Q4 2023 Merck & Co Inc Earnings Call
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Thank you for standing by welcome to the Merck and company Q4 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. 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 <unk> Vice President.
Peter: Didn't investor Relations, Sir you may begin.
Peter: Thank you Ivy and good morning, everyone. Welcome to Merck's fourth 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. Dinah Lee President of Merck Research Labs.
Peter: Before we get started I'd like to point out a few items you will see that we have items in our GAAP results such as acquisition related charges restructuring costs and certain other items you should note that we have excluded these from our non-GAAP results and provide a reconciliation in our press release.
Peter: 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 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 actual results may differ materially from those set.
Peter: Fourth in the forward looking statements are.
Peter: Our SEC filings, including item one a in the 2022 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.
Peter: During today's call a slide presentation will accompany our speaker's 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.
Peter: With that I'd like to turn the call over to Rob.
Robert M. Davis: Thanks, Peter Good morning, and thank you for joining today's call.
Robert M. Davis: 2023 was another very strong year for Merck.
Robert M. Davis: I'm extremely pleased by the progress we've made to develop and deliver transformative therapies and vaccines that will help save and improve lives around the world.
Robert M. Davis: We have reached more than 500 million people with our medicines last year alone over half of which were through donations.
Robert M. Davis: We also made substantial investments in research and development in our ongoing effort to discover and bring forward to patients. The next generation of impactful innovations.
Robert M. Davis: Over $30 billion in total, including the cost of certain acquisitions and collaborations.
As we move forward I'm confident that our strong momentum will continue underpinned by the unwavering dedication of our talented global team.
Robert M. Davis: We're realizing the benefits of our sustained focus on key strategic priorities.
Robert M. Davis: The excellence of our commercial and operational execution enables us to deliver tangible value in the short term.
Robert M. Davis: We invest in new innovations and strengthen our pipeline for the long term.
Robert M. Davis: In 2023, we advanced important clinical programs and augmented our pipeline with promising business development.
Robert M. Davis: As the acquisition of Prometheus, and our collaboration with Daiichi Sankyo.
Robert M. Davis: Guided by our science led strategy.
Robert M. Davis: Confident that our focused and disciplined business decisions, we make and the actions we take will lead to sustainable benefits for the patients, we serve and long term growth and value for our shareholders.
Robert M. Davis: Turning to our results and initial outlook for 2024, we delivered excellent underlying growth in 2023.
Robert M. Davis: Reflecting robust demand for our innovative portfolio.
Pleased to share that we are expecting continued strong growth in 2024, driven by demand for our key products, which Caroline will speak to momentarily.
Robert M. Davis: Turning to the progress we're making in research. We're currently pursuing programs across a more diverse set of therapeutic areas with high unmet need and across more than modalities that in any time in recent memory.
Robert M. Davis: This year, we will remain keenly focused on advancing our broad and diverse pipeline.
Robert M. Davis: Which includes two launches that will address critical health needs and have blockbuster commercial opportunity.
Robert M. Davis: In cardio metabolic we're very excited by the anticipated FDA action on our application for <unk> in the United States, which we believe has the potential to transform the treatment journey for many patients suffering from pulmonary arterial hypertension.
Our commercial and manufacturing teams are fully prepared with a strong uptake. We expect so Tyler step is an important component of our growing cardio metabolic pipeline, which we believe has significant long term potential.
Robert M. Davis: In vaccines, the FDA accepted for priority review, our filing for <unk> 116, if approved the 116 would be the first vaccine specifically designed to address the majority of invasive pneumococcal disease in adults, aged 65 and older.
Robert M. Davis: Based on its compelling profile <unk> has the potential to become an important new preventative option for adults.
Robert M. Davis: And we believe it can achieve majority market share in this setting.
Robert M. Davis: We look forward to a potential approval in June.
Robert M. Davis: And in oncology.
Robert M. Davis: We continue to expand into additional tumor types in earlier stages of certain cancers as well as progress our increasingly broad pipeline of novel candidates.
Robert M. Davis: We've achieved substantial diversification with a dramatically expanded set of late stage programs, which dean will speak to them.
Robert M. Davis: I am confident that Merck is well positioned to provide important innovation to patients and sustained its leadership in oncology.
Dean: Well into the future.
Dean: I know Dean and his team are energized by our progress and are prepared to build on the success. We've had in 2023 to further advance merck's pipeline and bring transformative innovation to patients this year and beyond.
In summary.
Dean: Our science led strategy, which keeps the patient at the center of everything we do is delivering important advancements in helping us build a sustainable growth engine for our company.
Dean: We've made considerable progress over the past year in advancing and expanding our pipeline, which has resulted in substantially increased long term commercial opportunities.
Dean: We've taken meaningful steps to diversify and position ourselves for sustained leadership in oncology. While also building one of our deepest and broadest pipelines across discovery and development and our recent history outside of oncology and notably in cardio metabolic and immunology.
Dean: Further we also expect to benefit from promising late stage programs across our vaccines, Neurosciences HIV and animal health pipelines et.
Dean: A robust set of early phase programs and the potential to add exciting innovation through future science led business development.
Dean: As a result, we are increasingly confident that we're well positioned to drive patient impact and value creation, this year and well into the next decade.
Dean: I would again like to thank our global teams for their commitment to a strong research commercial and operational execution.
Dean: With a concerted focus on achieving continued excellence I'm very confident in our ability to deliver short and long term stakeholder value.
Dean: Look forward to providing future updates on our progress and impact.
Dean: With that I'll turn the call over to Carolina.
Carolina: Thank you Rob good morning two.
Carolina: 2023, what's another impactful year for our company.
Carolina: We delivered strong revenue growth of 12%, excluding <unk> and foreign exchange.
Carolina: Growth was driven by robust performance across oncology vaccines and animal health.
Carolina: We remain confident in our ability to continue to deliver strong results in the near term, while making disciplined investments in innovative science, which will drive long term value for patients and shareholders.
Carolina: Now turning to our fourth quarter results.
Carolina: Total company revenues were $14 $6 billion.
Excluding the impact from <unk> and foreign exchange.
Carolina: James the business delivered strong growth of 13%.
Carolina: The following revenue comments will be on an ex exchange basis.
Carolina: Our human health business sustained its momentum excluding gasoline growth was 14% driven by oncology and vaccines.
Carolina: Sales in our animal health business increased 4% driven by companion animal products.
Carolina: Turning to the performance of our key brands.
Carolina: In oncology sales of Keytruda grew 22% to six $6 billion.
Carolina: Global growth was driven by increased uptake in early stage cancers, including triple negative breast cancer, and renal cell carcinoma, with particularly strong growth in international markets due to the more recent launches of these important indications.
Carolina: This was also driven by the strong global need of patients with metastatic disease.
Carolina: We continue to be encouraged by the positive impact of recent approvals of happy on certain patients with early stage non small cell lung cancer.
Carolina: In the U S. We have made considerable progress in helping to improve drug treatment rates and have further increased our leadership position in the adjuvant setting.
Carolina: We also received positive feedback from health care providers. Following the recent launch of keynote <unk> 839, and advanced Urothelium cancer.
Carolina: With this approval Keytruda in combination with Pet's Best is now indicated for first line advanced your CTO cancer patients regardless of cisplatin eligibility.
Carolina: Just on the outstanding clinical data. We believe this regimen has the potential to transform the standard of care for these patients.
Carolina: Alliance revenues from Lin Plaza, and Lindsay must grew 8% and 5% respectively.
Carolina: <unk> sales grew 78% to $72 million driven by increased uptake in CHL associated Cumulus we're at.
Carolina: Excited by the opportunity to provide a new treatment option for certain patients with previously treated advanced renal cell carcinoma. Following the recent approval based on the light Sparks theorized there I saw a study.
Our vaccines portfolio delivered excellent growth led by Gardasil, which increased 27% to $1 $9 billion, driven by global demand, particularly in China.
Carolina: In the U S gardasil sales benefited from CDC purchasing pattern.
<unk> sales grew to $176 million driven by ongoing launches in Europe and continued uptake of the pediatric indication in the U S.
Carolina: As a reminder, fourth quarter 2022 sales in the U S benefited from inventory stocking in preparation for the pediatric launch.
Carolina: In our hospital acute care portfolio Raytheon sales declined 3%.
Carolina: Increased market share among your own muscular blockade reversal agents in the U S was more than offset by the impact of generic entrants in international markets, particularly in Europe.
