition of Prometheus significantly strengthens our presence in immunology, an area with substantial unmet medical need, and builds on the significant scientific insight we have gained in immuno-oncology. It also brings us a potential first-in-class, best-in-class novel TL1A inhibitor, which provides us the opportunity to transform the standard of care.

Speaker 4: in a patient population suffering from debilitating immune-mediated diseases. With the foundation of great science and the legacy of commercial excellence, we're well positioned to deliver sustainable value over the long term.

Speaker 4: Focusing now on the short term, we delivered strong underlying growth excluding the year over year decline in the gov'rio sales.

Speaker 4: led by robust demand across key growth drivers in oncology and vaccines.

Speaker 4: We remain confident in our outlook for the remainder of 2023, which Caroline will address in just a moment. Moving to our research organization, our promising late-stage pipeline continues to demonstrate tangible and impactful benefits for patients across a broad range of diseases.

Speaker 4: In oncology, we highlighted data from our expansive pipeline at ASCO, including for Keytruda in earlier stage 1 cancer.

Speaker 4: The strong results of Keynote 671 for the neoadjuvant and adjuvant treatment of patients with non-small cell lung cancer support our aspiration to fundamentally shift the way cancer is managed by developing treatment regimens in the earlier stage setting where the potential for better outcomes is higher.

Speaker 4: Additionally, we're leveraging Keytruda's wide-reaching benefit across a range of cancer types to identify and bring forward promising new candidates.

Speaker 4: At ASCO, we shared positive data for Keytruda in combination with V940, our investigational individualized neoantigen therapy in collaboration with Moderna, and the adjuvant treatment of Melnoma.

Speaker 4: And promising data was also presented by our partner, Kolloon Biotech, for MK2870, our Trope 2 ADC in non-small cell lung cancer.

Speaker 4: Each of these novel candidates offer a glimpse into the future of cancer care and the potential to meaningfully improve outcomes for patients.

Speaker 4: We have also made progress outside of oncology.

Speaker 4: We're advancing our population-specific approach to pneumococcal vaccination and are very pleased to have announced positive top-line results for our adult vaccine candidate, V116. If approved, V116 would be the first pneumococcal conjugate vaccine specifically designed for adults.

And Dean will speak to our progress in cardiometabolic disease, including positive data we recently presented for our GLP-1 glucagon receptor dual agonist. I commend Dean and his team on the significant work being done to advance our broad pipeline and their commitment to Merck's purpose.

Innovation is the core of who Merck is and it's what our company strives to achieve every day.

We're grounded in the relentless pursuit of advancing science and raising the bar of innovation to deliver value for patients.

With that in mind, I'd like to speak for a moment about the Inflation Reduction Act.

We've consistently communicated our support for elements of the law that improve patient affordability and access, such as the Medicare Part D reform.

but which do so without damaging the very promising long-term innovation potential of the biopharmaceutical industry.

Through the complaint we recently filed in US District Court, Merck is taking a principled stand against the negative long-term impacts of the price negotiation provision of the IRA, which we believe amounts to unconstitutional price setting that violates several provisions of the US Constitution.

This misguided policy does not strike the right balance between incenting investment innovation and improving affordability and access.

That said, we remain committed to working with the U.S. government to find a better approach to improve affordability and access while protecting further drug breakthroughs that benefit patients facing unmet medical needs.

We know it is critical that we provide broad access both to our current portfolio of medicines and vaccines and to our future innovations.

in order to serve the greatest number of patients possible now and for years to come.

Our upcoming annual impact report will highlight accomplishments across our four priority areas, including access to health, where a portion of employee compensation will now be driven by metrics linked to our progress.

In summary, our science-led strategy is working.

We're driving significant scientific, commercial, and operational momentum, which we expect will enable strong four-year growth.

I want to thank our talented, dedicated, and diverse global team for their hard work and commitment to delivering value for patients, shareholders, and all of our stakeholders. With these efforts, I'm confident we will continue to drive sustained success.

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

Thank you, Rob. Good morning. Thank you, Rob. Good morning.

As Rob noted, we delivered another very strong quarter with underlying growth driven by demand across our innovative portfolio. These results reflect the profound impact of our medicines and vaccines globally and reinforce the confidence we have in the health of our business and in the outlook for continued strong underlying growth.