Carolina: Our animal health business delivered another solid quarter with sales increasing 4%.
Carolina: Companion animal sales grew 12% driven by the perfecto line of products due to strong underlying demand and timing of purchases.
Carolina: Livestock sales were flat, reflecting favorable price actions offset by the timing of ruminant product purchases.
Carolina: Okay.
Carolina: I will now walk you through the remainder of our P&L and my comments will be on a non-GAAP basis.
Carolina: Gross margin was 77, 2% an increase of one five percentage points largely due to favorable product mix, including a benefit from lower sales of low gasoline.
Carolina: Operating expenses increased to 11 $6 billion, including a $5 5 billion, one time charge related to our collaboration with Daiichi Sankyo.
Carolina: Excluding this charge operating expenses grew 8%, reflecting disciplined investment in support of our expenses early and late phase pipeline and key growth drivers.
Carolina: Other expense was $174 million.
Our tax rate was approximately 114%, which reflects the impact of the charge related to Daiichi sankyo.
Carolina: Excluding this charge the underlying tax rate was 13, 1%.
Carolina: Taken together earnings per share was three cents, which includes a $1.69 negative impact from the charge related to Daiichi sankyo.
Carolina: Now turning to our 2024 non-GAAP guidance.
Carolina: We expect another year of strong growth driven by key marketed products and will begin to benefit from the anticipated launches of impactful new products such as to test a set fee was one six.
Carolina: We project revenue to be between $62, seven and $64 $2 billion, representing growth of 4% to 7%.
Carolina: This growth includes a negative impact from foreign exchange of approximately 2% using mid January rates.
Carolina: The headwind is primarily due to the devaluation of the Argentine peso, which we expect will largely be offset by inflation related price increases consistent with market practice.
Carolina: Our gross margin assumption is approximately 85%, which includes the benefit from reduced royalties paid on Keytruda and gardasil.
Carolina: Operating expenses are assumed to be between $25, one and $26 $1 billion, which includes an approximate $650 million one time charge related to the announced acquisition of Harpoon Therapeutics as a reminder, our guidance does not assume additional.
Salvatore Del Pushpo: [music] Thank you for standing by. Welcome to the Merck & Co. Q4 Sales & Earnings Conference Call. At this time, all participants are in a listen-only mode until the question-and-answer session of today's conference. This call is being recorded.
Carolina: Additional significant potential business development transactions.
Carolina: Other expense is expected to be approximately $200 million.
Carolina: We assume a full year tax rate between 14, five and 15, 5%.
Operator: If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Peter Dannenbaum, Vice President, Investor Relations. Sir, you may. Thank you, Ivy, and good morning, everyone.
Carolina: We assume approximately $2 five 4 billion shares outstanding.
Taken together, we expect EPS of $8.44 to.
Peter Dannenbaum: Welcome to Merck's fourth 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 things. You will see that we have items in our GAAP results such as acquisition-related charges, restructuring costs, and certain other items. You should note that we have excluded these from our non-GAAP results and provided a reconciliation in our press release. 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. 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 risk and uncertainty. If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in this forward-looking statement.
Carolina: Two $8.59.
Carolina: This range includes an approximate 26 cents per share charge related to the planned acquisition of Harpoon therapeutics, which is not tax deductible and the negative impact from foreign exchange of approximately 25 centers using mid January rates, including the impact from Argentina.
Carolina: Now turning to capital allocation our strategy remains unchanged.
Carolina: We will prioritize investments in our business to drive near and long term growth.
Carolina: We are excited by the significant progress our team has made towards pumps and augment our innovative pipeline in 2023.
Carolina: In 2024, we will increase this investment, including the initiation of more late stage clinical trials across multiple novel candidates.
Peter Dannenbaum: Our SEC filings, including Item 1A and the 2022 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 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 Ross.
Carolina: Each of which has significant potential to address important unmet medical needs.
Carolina: We remain committed to our dividend and plan to increase that over time.
Carolina: Business development remains a high priority, we maintain ample capacity given our strong investment grade credit rating and cash flow to pursue additional science driven value enhancing transactions going forward.
Robert M. Davis: Thanks, Peter. Good morning, and thank you for joining us on today's call. 2023 was another very strong year for us. I'm extremely pleased by the progress we've made to develop and deliver transformative therapies and vaccines that will help save and improve lives around the world. We reached more than 500 million people with our medicines last year alone, over half of which were through donations. We also made substantial investments in research and development in our ongoing effort to discover and bring forward to patients the next generation of impactful innovation. Over $30 billion in total, including the cost of certain acquisitions and collaborations.
Carolina: We will continue to execute a modest level of share repurchases.
Carolina: To conclude we enter 2024 with confidence in the outlook for our business in the near and long term.
Carolina: Global demand for our innovative medicines and vaccines remain strong and we are excited about our expansive pipeline.
Carolina: We are in a position of financial and operational strength.
Carolina: Direct result of our long standing commitment to science in order to improve the lives of the patients we serve.
Carolina: Our continued investments in innovation and excellent execution will enable us to deliver value to patients customers and shareholders well into the future with that I'd now like to turn the call over to David.
Robert M. Davis: As we move forward, I'm confident that our strong momentum will continue, underpinned by the unwavering dedication of our talented global team. We're realizing the benefits of our sustained focus on key strategic priorities, and the excellence of our commercial and operational execution enables us to deliver tangible value in the short term.
Carolina: Okay.
David: Thank you Caroline good morning today, I will provide notable R&D updates since our last earnings call and a brief summary of 2023 accomplishment well.
David: And the pipeline remains strong progress spanning both early and late phase programs across multiple therapeutic areas.
Robert M. Davis: While we invest in new innovations and strengthen our pipeline for the long term, in 2023, we advanced important clinical programs and augmented our pipeline with promising business developments, such as the acquisition of Prometheus and our collaboration with Aichi Sanctuary. Guided by our science-led strategy, I'm confident that the focused and disciplined business decisions we make and the actions we take will lead to sustainable benefits for the patients we serve and long-term growth and value for our shareholders. Turning to our results and initial outlook for 2024, we delivered excellent underlying growth in 2023, reflecting robust demand for our innovative portfolio. I'm pleased to share that we expect continued strong growth in 2024, driven by demand for our key products, which Caroline will speak to momentarily.
David: Starting with oncology, we are diversifying our portfolio and executing on our strategy, which is broadly based on three strategic pillars, immuno oncology precision ocular targeting and tissue targeting.
David: In immuno oncology, we remain committed to the development of Keytruda and further transforming cancer care to address the needs of certain patients.
David: In the fourth quarter, we received approvals from both the FDA and the European Commission and to gastrointestinal indication.
David: One in combination with chemotherapy for the first line treatment of adults with locally advanced unresectable or metastatic her two negative gastric or gastroesophageal junction adenocarcinoma based on keynote <unk> five nine and another in combination with Gen side of being answers flatten for the treatment of patients with locally.
David: We advanced Unresectable or metastatic biliary tract cancer based on keynote 96 six.
David: As we continue to harness the potential of Keytruda, we have an increased focus on earlier stages of disease.
David: We believe timely effective intervention they significantly improve patient outcomes.
David: Last month, we announced FDA approval for Keytruda in combination with chemo radiotherapy for the treatment of Eagle stage III through for a cervical cancer based on the phase III keynote <unk> trial. This is an important advancement and provides a new option that has potential to become the standard.
David: Okay.
David: Today with all the research conducted with checkpoint inhibitors. The only studies that have demonstrated statistically significant overall survival benefit in earlier stage cancers are keytruda based regimens.
David: You know 671 as part of a neo adjuvant, followed by post surgery adjuvant treatment regimen for certain patients with Resectable and non small cell lung cancer and keynote 564, as I post surgery adjuvant treatment regimen for certain patients with renal cell carcinoma.
Robert M. Davis: Turning to the progress we're making in research, we're currently pursuing programs across a more diverse set of therapeutic areas with high unmet need and across more modalities than at any time in recent memory. This year, we will remain keenly focused on advancing our broad and diverse pipeline, which includes two launches that will address critical health needs and have blockbuster commercial operations. In cardiometabolic, we're very excited by the anticipated FDA action on our application for cetatricept in the United States, which we believe has the potential to transform the treatment journey for many patients suffering from pulmonary arterial hypertension. Our commercial and manufacturing teams are fully prepared for the strong uptake we expect. Mr. Tattersept is an important component of our growing cardiometabolic pipeline, which we believe has significant long-term potential. In vaccines, the FDA accepted for priority review, and we are filing for V116. If approved, V116 would be the first vaccine specifically designed to address the majority of invasive pneumococcal disease and adults ages 65 and older.