Now turning to our second quarter results.

Total company revenues were $15 billion. Excluding the impact from Ligebrio and foreign exchange, the business delivered very strong growth of 14%.

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

Our human health business sustained its strong momentum, excluding Ligebrio's growth was 15% driven by oncology and vaccines.

Built in our animal health business increased 2% across both companion animal and livestock products. Now turning to the second quarter performance of our key brands. In oncology, Keytruda grew 21% to $6.3 billion.

driven by increased utilization from approvals in earlier stage cancers and continued strong global demand from metastatic indications. In the U.S., Keytruda grew across all key tumor types and continues to benefit from usage in earlier stage cancers,

triple negative breast cancer, as well as in certain types of renal cell carcinoma and melanoma.

We are encouraged by the positive feedback from healthcare providers and initial uptake of Keynote 091, reflecting the significant impact Keytruda is having on patients with earliest stage non-small cell lung cancer.

Growth was driven by demand in metastatic renal cell carcinoma and certain types of head and neck cancer, as well as in earlier stage cancers, including high-risk, early-stage triple negative breast cancer and renal cell carcinoma, which saw continued uptake in recently launched markets.

Limpaza remains the market leading PEP inhibitor. Alliance revenue grew 15% driven by increased demand in certain international markets.

Then, Vema Alliance revenue grew 6% due to increased demand for the treatment of certain patients with advanced renal cell carcinoma and endometrial cancer in the US.

Partially offset by lower cells in China.

Our vaccines portfolio delivered exceptional growth led by GataSIL, which grew 53% to $2.5 billion.

Performance was driven by strong global demand, especially in China, where we are benefiting from the expanded indication of Gardasil 9 for girls and women 9-45 years of age.

Vaccine cells also benefited from increased uptake of VaxNuVance following the ongoing pediatric launch, particularly in the US.

In our hospital acute care portfolio, Bridgion cells grew 19%, driven by increased market share among neuromuscular blockade reversal agents in the US.

Bales in our animal health business grew 2%. Livestock sales growth reflects price actions as well as higher demand for swine and poultry products.

partially offset by lower demand for ruminant products due in part to reduced herd sizes.

Companion animal growth reflects price actions, including for the brevectal line of products, partially offset by supply challenges for certain vaccines.

I will now walk you through the remainder of our P&L and my comments will be on a non-GAAP basis. Here is the challenge I want to make know.

Gross margin was 76.6%, an increase of 1.9 percentage points due to favorable product mix including a benefit from the lowest sales of Ligebrio.

Operating expenses increased to $15.9 billion, including a $10.2 billion one-time charge related to the acquisition of Prometheus. Excluding this charge, operating expenses grew 10%.

This growth reflects increased investments in support of near-term opportunities for our in-line portfolio and disciplined investments for the future as we advance our exciting early and late phase pipeline.

Other income was $19 million.

Our tax provision was approximately $800 million. As a result of the Prometheus one-time charge, we had a pre-tax loss this quarter. This one-time charge is not tax deductible. Our tax rate is therefore a negative 18.4%. When together, we reported a loss of $2.6 million.

full year revenue guidance.

We now expect revenue to be between $58.6 and $59.6 billion, an increase of $800 million at the midpoint.

This range reflects strong underlying year-over-year revenue growth of 10 to 11% offset by the expected lower sales of Ligebrio, which we continue to estimate to be approximately $1 billion this year, and an approximate 2 percentage point negative impact from foreign exchange movements.

using mid-July rates. Our gross margin assumption is unchanged at approximately 77%.

We now estimate operating expenses to be between $34 and $34.6 billion.

This range includes $11.6 billion of acquisition and upfront collaboration research and development expenses associated with Prometheus, Imago and Colu.

Our guidance does not assume additional significant potential business development transactions.

We now assume other expense of approximately $100 million, which includes incremental financing costs related to Prometheus.

Our fully attacked rate is expected to be between 30.5 and 31.5%, reflecting an increase due to the Prometheus transaction of approximately 15 percentage points.

We continue to assume approximately 2.55 billion shares outstanding.

Taken together, we expect EPS of $2.95 to $3.05, which includes the one-time charge for Prometheus and a negative impact from foreign exchange of approximately 5 percentage points versus 2022.

using mid-July rates. Recall, our prior guidance range was $6.88 to $7, which we noted at the time excluded Prometheus.