David: Since the approval of a keynote 671 in October it is notable that the American cancer Society released guidance recognizing that certain individuals with significant smoking history undergo an annual low dose CPE scale.
David: <unk> also expands the age range for lung cancer screening.
David: We look forward to the opportunity to help impact patients and support the identification of more patients at risk.
David: Additional data from keynote five six floor demonstrating an overall survival benefit were presented at the <unk> Conference last week.
David: Detailed findings from keynote 123 evaluating truda for the adjuvant treatment of patients with localized muscle invasive and locally advanced Resectable Europe, hulio carcinoma, demonstrating a disease free survival benefit versus observation were also presented at <unk>.
David: Also in the earlier stage setting along with our partner Madonna, We announced three year recurrence free survival in distant metastasis free survival data.
David: Our individualized neo antigen therapy, the 940 in combination with Keytruda for the adjuvant treatment of stage three and four melanoma following complete resection.
David: We are encouraged by the durability of the responses observed and the potential for this regimen to impact patients earlier in their diagnosis.
David: Phase III trials in the adjuvant setting for certain patients with melanoma and non small cell lung cancer are actively enrolling.
David: Progress continues and precision oncology.
David: The FDA approval for <unk>, our <unk> two alpha inhibitor for the treatment of adults with advanced RCC. Following a PD, one or PDL, one inhibitor and a veg F. T. Chaos marks the first drug approved in a new therapeutic class for eligible patients with advanced renal cell carcinoma in nearly a decade and builds on.
Robert M. Davis: Based on its compelling profile, V116 has the potential to become an important new preventative option for adults, and we believe it can achieve majority market share in this setting. We look forward to a potential approval in June and an oncologist. We continue to expand into additional tumor types and earlier stages of certain cancers, as well as progress our increasingly broad pipeline of novelties. We have achieved substantial diversification with a dramatically expanded set of late-stage programs, about which Dean will speak. I'm confident that Merck is well positioned to provide important innovation to patients and sustain its leadership in oncology well into the future. I know Dean and his team are energized by our progress and are prepared to build on the success we've had in 2023 to further advance Merck's pipeline and bring transformative innovation to patients this year and
David: The 2021 approval for the treatment of adults with certain about hippel Lindau disease associated tumors additional phase III studies for <unk> in combination with Keytruda and our <unk> for the treatment of certain types of renal cell carcinoma in the advance and adjuvant studies are ongoing.
David: Finally, moving to the tissue targeting space.
David: Together with Astellas and <unk> now Pfizer, we announced the FDA approval for Keytruda in combination with passive and active <unk> targeting ADC for the first line treatment of patients with locally advanced or metastatic <unk> cancer based on results from keynote <unk> 39.
David: These results demonstrated a superior overall survival benefit versus Gemcitabine, plus cisplatin or carboplatin and extend our pioneering work in combining keytruda with chemotherapy as well as reinforcing the value of an ADC to enable targeted delivery of chemotherapy.
David: The tumor tissue.
David: Following the announcement of our collaboration with Daiichi Sankyo in October we are pleased to received priority review from the FDA for M. K 10, 22, a purchase Patricia map the rigs to cat or investigational fully humanized anti <unk> ADC for patients with advanced Egfr.
David: <unk> non small cell lung cancer previously treated with two or more systemic therapy. The agency has set a target action date of June 26.
David: Through our agreements with <unk> and Daiichi sankyo as well as our own discovery programs, we have established a robust pipeline of tissue targeting ADC.
Robert M. Davis: In summary, our science-led strategy, which keeps the patient at the center of everything we do, is delivering important advancements and helping us build a sustainable growth engine for our business. We've made considerable progress over the past year in advancing and expanding our pipeline, which has resulted in substantially increased long-term commercial opportunities. We've taken meaningful steps to diversify and position ourselves for sustained leadership in oncology. While also building one of our deepest and broadest pipelines across discovery and development in our recent history outside of oncology and notably in cardiometabolic and immunology. Furthermore, we also expect to benefit from promising late-stage programs across our Vaccines, Neurosciences, HIV, and Animal Health Pipelines. A robust set of early phase programs, and the potential to add exciting innovation through future science-led business development.
David: The recently announced acquisition of Harpoon Therapeutics provides the opportunity to help complement and strengthen our approach by providing a portfolio of novel T cell engagements. The most significant of which is H P. M 328, an investigational delta like La again, three targeting T cell engagement being a.
David: Sally weight in small cell lung cancer and euro endocrine tumor.
David: Our strong diverse portfolio of immuno oncology precision molecular and tissue targeting agents positions us well to have a profound impact on even more patients long into the future.
David: Next to our vaccine pipeline, we're making notable advancements with our population specific vaccine program for pneumococcal disease.
David: The FDA has accepted for priority review, the new Biologics license application for <unk>, one six or 'twenty, one valent pneumococcal conjugate vaccine specifically designed for adults supported by results from multiple phase III clinical trials evaluating <unk> six and both pneumococcal vaccine naive.
David: And vaccine experienced adult patient population.
David: Results from stride three trial were presented at the World vaccine Congress West Coast in November and additional data from stride three as well as strive studies four five and six will be presented at the international Society of pneumonia and pneumococcal disease Congress in March.
Robert M. Davis: As a result, we are increasingly confident that we're well positioned to drive patient impact and value creation this year and well into the next decade. I would again like to thank our global teams for their commitment to strong research, commercial, and operational expertise, with a concerted focus on achieving continued excellence. I'm very confident in our ability to deliver short and long-term stakeholder value, and I look forward to providing future updates on our progress. With that, I'll turn the call over to Carol. Thank you, Rob. Good morning.
David: If approved as Rob noted, we won't want six would be the first pneumococcal conjugate vaccine specifically designed to address the serotypes responsible for approximately 83% of invasive pneumococcal disease in adults 65 years of age and older. According to CDC data from 2008.
David: <unk> 2021 importantly, the 116 includes eight unique serotypes, which account for 30% of disease. According to the same CDC data.
David: These serotypes are not covered by currently licensed pneumococcal vaccine option.
David: D has set a target action date of June 17.
David: Turning to programs in the cardio metabolic disease pipeline, we are eager to fruiting so patterson for patients as an important treatment option for pulmonary arterial hypertension.
Caroline Litchfield: 2023 was another impactful year for our company. We delivered strong revenue growth of 12%, excluding Luguebrio and foreign exchange. Growth was driven by robust performance across oncology, vaccines, and animal health. We remain confident in our ability to continue to deliver strong results in the near term while making disciplined investments in innovative science, which will drive long-term value for patients and shareholders. Now turning to our fourth-quarter results, total company revenues were $14.6 billion. Excluding the impact of LeGuevre and foreign exchange, the business delivered strong growth of 13%.
<unk> has set a target action date of March 26.
David: Beyond data from the stellar trial, we have the phase III zenith and Hyperion studies, which are evaluating <unk> in patients with more advanced disease and those earlier on their disease journey.
David: In addition to the phase III cadence trial will evaluate W. H O group two pulmonary hypertension focused on a type of left heart disease.
David: As we close out 2023, it is important to highlight our significant progress in execution across therapeutic areas and modalities as well as multiple business development transaction.
David: For the year, we have more than 25 regulatory approvals in major markets. We also initiated over 20 phase III studies across multiple new classes of assets, including in.
David: Collagen with pharma that stuff, our LSD, one inhibitor in essential thrombocythemia, naphtha bruton up or be TK inhibitor in first line chronic lymphocytic leukemia or small lymphocytic lymphoma. MTA 28, 70 are trop two ADC in collaboration with <unk> in non small cell lung cancer.
Caroline Litchfield: The following revenue comments will be on an ex-exchange basis. Our human health business sustained its momentum; excluding Luguebrio, growth was 14%, driven by oncology and vaccines. Sales in our animal health business increased 4%, driven by companion animal products.
David: And endometrial carcinoma, NK 568 for our Sip 11, a one inhibitor in collaboration with Orion in metastatic castrate resistant prostate cancer and the 940 in collaboration with <unk> for the adjuvant treatment of certain types of melanoma and non small cell lung cancer.