Our prior guidance range would have been $2.72 to $2.84, with a midpoint of $2.78. Our current guidance midpoint of $3 represents an increase resulting from the strength in our business of approximately 24 cents, partially offset by an incremental headwind from foreign exchange of approximately 2 cents.

Our guidance reflects our continued confidence in the strength of our business driven by our key pillars enabling us to deliver robust underlying growth while investing in our promising pipeline.

As you consider your models, there are a couple of items to keep in mind. Keytruda growth has been exceptional in recent quarters, outperforming our expectations driven in part by robust uptake of recently launched earlier stage indications.

On the regulatory front, Limparza, in combination with abiratinone and prednisone, was approved by the FDA for the treatment of adult patients with BRCA-mutated metastatic castration-resistant prostate cancer, an important area of unmet need. In addition, our supplemental biologics license application for Keytruda, in combination with chemotherapy for patients with locally advanced unresectable metastatic biliary tract cancer, based on findings from Keynote 966, was accepted by the FDA for review. The PDUFA target action date is February 7, 2024.

We also announced new data from PNO 811, which demonstrated contrutum in combination with Tres Tuzumab and chemotherapy showed a significant improvement in progression free survival for the first line treatment of her two positives, advanced gastric or gastroesophageal junction at Nocar Sonoma, in patients whose tumors with PDL1 positive. Murk has discussed these findings with the FDA and is working to update the current indication for contrutum.

In addition, based on the data from Keynote 811 study, we received a positive opinion from the European Medicines Agency's Committee for Medicinal Products for Human Use. Turning to vaccines and infectious disease, we have taken a thoughtful and evidence-based approach to establishing a pipeline that a climateacted pesticide can Quickly determine if these vaccines are Steele drugs.

of pneumococcal vaccine candidates to address the specific needs of different populations, including infants and children, healthy adults, and at-risk subgroups, starting with VaxNuvance and now continuing with V116, our investigational 21-valent pneumococcal conjugate vaccine for adults. V116 has potential to expand disease coverage to help protect against invasive pneumococcal disease in more than.

85% of individuals 65 and older based on 2019 pre-pandemic CDC data. B.1.1.6 includes eight serotypes not currently covered by approved pneumococcal vaccines which are responsible for approximately 30% of invasive pneumococcal disease.

an individual 65 and older based on the same data. Last week, we announced positive top-line results from two phase three trials evaluating V116.

The Stride 003 trial demonstrated statistically significant immune responses in vaccine naive adults compared to PCV20 for serratide's common to both vaccines and the Stride 006 trial. Demonstrating that B116 was immunogenic for all 21...

We are eager to share these findings and plan to present detailed data at an upcoming medical conference.

As Rob noted, if approved, B.1.1.6 would be the first pneumococcal conjugate vaccine specifically designed to address the serotypes that represent adult pneumococcal disease.

In infectious diseases, we received FDA approval for Previnus, a prophylaxis of cytomegalovirus disease for adult recipients of kidney transplants who are at high risk of CMV infection.

Since 2017, Previnmyst has been an important preventive option for CMV infection and disease in adult seropositive recipients of an allogeneic hematopoietic stem cell transplant, and we are pleased to build on the benefits it provides with this new approval.

Progress continues in the cardiometabolic space. As Rob mentioned, following the remarkable results from the STELLAR trial, we have completed the submission to the FDA of the biologics license application for cetaticeps for the treatment of adults with pulmonary arterial hypertension.

The TATASIS has been granted breakthrough therapy designation by the FDA, and we look forward to work with the agency on its review.

We are advancing our broad cardiovascular program. Enrollment in phase 3 trials for MK0616, our oral PCSK9 inhibitor, is anticipated to start later this month.

In June , at the European Association for the Study of the Liver Meeting, positive results were presented from the Phase 2a randomized active comparator-controlled open-label study of synopidotide, or investigational GLP-1 glucagon receptor du agonist.

in patients with non-alcoholic fatty liver disease. Based on the findings from this study, Afinopetutide was granted fast-track designation by the FDA. We have now started a Phase IIB study to evaluate efficacy and safety in adult patients with pre-sirotic NASH. Lastly,

The FDA has accepted our resubmission of the new drug applications for Jefapixin, our P2X3 receptor antagonist, for the treatment of refractory or unexplained chronic cough in adults. The PDUFA target action date is December 27, 2023. This follows the positive opinion from the CHMP and the European Union.