Caroline Litchfield: Turning to the performance of our key brand, in oncology, sales of Keytruda grew 22% to $6.6 billion. Global growth was driven by increased uptake in earlier-stage cancers, including triple-negative breast cancer and renal cell carcinoma, with particularly strong growth in international markets due to the more recent launches of these important indications. Growth was also driven by the strong global need for patients with metastatic disease.
David: Also on immunology with police her key bark in ulcerative colitis finally in cardio metabolic disease with multiple trials for M. T 0616 in hypercholesterolemia.
David: As a result of the increasing depth and breadth of our pipeline. We are planning to initiate an even greater number of phase III trials in 2024 <unk>.
Speaker Change: Considerable credit goes to my colleagues across the organization for their hard work and unwavering dedication.
We are executing on our science led strategy and look forward to providing further updates R&R progress throughout the year.
Caroline Litchfield: We continue to be encouraged by the positive impact our recent approvals are having on certain patients with earlier stage non-small cell lung cancer. In the U.S., we have made considerable progress in helping to improve drug treatment rates and have further increased our leadership position in the adjuvant setting. We also received positive feedback from healthcare providers following the recent launch of Keynote A39 in advanced urothelial cancer. With this approval, Keytruda, in combination with PADCES, is now indicated for first-line advanced urothelial cancer patients, regardless of cisplatin eligibility. Based on the outstanding clinical data, we believe this regimen has the potential to transform the standard of care for these patients. Alliance revenue from Limpasa and Lenzima grew 8% and 5%, respectively.
Speaker Change: And now I will turn the call back to Peter.
Peter: Thank you Dean Ivey, we're now ready to take questions. If analysts could please limit themselves to one question today in order to get to as many questioners as possible. We would appreciate it. Thank you.
Peter: Ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad.
Peter: You may withdraw your question at any time by pressing star to if youre using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question you may you star one.
Peter: Our first question will come from the line of Humira fit from Evercore ISI. Please go ahead.
Humira Fit: Hi, guys. Thanks for taking my question I know, there's a trial do for you guys. Later this year a key form O seven trials, that's the lag three with pember lithium mob in colorectal cancer. Just curious how you were thinking about the risk profile and the odds of success heading into that and if theres been any interim OS analysis.
Speaker Change: Thank you very much.
I'll take this humor. Thank you very much for that.
Speaker Change: That question I mean just to.
Speaker Change: Recognize that in MSI high we have a strong presence with ambarella there.
Speaker Change: The larger group in CRC or colorectal cancer is in the MSS population.
Speaker Change: At this point, there's not really been any checkpoint inhibitor, that's shown dramatic impact in MSS CRC. So our interest in driving hambro plus lag three in that is to demonstrate that a checkpoint inhibitor could have a meaningful impact in MSS CRC.
Caroline Litchfield: Wellyreg cells grew 78% to $72 million, driven by increased uptake in VHL-associated tumors. We are excited by the opportunity to provide a new treatment option for certain patients with previously treated advanced renal cell carcinoma following the recent approval based on the LightSpark005 study. Our vaccine portfolio delivered excellent growth, led by Gardasil, which increased 27% to $1.9 billion, driven by global demand, particularly in China. In the U.S., Gardasil cells benefited from CDC purchasing patterns. Vaccine advance sales grew to $176 million, driven by ongoing launches in Europe and continued uptake of the pediatric indication in the U.S. As a reminder, fourth quarter 2022 sales in the U.S. benefited from inventory stocking in preparation for the pediatric launch. In our hospital acute care portfolio, Bridgion sales declined 3%.
Speaker Change: If we should get a positive signal in that clearly we would use that as a beachhead to expand and extend the role of checkpoint inhibitors in MSS CRC, which is a place that requires a lot of more innovation in terms of specific interim analysis, unless we generally try to keep that.
Speaker Change: When there's a when there's data that's worth sharing that as when we share it.
Speaker Change: Just real quick just quick microphone check can you hear us.
Speaker Change: Yes.
Speaker Change: No we can hear you.
Speaker Change: You can okay, where we were showing that were muted sorry, Oh no you're fine we can hear you loud and clear Alright, Greg next question. Please Avi.
Speaker Change: Next we'll go to the line of Trung Nguyen from UBS. Please go ahead.
Trung Nguyen: Good morning, guys. Thanks.
Trung Nguyen: Thanks for taking my question so false steps, we noticed the Hyperion study primary completion date is now moved to August 26. It was November 29 on Clinicaltrials Gov.
Trung Nguyen: About three years out you just.
Trung Nguyen: Could you just let us know the reason for that change.
Trung Nguyen: And if I can sneak one in just is there a place to transition suggests that from inpatient clinic administrations to self administration. Thanks very much.
Caroline Litchfield: However, increased market share among neuromuscular blockade reversal agents in the U.S. was more than offset by the impact of generic entrants in international markets, particularly in Europe. Our animal health business delivered another solid quarter with sales increasing 4%. Companion animal sales grew 12% driven by the Brevecto line of products due to strong underlying demand and timing of purchases. Livestock sales were flat, reflecting favourable price action, upset by the timing of ruminant product purchases.
Speaker Change: So let me take the first question. So Theres a series of trials in relationship to <unk>. So the March date that we talk about is for potential.
Speaker Change: Decision by the FDA for approval based on the stellar trial and we think in the second half of 2024, we may be in a position in relationship to the EU. We have other trials as you point out, especially phase III trials and their zenith and their Hyperion. Those two are based on events.
Speaker Change: So it's a tracking of events that sort of define when those happen. So zenith I think is now like September 2025, and high period August 2020 States. So that's just been event driven and.
Speaker Change: In relationship to.
Speaker Change: How how best to treat patients.
Speaker Change: Well, we're in conversations with the FDA in relationship to Where's the best place for patients to be treated but I would just highlight that we.
Caroline Litchfield: I will now walk you through the remainder of our P&L, and my comments will be on a non-GAAP basis. Growth margin was 77.2%, an increase of 1.5 percentage points, largely due to favorable product mix, including a benefit from lower sales of LeGabrio. Operating expenses increased to $11.6 billion, including a $5.5 billion one-time charge related to our collaboration with Daiichi Sankyo.
Speaker Change: We have an image of an auto injector are moving very fast through our pipeline. So that might give you a sense of where we think this may end up.
Speaker Change: Right.
Speaker Change: You.
Speaker Change: Next question. Please IV next.
Speaker Change: Next we'll go to the line of Dana <unk> from Leerink Partners. Please go ahead go ahead hi. Thank you for the question I have one on oncology. If you wanted to new assets going into phase III. The Orion M. K 5684, I Wonder if you could talk more about that asset and what gives you confidence that it will demonstrate broad benefit in <unk>.
Caroline Litchfield: Excluding this charge, operating expenses grew 8%, reflecting disciplined investment in support of our expansive early and late phase pipeline and key growth drivers. Other expense was $174 million. Our tax rate was approximately 114%, which reflects the impact of the charge related to Daiichi Sankyo. Excluding this charge, the underlying tax rate was 13.1%.
State cancer. In addition to the patients with the E. R. L. P. D mutations and can you confirm the stacked design to Omaha studies will prioritize a hierarchy.
Speaker Change: Statistically look at the mutation segment first.
Speaker Change: Yeah.
Speaker Change: So that.
Speaker Change: Everyone.
Speaker Change: It is looking at this asset in the same way there have been a critical.
Speaker Change: Critical medicines that are blade.
Speaker Change: Andrew Chin.
Speaker Change: Fueled our growth in prostate cancer and the interest in the Sip 11, a one is it's very high upstream and.
Caroline Litchfield: Taken together, earnings per share were $0.03, which includes a $1.69 negative impact from the charge related to Daiichi Senkyo. Now, we turn to our 2024 non-GAP guidance. We expect another year of strong growth driven by key marketed products and will begin to benefit from the anticipated launches of impactful new products such as Cetacept and V116. We project revenue to be between $62.7 and $64.2 billion, representing growth of 4% to 7%. This growth includes a negative impact from foreign exchange of approximately 2% using mid-January rates.
Speaker Change: And we think that it could be an important contribution.
Speaker Change: Clearly we're in as you point out we're interested both broadly, but especially in the.
Speaker Change: The specific mutation.
Speaker Change: Patients and so we will be advancing those trials to look at that sub population as well as more broad populations in terms of the statistical sort of analysis and that that's something that I think you know probably would be best sort of discussed.
Speaker Change: With our clinical teams at a different time.
Speaker Change: Thanks, Dana next question please.
Speaker Change: We'll go to Carter Gould from Barclays. Please go ahead.
Carter Gould: Thank you very much for taking the question good morning, maybe.
Carter Gould: Maybe following up on the commentary on V 116, you talked about the potential to reach a majority market share what does that sort of imply around the potential aesop recommendation or the potential for a catch up opportunity in the adult segment.
Caroline Litchfield: The headwind is primarily due to the devaluation of the Argentine peso, which we expect will largely be offset by inflation-related price increases consistent with market practice. Our gross margin assumption is approximately 80.5%, which includes the benefit from reduced royalties paid on Keytruda and Gardasil. Operating expenses are assumed to be between $25.1 and $26.1 billion, which includes an approximate $650 million one-time charge related to the announced acquisition of Harpoon Therapeutics. As a reminder, our guidance does not assume additional significant potential business development transactions. Other expenses are expected to be approximately $200 million.
Carter Gould: So yeah. So I would just you know so again, we're talking about the 116, we're talking about F. D. A potential action in June 2024, followed by Asia, followed by M. M. W. R. I think it's in March that we're gonna be presenting stride, three and six and I think the data will be out there.
Carter Gould: And as you'll see in that.
<unk> stride three and throughout stride three all the way to six you'll see data in relationship to vaccination.
Carter Gould: Those who are naive versus previously vaccinated and you will see data in the patient population or the or the population that 65, but also in the 50 plus as well as that data. It is digested both by the FDA, but probably very importantly by the ACI P. I think those data as well guide.
Carter Gould: How the ACI P makes their decision.
Carter Gould: Great.
Carter Gould: Yes.
Avi: Okay next question. Please avi.
Next we'll go to the line of Evan <unk> from BMO capital markets. Please go ahead.
Caroline Litchfield: We assume a full year tax rate between 14.5 and 15.5 percent. Additionally, we assume approximately 2.54 billion shares outstanding. Taken together, we expect EPS of $8.44 to $8.59. This range includes an approximate $0.26 per share charge related to the plan's acquisition of Harpoon Therapeutics, which is not tax deductible, and a negative impact from foreign exchange of approximately $0.25 using mid-January rates, including the impact from Argentina. Now turning to capital allocation, where our strategy remains unchanged. We will prioritize investment in our business to drive near and long-term growth. We are excited by the significant progress our team has made to advance and augment our innovative pipeline in 2023. In 2024, we will increase this investment, including the initiation of more late-stage clinical trials across multiple novel candidates. Each of which has the significant potential to address important unmet medical needs. We remain committed to our dividend and plan to increase it over time. Business development remains a high priority.
Evan: Hi, guys. Thank you so much for taking my question I was wondering if you could expand on some of the nuances of your guidance. Specifically do you include meaningful revenues from Aricept or if you want one six assuming the approval at some point this year.
Evan: Thank you for the question Nathan This is Caroline.
Caroline Litchfield: We've guided for 2024, we are very confident in the underlying momentum in our business across oncology across vaccines across animal health. We also are very excited about the potential launches for the test set and fee 116.
Caroline Litchfield: This is tessa set given the significant clinical data, we have and the understanding that there are many patients that have already been identified who can benefit specific to set on top of the treatments. They have we are expecting a strong launch for <unk> six as Dean just outlined we are.
Wait for the S T a.
Caroline Litchfield: All the ACI Pete recommendation, we will then expect and then you ought to publish and therefore expect to have impact we see 116 coming towards the end of this year.
Caroline Litchfield: Yeah.
Speaker Change: Great. Thanks next question please.
Speaker Change: Next we'll go to the line of Terence Flynn from Morgan Stanley. Please go ahead.
Terence Flynn: Great. Thanks, so much for taking the question.
Terence Flynn: Competitor recently reported some disappointing data with their trop two ADC in later line lung I recognize these Trump twos are all different given the technology of the linker, but does this impact at all your development strategy for your trip to in lung or perhaps increase the need for a biomarker strategy here. Thank you.
Dean Lee: We maintain ample capacity, given our strong investment-grade credit rating and cash flow, to pursue additional, science-driven, value-enhancing transactions going forward. Additionally, we will continue to execute a modest level of share repurchases. We enter 2024 with confidence in the outlook for our business in the near and long term. Global demand for our innovative medicines and vaccines remains strong, and we are excited about our expansive pipeline. We are in a position of financial and operational strength as a direct result of our longstanding commitment to science in order to improve the lives of the patients we serve. Our continued investment in innovation and excellent execution will enable us to deliver value to patients, customers, and shareholders well into the future. With that, I'd now like to turn the call over to Dean. Thank you, Caroline. Good morning.
Terence Flynn: Yeah. This is dean thanks for that question. So I'll just step back and I think I've said this previously.
Dean Ivey: Especially in the lung, it's very important to understand what the standard of care is in that one would have to beat it in a significant way in the standard of care.
Dean Ivey: In our minds in the late stages, roughly keynote 189 and now in the earlier stage. It's clearly in keynote 671, both with clear OS data. What we have said previously is that we are unclear that any one ADC can have as broad of an impasse.
Dean Ivey: <unk> keynote 189, or $6 71, and that in order for an ADC to have a substantial advantage in those patient populations. One may need to focus on a biomarker selected patient population and so the data that we saw does not changed our way of thinking it's the way of.
Dean Ivey: Thinking that we've discussed previously and I would just add that it's really important there. There's also data out there where people are doing retrospective biomarker data in this.
Dean Ivey: For us to demonstrate true efficacy in any patient population, we'd need a biomarker strategy that is perspective, and one that can be easily actionable throughout the world.
Speaker Change: Thank you Terrence next question. Please avi.
Dean Lee: Today, I will provide notable R&D updates since our last earnings call and a brief summary of our 2023 accomplishments. Momentum in the pipeline remains strong. Progress is spanning both early and late phase programs across multiple therapeutic areas, starting with oncology. We are diversifying our portfolio and executing on our strategy, which is broadly based on three strategic pillars: immuno-oncology, precision molecular targeting, and tissue targeting. In immuno-oncology, we remain committed to the development of Keytruda and further transforming cancer care to address the needs of certain patients. In the fourth quarter, we received approvals from both the FDA and the European Commission for two gastrointestinal indications. One in combination with chemotherapy for the first-line treatment of adults with locally advanced unrespectable or metastatic HERD2 negative gastric or gastroesophageal junction adenocarcinoma based on keynote 859.
Speaker Change: Next we'll go to the line of Tim Anderson from Wolfe Research. Please go ahead.
Speaker Change: Hi, Thank you for taking our question. This is Adam on for Tim on Gardasil, a two dose regimen was recently approved in China. We were wondering if that poses a revenue problem.
Speaker Change: Actually it doesn't if it just means that more supply gets spread out across more people.
Speaker Change: And Merck ends up selling just as many doses in total I can Merck shirts perspective here.
Speaker Change: Sure and thanks for the question, so theres actually been Chinese competitors with an offering for some time actually in the Chinese market and that market is large and we continue to believe the eligible cohorts and just the urban females, which is the tier one to tier three cities is about 200.
Speaker Change: Millions in the roll over $200 million amendments and so of that we think probably about 30% have actually received the vaccination. So youre still looking at.
Speaker Change: 100, 230 million eligible population as we look at this and as we've seen over time, we continue to be very competitive we're maintaining a vast majority of share.
Speaker Change: In the private market and and really Youre seeing most of the local competitors.
Speaker Change: Go to the lower tier cities and to a different population and we've been we've been targeting so that does not change.
Speaker Change: Our view of the growth potential in China long term, obviously, we will continue to face competition, there and we are positioning ourselves to continue to succeed there, but the approval you were talking about is not changing our view.
Dean Lee: And another in combination with gencitabine and cisplatin for the treatment of patients with locally advanced unresectable or metastatic biliary tract cancer based on keynote 966. As we continue to harness the potential of Keytruda, we have an increased focus on earlier stages of the disease where we believe timely, effective intervention significantly improves patient outcomes. Last month, we announced FDA approval for Keytruda in combination with chemoradiotherapy for the treatment of fecal Stage 3 through 4A cervical cancer based on the Phase 3 Keynote A18 trial. This is an important advancement and provides a new option that has the potential to become the standard of care. Today, with all the research conducted with checkpoint inhibitors, the only studies that have demonstrated a statistically significant overall survival benefit in earlier stage cancers are Keytruda-based regimens.