And finally, as Rob mentioned, this past quarter, we are delighted to welcome our new colleagues from Prometheus to Merck. The team is focused on advancing the clinical development program for MK7240, formerly CRA-023, leveraging our combined strength and

and expertise to better serve patients with immune-mediated diseases. In closing, we have established a regular cadence of late-phase pipeline progress and are proceeding with speed and rigor to advance a promising portfolio of diverse candidates guided by science and focused on patient needs.

Moving forward, we are well positioned to build on this momentum with further regulatory milestones, data readouts, and clinical catalysts across therapeutic areas.

And now, I turn the call back to Peter.

Thank you, Dean. Saddrick, we're ready to take questions. We'd appreciate Analysts limiting themselves to one question so we can get to as many as possible today. Thank you.

Thank you ladies and gentlemen. If you wish to ask a question, please press star one on your telephone keypad. You may withdraw your question at any time by pressing star two. If you're using a speaker phone, please pick up the hand set before pressing the numbers. Once again, if you have a question, you may press star one.

Okay, our first question comes from Jeff Meacham with Bank of America. Your line is open. Hey, guys. Thanks so much for the question. Rob, you opened up the call with some comments on the IRA suit, so I wanted to ask you a little bit on that. I know it's hard to talk specifics.

your strategy but at a higher level you know how important is it to get more companies to join the fray with Merck and are there any milestones to watch for this fall on the suit you know beyond the initial ten drugs being you know being named next month thank you yeah Jeff why I appreciate the question and with regard

in the drill us to bring the suit. But to your question, as you know now, the four drug companies actually in total, including Merck, have raised suits, all largely following the same types of arguments in addition to we have the Chamber filed a suit as well as the trade group farmers.

The negotiation provision of the IRA is in violation of both the fifth and the first amendment of the Constitution and is not good policy. That's what brought us to bring the suit. As we look forward, we're going to take this to the fullest, which means we'll take it through.

District Court and if need be in the circuit court and ultimately to the Supreme Court. So really that's the strategy. I don't want to comment on you know other companies whether you're going to see additional companies come in beyond the four that are in now. As far as any kind of triggers to watch for not really because while you know obviously we have set.

dates for the initial discovery and some of the initial hearings. This is going to take a while to play out. What I do think is highly likely is that we will be able to see this resolved by the time we get into the 2026 timeframe. That's really what we're...

thinking about and moving through the various courts as needed. But I wouldn't really think you're going to see any large indicator in the near term. This is a longer term play.

Thanks, Chef. Next question, please, Cedric. Yes, our next question comes from Mohit Banzo, with Wells Fargo, Yelena's open.

Great. Thank you very much for taking my question. My question is regarding the one-time items, so Caroline you mentioned regarding China for Gardasil as well as Ketuda in the US. Could you be able to quantify this a little bit, just try to understand the magnitude of

How much blood is impacted by those one-time items? Yes, of course, Mohit. Thank you for the question. So first, talking about Garda-Sill. There were no one-time items in the quarter for Garda-Sill. We had exceptional growth that grows with the driven by every geography around the world. As we think about the second half of the year, though,

we do expect shipments to China to be less than they were in the first half of the year and therefore expect the second half of year growth to be slower than what we've achieved in the first half. For Keytruder we had a very strong quarter and that...

strength was across all indications including the earlier stage cancer indications that we're launching. In the United States we had sales of 3.9 billion dollars, a growth of 21%. Now that growth included approximately 50 million dollars of benefit.

That said, we continue to expect strong growth from Keytruda, given the current indications we have, as well as new launches to come. Great. Thanks, Mowat. Next question, please, Cedric. Yes, our next question comes from Louise Chin with Cantor. Your line is open. Hi. Thank you for taking my questions. I just wanted to ask you, on your Prometheus Phase 3 clinical trial, if you could give more color on the trial designs and then when you will start those and then if you'll pursue any other indications outside of ICD. Thank you. Yeah, so I'll take that. Thank you very much for the question in relationship to the...

Prometheus. Again I just want to level set for inflammatory bowel disease there's a lot of cycling of anti cytokines and then other mechanisms some of them actually have a black box. So we're very enthusiastic of moving forward with MK 70 to 40 or...

T-L-1-A. In relationship to the start of phase three, the integration is going extremely well. We anticipate to be starting that phase three this year for all sorts of colitis. And as other data comes in terms of Crohn's disease and other diseases.

will adjust appropriately. So the start of the phase three, we are targeting this year and the integration with our colleagues that from me have gone extremely well. Great, thanks Louise. Next question please, Cedric.

Yes, the next question comes from Seamus Fernandez with Guggenheim Investments. Your line is open. Great, thanks. My question actually is on the pneumococcal vaccine B116. Dean, just hoping that you could clarify for us what statistically significant means and if that actually implies superiority on individual serotypes.

superiority on a new metric that perhaps could be an overall superiority to PREV-R20 in the stride 3 results, or if this is simply implying that it was statistically significant because it met the non-inferiority margin. Just trying to get a little bit more clarification there. And as a follow-up to that.

I just wanted to get a better sense of if you believe the data as it sits today opens up a meaningful opportunity in international markets where national immunization programs have been reluctant to use pneumococcal vaccine in the adult setting largely because of herd immunity. Thanks. Yeah, thank you so much. So I'll just at a top line just say.

at an international conference, but it's also the path to regulatory approval and eventually in the US to ACIP. So this data is strong and I just would recount that if approved, as you point out, it would be the first. The first adult-specific pneumococcal vaccine and it covers 85% of all in face of pneumococcal disease.

with PCB 20 and there's 11 Uniques with PCB 20.

And as one looks at the data that will be coming out, one would see that in the shared one. There, right, the question, oh, you said in the shared one is, is there, how does it compare with the shared ones with PCV20? And in that situation, it has met the non-inferior boundaries. And so I want to be clear about that.

Clearly the 11 unique stereotypes are unique to B116. And so the issue for that is whether they're statistics or significance, whether they're clinically meaningful and unconfident as we move forward that will become clear. It's really hard to talk about.

superiority or anything like this when you're talking about 11 unique serotypes. But I just want to step back because you sort of touched on it a little bit. It validates the strategy of having an age-appropriate serotype coverage. Now just to remind everyone B114 is at 15 valent, it has 22F, 33F, and it has a 16 valent.

and has improved immunogenicity for serotype 3. And most importantly, it provides impotence protection within the first year of life. So, that's how we thought about that age-appropriate serotype coverage. And then B.1.1.6 clearly is 21 valence, 85% invasive pneumococcal disease, and then is driving towards the adult market. But out...

You know, as Dean just summarized, the data is pretty much about as good as you could expect. So as we sit here today, we're very confident in what this vaccine can offer, both in the United States, and we do believe there's a meaningful opportunity for us to take this internationally. So, you know, we're going to have to see how it plays out. But as we sit here today, we're going to have to see how it plays out.

We are excited about this product and ready to launch as soon as we get approval to do so, because we do think, as Dean pointed out, we give 85% coverage. That's 30% better than Prevnar 20. It's also better than any other vaccine currently in development. So we think this is an important drug and when you combine it...

as we go out into the future. So this is something we're invested in and we're going to continue to drive aggressively.

Thanks, Seamus. Next question, please, Cedric. Yes, our next question comes from Akash Tewari with Jefferies Group. Your line is open.

Sorry Jeffrey, your line is open.

Sorry, Jeffrey, your line is open. Hi, can you hear me?

Yes.

Okay, so prior to Prometheus, you know, you guys had a pretty limited presence in immunology. Is there any urgency to build out that part of the business externally via BD? And does your team have any view on the FCRN inhibitor class, how large it may end up being over time, and how maybe one of those assets could fit strategically with your plans in this category? Thank you.

Yeah, Akash, thanks for the question. I'll let Dean speak to the science side of this, but from a business perspective, you know, we actually have had a presence in immunology. You might recall that across Europe and outside the United States we sold Remicade. So, you know, we've been involved in symphony, so we've been involved in this space.