Speaker Change: The only add if I may is we have significant opportunity to protect the females in China at the end of 2023, we also submitted to the regulatory authorities.
Speaker Change: <unk> got a salesman nails, so we're hopeful to introduce that in the Chinese market in the future.
Speaker Change: Thanks, Rob next question please.
Speaker Change: Next we'll go to the line of Mohit Bansal from Wells Fargo. Please go ahead.
Mohit Bansal: Great. Thank you very much for taking my question and congrats on the progress maybe one question on <unk> six as well so.
So Pfizer has recently made comments around market shrinking at this point so could.
Mohit Bansal: Could you could you comment on how do you see the peak opportunity for Veeva and one six in the context of market shrinking and then you're taking share from a shrinking market.
Mohit Bansal: <unk>.
Speaker Change: Yeah, I'll start and then Caroline can jump in as well, but I.
Speaker Change: I think as you look at the market size and the comments that I don't want to speak to comments that others have made I think it's also important to understand that as we bring a vaccine which brings significant incremental coverage.
Dean Lee: Keynote 671 as part of a neoadjuvant followed by post-surgery adjuvant treatment regimen for certain patients with resectable non-small cell lung cancer and Keynote 564 as a post-surgery adjuvant treatment regimen for certain patients with renal cell carcinoma. Since the approval of a Keynote 6-7-1 in October, it is notable. The American Cancer Society released guidance recommending that certain individuals with significant smoking history undergo an annual low-dose. The guidance also expands the age range for lung cancer screening.
Speaker Change: At 83% versus if you look at <unk> 20. This example is closer to 50%. So youre looking at significant incremental coverage, which I think can have an impact on how you think both about catch up to cover the diseases as Jim noted in his prepared comments.
Speaker Change: We have eight serotypes, covering 30% of what is causing disease, which is unique to us. So we think that that.
Speaker Change: We will have implications both in terms of catch ups as well as potentially to be able to go for patients 50, and plus versus 65 and plus so if you take all of those things into account.
Dean Lee: We look forward to the opportunity to help impact patients and support the identification of more patients at risk. Additional data from Keynote 564 demonstrating an overall survival benefit were presented at the ASCO-GU conference last week. Detailed findings from Keynote 1-2-3 Evaluating Keytruda for the Adjuvant Treatment of Patients with Localized, Muscle-Invasive, and Locally Advanced Receptable Urethelial Carcinoma Demonstrating a Disease-Free Survival Benefit vs. Observations were also presented at ASCO
Speaker Change: We still see this as a very large opportunity for us.
Speaker Change: It's about an $8 billion market in 'twenty, three we anticipated actually growing to be over $10 billion later in the decade.
And with that being the pediatric segment about is about 70%. So we're looking at 30% of that is what is the adult piece. So you know.
Speaker Change: As we see it this is still a growing market a good market and we remain very confident that would be one six will both have a majority share and be a meaningful contributor.
Speaker Change: Great. Thanks, Mike next question please.
Speaker Change: Next we'll go to the line of Chris Schott from J P. Morgan. Please go ahead.
Chris Schott: Alright, great. Thanks for the question just a bigger picture question on business Development Company has obviously been very active for the past few years and I'm trying to get a sense of just kind of size and stage of assets would you consider just given the current R&D investments, you're making in the the asset because of the amount of.
Dean Lee: Also, in the earlier stage setting, along with our partner Moderna, we announced three-year recurrent free survival and distant metastasis-free survival data for our individualized neoantigen therapy V940 in combination with Keytruda for the adjuvant treatment of stage 3 and 4 melanoma following complete resection. We are encouraged by the durability of the responses observed and the potential for this regimen to impact patients earlier in their The Phase III trials in the adjuvant setting for certain patients with melanoma and non-small cell lung cancer are actively enrolling, and progress continues in Precision On College.
Chris Schott: Couple of you're allocating there. So I guess specifically are deals along the lines of an accelerant or Prometheus still deals that Merck would look at and prioritize or at this point are we should we be thinking about maybe earlier stage.
Chris Schott: Assets that that would be more of a focus thanks so much.
Speaker Change: Yes, Chris Thanks for the question.
Speaker Change: Obviously first I just wanted to reinforce.
Speaker Change: The pride I have in what Dean and the team has been able to do in the meaningful progress, we're making both in our internal pipeline and what we've been able to do through the business development, which as you know I think in some ways.
Speaker Change: Underlying your question, but you know as.
Speaker Change: As we sit here today, well I feel very good about the progress we've made in the growing portfolio the diverse and deep portfolio. We have in our pipeline. We do continue to believe we need more.
Dean Lee: The FDA approval for Guelareg, our HIF-2 alpha inhibitor for the treatment of adults with advanced RCC following a PD-1 or PD-L1 inhibitor and AvegF-TKI marks the first drug approved in a new therapeutic class for eligible patients with advanced renal cell carcinoma in nearly a decade and builds on 2021 Approval for the Treatment of Adults with Certain Von Hippel-Lindau Disease-Associated Additional Phase III Finally, moving to the tissue targeting phase. Together with Astellas and Siegen, now Pfizer, we announce the FDA approval for Keytruda in combination with PASA, a Nectin-4 targeting ADC for the first line treatment of patients with locally advanced or metastatic urothelial cancer based on results from Keytruda A39.
Speaker Change: And we will continue to prioritize business development and I would say that are our views of deals like Prometheus like so long are still the size of the deals we were very interested in if we can find great assets. So clearly that's an area of focus but also continuing to do smaller deals as well what you saw with harpoon. So it's good.
Speaker Change: B a range of deals, but I think because you're working at zero to kind of 15 billion and $1 15 billion. It continues to be where we will look for and then obviously we've also I think shown that not only are we very open to doing acquisition, we see collaboration as an important tool as well very similar to what we did with Daiichi sankyo.
Speaker Change: So we're going to be looking at the full suite.
Dean Lee: These results demonstrated a superior overall survival benefit versus gemcitabine plus cisplatin or carboplatin and extend our pioneering work in combining Keytruda with chemotherapy, as well as reinforcing the value of an ADC to enable targeted delivery of chemotherapy to tumor tissue. Following the announcement of our collaboration with Daiichi Sankyo and Otcoba, we are pleased to receive priority review from the FDA for MK1022, or Petritumab Daruxtecan, our investigation of a fully humanized anti-HER3 ADC for patients with advanced EGFR-mutated non-small cell lung cancer previously treated with two or more systemic therapies. The agency has set a target action date of June 25.
Speaker Change: And including deals that fit those categories.
Speaker Change: Thanks, Chris next question. Please IV next.
Speaker Change: Next we'll go to the line of Andrew Baum from Citi. Please go ahead.
Andrew S. Baum: Thank you I was going to ask you about your expectations for the ACI P recommendation on re vaccination of pregnant vaccinated patients, but I suspect you may not want to share that view. So instead, maybe I could ask you about.
Andrew S. Baum: The first line Trump to actually be non small cell trials that you're running a combination with keytruda.
Andrew S. Baum: The recently published academic data suggests the trick to internalization as a biomarker in patients who are highly resistant to PD. One. So it just seems like an old population to be exploring the drug it assuming that is a real and not a fake signals and I take completely the caveat that its retrospective data.
Andrew S. Baum: <unk> and other settings, but given that it would seem to be more sensible to have a combination with chemo and Barrington on top and can you do this given the profile of the drug in terms of bone marrow suppression.
Dean Lee: Through our agreements with Colu and Daiichi Senko, as well as our own discovery programs, we have established a robust pipeline of tissue-targeting ADCs. The recently announced acquisition of Harpoon Therapeutics provides the opportunity to help complement and strengthen our approach by providing a portfolio of novel T-cell engagement. The most significant of which is HPN-328, an investigational delta-like ligand 3 targeting T-cell engager being evaluated in small cell lung cancer and uroendocrine.
Speaker Change: Yeah. So I'll just answer more broadly in relationship to trop, two ADC and specifically our compound one of the things that that is extremely useful to us as it's adverse effect profile, especially for like lung cancer patients in relationship to lung toxicity.
Speaker Change: Yes.
Speaker Change: Readily manageable, let's say it's quite good.
Speaker Change: <unk> profile.