As we sit here today, we don't see a significant commercial build. We think actually we can leverage a lot of the capabilities we have. We will invest in this area for success. And then Dean can comment, but we have been building on the science side. Obviously, we did the PANDEON acquisition, building off the learning from immuno-oncology into the immunology space. And now with Prometheus.

as well as we brought in some really top talent in both the discovery and development area in this area. So I think we're well positioned to drive this business. And obviously, we're always open to continuing to look for additional business development. But it's not something I think we have to do to fill a gap. It's more of how do we continue to augment for

with pandeon and Prometheus. It should be very clear how interested we are in those fields. I would also note that each one of them has a lead compound that the focus is, but there are also follow-on compounds that come through that will be important, and especially in relationship to both of them, Prometheus and pandeon, we've been blessed by the fact that many of those top...

have chosen to continue with us. So we're very confident in this build. The other point that I would make is that, separate to those external, there is an internal pipeline that is moving reasonably fast and will become more clear in the clinical space in the next years as well.

Great. Thanks, Akash. Next question, please, Cedric. Yes, the next question comes from Chris Schott with JP Morgan. Your line is open.

Great, thanks so much. Just a clarification of earlier question and a follow-up. Just on Keytruda and growth moderating in the second half, I guess in addition to the US wholesaler dynamic, I think you mentioned some EU price pressures. I just want to clarify, is that something incremental that you're expecting in the second half or more just a continuation?

of pressures you're already seeing in the first half of the year. And then my other question was just on business development. Just more broadly, the company's been pretty active over the past 12 to 24 months. I guess what are just the priorities at this point? And should we think about a pause in activity post Prometheus? Or is it really still full speed ahead in terms of

looking at further transactions. Thank you. Thank you for the question, Chris. This is Caroline. In terms of the key truder expectations for the remainder of the year, as we noted, we do expect continued price pressure in Europe . Two elements to that. The first is as we continue to launch new indications.

We will see likely price reductions as we launch those new indications, but we'll see volume growth as we impact more patients and therefore drive revenue. We also do have the impact of some austerity measures or changes in reinvestment measures in some of our European countries.

specifically in Germany with the shortening of the AMNOG review timeline as well as in the UK with the VPAS. So as we look forward we do see that those pricing headwinds sustain but we are confident in the continued growth that will thrive for Keytruda. Yeah and Chris on the business development question.

As Caroline noted in the prepared remarks, we continue to have ample firepower to do deals. And while I can tell you, I feel very confident and I know the team feels very confident about the progress we're making with our internal pipeline and with the BD we've already done. You know, if you look forward, we're going to be...

We've either recently announced or will be announcing a number of important phase 3 assets across oncology with, you know, basically every area of the business. It's cardiometabolic, what we see in vaccines, as well as important upcoming launches. We've talked about B116 data.

So tatters up, you know, we can go down the line. So I feel very good about the progress. That being said, we continue to have a priority to do business development. So you should not necessarily expect to slow down. If and when assets that bring important scientific opportunities present themselves, where we see an alignment with strategy and where we can see value creation.

We have the capacity and we will be and are willing to act on those. So we're out actively looking and we'll continue to drive deals because while I feel very good about where we are, we're talking about trying to build a sustainable engine well into the next decade and we want to continue to add to the firepower we have coming out of our own discovery and development labs as well.

Great, thanks Chris. Next question please, Cedric. Yes, our next question comes from Dana Grebas with Leering Park News. Your line is open.

Hello, I have a question. Thank you for the question. On Keytruda, I wonder if you could talk about how much remaining headroom you see for Keytruda growth in some of the early stage markets that you've been mentioning, including triple negative breast cancer, RCC. I believe it's probably stage two melanoma and lung cancer, both in the US and outside of the US.

Yeah, so I'll start and Caroline can add in if I miss something here, but the high-level answer is we see a lot of room for continued growth, both in early stage cancers, the ones where we have current indications, and importantly ones that are still coming.

So kind of running through the list, triple negative breast cancer obviously has driven important growth both in the adjuvant, neo-adjuvant and metastatic setting. It was a big driver of growth last year in the United States. It's a driver of growth in the U.S. this year. That will slow into next year in the U.S. But we're seeing it picking up outside the United States because we're at an earlier phase in the launch across

keynote 756 so that is promising for a future indication that we could potentially see coming down the path in early stage breast cancer as well. You know if you look at lung cancer we continue to expect growth in fact we're growing in lung cancer now both internationally and in the US.

But importantly, what's going to drive growth longer term is as we continue to penetrate into earlier lines of therapy. Obviously, we're early in the launch of Keynote 091 in the United States and in certain markets outside the US. We're very excited about what Keynote 0761 could be.

and how that'll help drive growth in non-small-cell lung cancer. And then across RCC, continued good growth in the adjuvant setting, good growth in metastatic. We have what's coming with Wellerig, which is going to continue to broaden our opportunity there. Great growth coming in bladder cancer. I'll stop there because I could go on, but we want to get to other questions. The short answer is a lot of growth.

lot of opportunity with Kakuta. We're going to make it a big difference in a lot of patients lives as we move forward with this drug.

Great. Thanks, Dana. Next question, please, Cedric. Yes, our next question comes from Tim Anderson with Wolf Research. Your line is open.

Thank you. I have a question for Dean on the TROP2 asset from Colun. Kind of a key debate and a newer debate has been the role of the TROP2 biomarker and whether higher expression predicts better response. And it's come into focus more recently partly because of Astra's top line on their lung trial.

as well as a phase 3 trial they started earlier this year. So I'd like to get your views on the role of this biomarker, and specifically, do you plan to include that as a stratification factor in any of your upcoming phase 3 trials? Yeah, thank you very much for that question about TROP2 ADCs, especially in relation to the lab.

So as a broader picture, I would just say that initially the focus will be in the metastatic and then depending on how those play out, it may go into earlier stages of cancer as well more broadly.

But as we talk about lung cancer, the critical question that the field has to answer, us and others, is whether or not you can dethrone Keynote 189.

So we're all trying to dethrone Merck's standard of care, which is PEMBRO plus chemo in first line in metastatic non-small cell lung cancer.

I will just say, lots of people have tried to do it, including us, and it's a high bar to try to overcome.

And so the issue for us is how do you overcome that? Because I think if you can prove that an ADC can do that, that will be very important for the field.

And so, we have our data.

We have our data. We are very comfortable with the safety.

But we think that it may be important to maximize the impact of that TROBE-2 ADC so that you can give something meaningful, a meaningful benefit over Keynote 189. So I think the biomarker could be important if what you're trying to do is displace Keynote 189 because Keynote 189 is a high bar to beat.

Great. Thanks, Tim. Next question, please, Cedric. The next question comes from Chris Sierbutani with Goldman Sachs. Your line is open. Thank you very much. With the intercept, you acknowledge the progress with the filing completed in the third quarter here. Could you just remind us in terms of what your expectations are for potential label, any nuances here, in particular with regard to secondary endpoints?

that you think would be meaningful from a commercial standpoint. And then, recognizing that you have had some commercial footprint, what should we think about in terms of what's going to be required with a potential launch in 2024? And similarly, with reimbursement for a new product, what should we think in terms of the cadence? We do recognize that physicians have been quite aware and enthusiastic about the data. Thank you. Yeah, so let me take the science part of that, Chris.

In relationship to tatterset and the STELLAR trial, I think the label in the U.S. will be reasonably clear and follow that of what the STELLAR trial is. I think one of the things that was really important is that when we declared it, we didn't just declare a six-minute walk. We declared time to clinical worsening and death.

which was really important because I think that creates a different scenario for us than what we had predicted previously in our ability to go to markets outside of the US.

So I think that will be in the label within the FDA, but I think where it is important is it may change the speed with which the international market adopts intercept. I hope that gives you that general sense. But as we move this forward, we are looking, and I think we have said previously,

in the earlier part of 2024.

Yeah, Chris, this is Rob. So on the question of, you know, our infrastructure support a launch, you know, we're actually well positioned, I would remind you that, you know, we currently market a dampus outside the United States that is in PAH.