Speaker Change: In terms of your question about the paper that I think that you talked about about internalization and this I think those are interesting and important papers for us to consider but I think one of the things. That's also important for us to do is to do the clinical experiment and see what the results are.
Dean Lee: A strong, diverse portfolio of immuno-oncology, precision molecular, and tissue targeting agents positions us well to have a profound impact on even more patients long into the future. Next, to our vaccine pipeline. We are making notable advancements with our population-specific vaccine program from Yumo. The FDA has accepted for priority review the new biologics license application for V116, our 21-valent pneumococcal conjugate vaccine. Specifically designed for adults, supported by results from multiple phase 3 clinical trials evaluating V116 in both pneumococcal vaccine-naive and vaccine-experienced adult patient populations. Results from the STRIDE 3 trial were presented at Additional data from STRIDE 3, as well as STRIDE Studies 4, 5, and 6, will be presented at the International Society of Pneumonia and Pneumococcal Disease Congress in March.
Speaker Change: In relationship we are confident that trop, two ADC will have an impact trop two adcs in breast cancer. It has had an impact.
Speaker Change: And we believe that our trop, two ADC, especially with a linker payload will have an important impact in lung cancer and then the question that you have is how do you combine if you combine it with chemo do you combine it with PD one how do you think through that I think those are questions that our clinical team thinks deeply about but we also.
Speaker Change: So think deeply about what line of therapy and also what the standard of care is and if you want to move to first line standard of care is keynote 189 with chemo temporal basis. So one has to think about how one would advance of trop two from different lines all the way to first line. So those.
Speaker Change: Considerations come in.
Speaker Change: Quite heavily.
Speaker Change: Okay.
Speaker Change: Thank you Andrew next question please.
Dean Lee: If approved, as Rob noted, B.1.1.6 would be the first pneumococcal conjugate vaccine specifically designed to address the serotypes responsible for approximately 83% of invasive pneumococcal disease in adults 65 years of age and older, according to CDC data from 2018 to 2021. Additionally, V116 includes 8 unique serotypes which account for 30% of the disease according to the same CDC data. These serotypes are not covered by currently licensed pneumococcal vaccine options.
Speaker Change: Next we'll go to the line of Seamus Fernandez from Guggenheim Securities. Please go ahead.
Seamus Fernandez: Thanks, very much for the questions, so and congrats on the quarter and the guidance can you just talk a little bit about subcutaneous keytruda.
Seamus Fernandez: Do you anticipate payors acceptance of this new delivery modality.
Seamus Fernandez: As well as potential economic benefit to patients.
Seamus Fernandez: Given the shift from part B to part D. I think there could be some benefits from the updated catastrophic cap.
Seamus Fernandez: You know being drivers there, but struggling in the face of potential biosimilars of Keytruda. After 2028 to see how payors would treat that just interested to have a little bit more color on the economic benefits not just the benefits to the patients of a subcutaneous <unk>.
Dean Lee: The FDA has set a target action date of June 7, turning to programs in the cardiometabolic disease type. We are eager to bring Cetatoceptive to patients as an important treatment option for pulmonary arterial hypertension. The FDA has set a target action date of March 26th. Beyond data from the STELLAR trial, we have the Phase III Zenith and Hyperion studies, which are evaluating cetatercept in patients with more advanced disease and those earlier on in their disease journey. In addition, the Phase 2 cadence trial will evaluate WHO Group 2 pulmonary hypertension focused on a type of left heart disease.
Speaker Change: Thanks, so much.
Speaker Change: So this is dean I'll take the first question and then I'll hand, it over to Rob and Caroline because the economic question and the payer is also related to innovation that should provide I just wanted to make sure that our way of thinking about something like a <unk> with highly why nowadays, giving a sub Q is really theres going to be a call.
Robert M. Davis: For that innovation I'll, just emphasize we constantly speak about the earlier stage cancer and right now we have nine approvals and as I've said in relationship to it in the in the prepared remarks.
Dean Lee: As we close out 2020. It is important to highlight our significant progress and execution across therapeutic areas and modalities, as well as multiple business development transactions. In the year, we have more than 25 regulatory approvals in major markets. We also initiated over 20 phase 3 studies across multiple new classes of assets, including in, Acology with Bumadensta, our LSD-1 inhibitor in essential thrombocythemia, Nemtabrutinib, our BTK inhibitor in first-line chronic lymphocytic leukemia, a small lymphocytic lymphoma, MK-2870, our TROPE-2 ADC in collaboration with KALUN in non-small cell lung cancer and endometrial carcinoma, MK-5684, our CYP11A1 inhibitor in collaboration with Orion in metastatic castrate-resistant prostate cancer, and V940 in collaboration with Moderna for the adjuvant treatment of certain types of melanoma and non-small cell lung cancer, also in immunology with Talisa Kibar in ulcerative colitis. Finally, in cardiometabolic disease with multiple trials for MK0616 in hypercholesterolemia.
Speaker Change: All of those approvals two the only two that have checkpoint inhibitors that God bless benefit is keytruda base, which is early lung cancer RCC I actually just came from meeting speaking to a bunch of thoracic oncologists in this and it's quite interesting to hear how they speak for those who are thoracic oncology.
Speaker Change: Two are linked.
Speaker Change: Ah setting with medical oncologists they vary they very clearly understand why keynote 671, perioperative as a category one.
Speaker Change: Situations, where you may have a CPU surgeon outside of a major.
Speaker Change: <unk>.
Speaker Change: <unk> care care plan or a care of her.
Speaker Change: A major medical center, sometimes you have <unk> surgeons moonlighting doing.
Speaker Change: Lobectomy is in this session, but that the keynote 091 and constantly what we hear from the physicians and the provider and many of them are in PE.
Speaker Change: Provider systems.
Speaker Change: All different types is the need to have an alternative way to get the keytruda to them.
Speaker Change: Either Q3, Q six given.
Speaker Change: The regimen, so I just want to emphasize that the sub Q Pembroke plus hyaluronidase is an innovation that is going to be demanded and is being demanded by the field.
Speaker Change: Thanks Gene and two the questions on the economics and I think we've commented on this a little bit in various settings, but.
Speaker Change: So as we think about our strategy for bringing this to the market from a commercial perspective.
Dean Lee: As a result of the increasing depth and breadth of our pipeline, we are planning to initiate an even greater number of Phase III trials in 2024. Considerable credit goes to my colleagues across the organization for their hard work and unwavering dedication. We are executing on our science-led strategy and look forward to providing further updates on our progress throughout the year. Now, I will turn the call back to Peter. Thank you, Dean.
Speaker Change: Our view is the quality of life benefits the springs.
Speaker Change: Does demonstrate.
Speaker Change: Demonstrate and afford us the ability to get a premium price, but we also are very cognizant that any sub to Pembroke will have to be considered in the context of.
Speaker Change: Generic IV version. So you know we will price our sub two to drive for volume and to do for conversion, which means we will be looking at prices really more in line with where you would see the generic version of the premium that the history is shown as very manageable unexpected and covered by.
Peter Dannenbaum: Ivy, we're now ready to take questions. If analysts could please limit themselves to one question today in order to get to as many questioners as possible, we'd appreciate it. Thank you. Ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone keypad. You may withdraw your question at any time by pressing star 2. If you're using a speakerphone, please pick up the handset before pressing the numbers.
Speaker Change: Payers today, when you look at the different delivery forms so.
Speaker Change: That sense, we think we will be able to manage this.
Speaker Change: We'll question of part B versus part D.
Speaker Change: We'll have to see how it plays out as far as the ultimate site of administration, but if it does end up being into the part D category, which is.
Speaker Change: Reasonable chance.
Speaker Change: Correct and that some of the new coverages that are out there in catastrophic and with the cap also then from a patient perspective should.
Speaker Change: Lower the burden they are going to face, which we also think can help with conversion right.
Operator: Once again, if you have a question, you may use Star 1. Our first question will come from Umer Raffat from Evercore ISI. Please go ahead. Hi guys, thanks for taking my question. I know there's a trial due for you guys later this year, a key form 007 trial. That's the LAG-3 with pembrolizumab in colorectal cancer.
Speaker Change: Alright. Thanks Seamus next question please.
Speaker Change: Next we'll go to the line of Geoff Meacham from Bank of America. Please go ahead.
Geoff Meacham: Hey, guys. Good morning, Thanks for the question.
Geoff Meacham: Carolina on margins you highlighted a benefit from Keytruda and Gardasil This year, which I think was expected.