So outside the US, we're going to be able to leverage our relationships and our infrastructure there. Obviously, we'll add to it. And then in the United States, this is, in its first indications anyway, more of a rare disease. You're looking at about 150 specialty centers in the United States that actually prescribe this. So we're not talking a large commercial footprint. This is more of a rare disease type of launch. And we've been focused on building out the capabilities, particularly as we think about medical affairs.

science liaisons and how do we manage the relationships, kind of the complex journey of patients facing these diseases with their physicians. A lot of work is already underway. So I'm quite confident we'll be prepared for a launch both in the US and outside the US because as Dean mentioned.

our belief what this can be globally is much bigger than when we originally did the deal given what we expect to be the label we will see. As far as reimbursement goes to your point, this drug especially in the United States is very well known. The specialists in the area already understand it. They're already waiting for it. We know there are patients waiting for it. So I think you could expect a pretty fast.

uptake of the drug, especially in the United States. Outside the US, we're gonna have to drive for reimbursement. That'll take longer, but I think in both cases, our expectations and confidence in both the speed of uptake and the total volume or total revenue potential of this drug.

as more significant today than when we did the deal, just given the strength of the stellar results and what we continue to expect. So we're quite bullish on this. Great. Thanks, Chris. We have time for a couple more questions, please, Cedric.

Yes, the next question comes from Andrew Baum with Citi. Your line is open. Thank you. A clarification from Dean and then a question for Rob. So just regarding the previous question about Drop 2, just so I'm clear, do you plan to stratify or select a particular form of data?

for Trope 2 expression in your first line, first and second line outcome trials, particularly for those patients with actionable, without actionable genomic mutation. So are you actually going to stratify or select within the trials aimed at that patient cohort? And then second, for Rob, if your efforts to...

repeal or amend the IRA are unsuccessful, would you delay the launch of your oral PCSK9 until you have outcome data in hand? Many thanks.

Yes, so let me just take care. I don't want to get too ahead of what's on clinical trials, but as I've emphasized, especially when we're thinking about first-line, non-small-cell lung cancer, given what we think is the standard of care, we think that it will be important.

to review that in the setting of a biomarker selection. And I just kind of want to leave it at that. The precise design will come out as the teams actually roll it out. But we think that, as I've said before, the biomarker strategy will be very important.

for our push of TROP2 ADCs into lung cancer. Yeah, and on the question of how we think about the oral PCSK9 and would we delay for an outcome study, I think it's too early to make that kind of decision because frankly it...

how we think about the outcome study and whether or not and what kind of label we get before we have an outcome study is still something we're working through. So we need to understand the label. We need to understand the timing of the outcome study. And until I know all those points, I wouldn't want to...

you know, get ahead of where we would be. So more to come, we've got some time on that one. Thank you, Andrew. Last question, please, Cedric. Yes, our last question comes from Steve Schoeller with TD Cowan, your line is open. Oh, thank you so much. Question for Dean on the Key Truded Data in Periadroven ER positive breast cancer.

Should we expect the EFS to read out well before the Keytruda LOE so the commercial opportunity can be realized? How do you think it stacks up to CDK46 inhibitors in the adjuvant setting? And is there potential to file for a NEO adjuvant approval in the meantime? Thank you.

So I will just step back a little bit. So the Keynote 756, as you've noted, is an ER-positive HER2-negative. It's earlier stage. It is neoadjuvant-slash-adjuvant. We've given.

based on the data that we've given in a press release that it's TAP-CR in relationship to an interim. As you know, EFS is already event-based, and so the question is how fast do you accrue events in relationship to that? And our hope is...

the answer to your question is yes, but we will just have to see because they are event-based. I would just highlight, you know, in Keynote 522, which is triple negative breast, which is also earlier state, which is also neo-adjuvant, adjuvant, and also at a positive path, CR. We demonstrated that that path, CR, is a predictive...

of the future followed up by EFS. And so we'll have to just watch that data and that data advances.

Great, thanks Steve. Rob? Yeah, well, I appreciate everyone investing time today with the call and just really maybe to conclude. I just want to reinforce how competent I am about how well positioned we are to continue to drive value creation for patients, for shareholders, and for all of our stakeholders well into the future. And again, I just really want to thank...

all of my great colleagues across the globe for their substantial efforts. You know, we really do look forward to building on the progress we have in the second half of 2023 and beyond and hopefully what you took from our comments today, both prepared and in the Q&A, is our confidence in the progress we're making and in the really the difference we can make for patients.

across an ever-broadening area of therapeutic possibility. So it's exciting what we have in front of us right now. Thank you. Great. Thank you all.

Thank you. That concludes today's conference. You may all disconnect at this time.