Geoff Meacham: But looking forward is the guidance this year of a reasonable target until the future too low I wasn't sure. If there's other drivers going forward of whether mix could impact margins as well. Thank you.
Umer Raffat: Just curious how you're thinking about the risk profile and the odds of success heading into that, and if there's been any interim OS analysis. Thank you very much. I'll take this.
Carolina: Thank you for the question Geoff So as you will know our company has made great progress in expanding our price and margin over a number of years as we look to 2024, we expect operating margin to improve and that's really driven by the strength of the top line and mix of revenues by the roll off of the royalty.
Dean Lee: Umer, thank you very much for that question. I mean, just to recognize that in MSI high, we have a strong presence with Pembro there. The larger group in CRC or colorectal cancer is in the MSS population.
Carolina: <unk> that we've noted on Keytruda and Gardasil being disciplined in our expenses, while we do invest fully behind our expansive pipeline as we go beyond 2020, full we still points to enough pricing margin of greater than 40 things in 2025.
Dean Lee: At this point, there's not really been any checkpoint inhibitor that's shown dramatic impact in MSS CRC. So our interest in driving Pembro plus LAG-3 in that is to demonstrate that a checkpoint inhibitor could have a meaningful impact in MSS CRC. If we should get a positive signal in that, clearly, we would use that as a beachhead to expand and extend the role of checkpoint inhibitors in MSS CRC, which is a place that requires a lot of more innovation. In terms of specific interim analysis in this, we generally try to keep that; when there's data that's worth sharing, that's when we share it. Thanks. Just real quick, just a quick microphone check. Can you hear us? Yeah, well, you did. No, we can hear you.
Speaker Change: But our focus as a company and as a team is to really ensure that we are fueling the pipeline supporting the portfolio of products that we're launching to drive growth into the long term.
Speaker Change: Thanks, Jeff next question please.
Speaker Change: Next we'll go to the line of Steve Scala from TD Cowen. Please go ahead.
Steve Scala: Well. Thank you I believe the Merck RSV monoclonal antibody phase two slash three study is registrational and reads out this year is that correct and assuming positive how soon could merck beyond the market and how might this product be differentiated from by Fortis.
Steve Scala: It's just a little odd that this could be a billion dollar opportunity not that far off and Merck never talks about it. Thank you.
Unnamed Speaker: Oh, you can? Okay. We were showing that we're muted.
Speaker Change: I really appreciate the question so I will talk about it.
Speaker Change: In relationship to the RSV monoclonal antibody.
Unnamed Speaker: Sorry. Oh, no. You're fine.
Speaker Change: It's for the early birth, it's a it's a antibody it's passive immunization and as for the pediatric population. This is a single shot. This is not weight based and we believe it has a longer season in relationship to two other choices.
Unnamed Speaker: We can hear you loud and clear. All right. Great. Next, we'll go to the line of Trung Nguyen from UBS.
Trung Nguyen: Please go ahead. Morning guys, thanks for taking my question. So for Cetacept, we noticed the Hyperion study primary completion date had now moved to August 26. It was November 29 on clinicaltrials.gov. That's three years earlier.
Speaker Change: And so we think it's an important readout and we're very we're very excited and interested to move on this RSV monoclonal antibody.
Speaker Change: I would also emphasize that the new England Journal of Medicine, just published a series of papers not in RSV, but also in dengue also we're very excited about and we're moving that forward quickly and then more broadly from the IV vaccine.
Dean Lee: Could you just let us know the reason for that change? And, if I can sneak one in, is there a place to transition the test set from inpatient clinic administration to self-testing? Thanks very much. So, let me take the first question. So there are a series of trials in relation to TATRCEP, and so the March date that we talk about is for a potential decision by the FDA for approval based on the STELLAR trial. And we think in the second half of 2024, we may be in a position in relation to the EU. We have other trials, as you point out, especially phase three trials, and they're Zenith and Hyperion. Those two are based on events.
Speaker Change: I've I've said previously that I'm I'm very intrigued to see the results of our NRT Ti there's lots of her and our other NR.
Speaker Change: And our T T I MK eight 527, so that will also be coming out this year, we'll be able to see those so it is the RSV is the Danny that was just out there and it is the HIV data that we're going to be very interested in seeing across this year.
Speaker Change: Steve just maybe from a commercial perspective build on the question from a launch timing perspective, our expectation is that we would be in the market in 2025, and obviously, we're working to be ready for that for that season in 2025, and then from a differentiator for US you know recall that.
Dean Lee: So it's a tracking of events that sort of define when those happen. So Zenith, I think, is now like September 2025, and Hyperion, August 2026. So that's just an event-driven timeline.
Speaker Change: Our coverage covers what is before prevention season for RSV, which is five to six months, where a single fixed dose not a weight based administered.
Administered shots so for us.
Steve Scala: Those are all very important things and the last thing I noticed the site of action for US is really we think has low risk of development of resistance and is different than the competition. So we actually are very bullish on this I think we don't talk about it frankly, because we have so many other good things to talk about it it's sometimes good cost there.
Dean Lee: In relation to how best to treat patients, well, we're in conversations with the FDA about where the best place for patients to be treated. But I just want to highlight that we have an image of an autonomous injector moving very fast through our pipeline. So that might give you a sense of where we think this may end up. Wright.
Steve Scala: Does that mean, we're not excited about this <unk> dengue, which frankly I still believe it's a little bit obviously later than this but could be huge for us. So those are the things. We're excited about this just reinforces the breadth of the portfolio we have.
Steve Scala: Thank you Steve next question. Please Avi.
Steve Scala: Next we'll go to the line of Christian <unk> from Goldman Sachs. Please go ahead.
Christian: Thank you if I could ask about immunology.
Christian: Essentially a reentry into that realm with Prometheus acquisition. If you could just update us on what we should be expecting to learn and also would you find interesting perhaps dean to further build out on the immunology platform specifically.
Daina Graybosch: Thank you. Next question, please, Avi. Next, we'll go to the line of Daina Graybosch from Le Ring Partners. Please go ahead. Hi, thank you for the question. I have one on oncology for one of the new assets going into phase 3, the Orion MK5684. I wonder if you could talk more about that asset and what gives you confidence that it will demonstrate broad benefit in prostate cancer in addition to patients with the ARLBD mutations, and can you confirm the stat design of the two Omaha studies will prioritize a hierarchy to statistically look at the mutation segment first? Yeah, so just so that everyone is looking at this asset in the same way, there have been critical medicines that ablate androgen-fueled growth in prostate cancer. And the interest in this CYP11A1 is that it's very high upstream.
Christian: The Clinton Trump Dot Gov has the phase two maintenance data in UC is enrolling should we expect to hear from you on results. There I did not observe something there on crohn's disease, what's the update on that program and then in immunology further.
Christian: It appeared from the started the year a lot of excitement about different modalities cell therapies in particular.
Christian: Advanced treatments.
Christian: With us some views on where you think immunology could go to take Merck could be relevant presence in the 2030 is thinking.
Christian: Great.
Speaker Change: A great question and an expansive question. So let me just hit in relationship to the <unk> antibody. We have are all set of colitis trial moving forward and that's been lifted and that's moving forward I think probably the.
Speaker Change: The really important thing for me that I lookout is getting the crohn's disease.
Speaker Change: Ah trial moving the reason I think it's really important as I'll remind myself that tier one a is in the Super TNF family.
Speaker Change: But tier one they may be different than than run of the mill TNF and its ability to not just dampen inflammation, but affect fibrosis, so going from ulcerative colitis crohn's disease, Crohns disease has lots of structures and that'll be important and it'll be also important to look and follow I follow our data in <unk>.
Dean Lee: And we think that it could be an important contribution. Clearly, we're in, as you point out, we're interested both broadly but especially in the specific mutation patients. And so we will be advancing those trials to look at that subpopulation as well as more broad populations. In terms of the statistical sort of analysis and that, that's something that I think, you know, probably would be best sort of discussed with our clinical teams at a different time. Thank you, Daina. Next question, please. Next, we'll go to Carter Gould from Barclays.
Speaker Change: In relationship to our lung disease and scleroderma. So that's with that I would also emphasize that there are other assets within the partnership or acquisition that we did with Prometheus and those compounds, which had already been discussed previously are advancing through the pipeline as well.
Speaker Change: And then the the the other question that you have is are we interested in other platforms and moving forward. The answer is absolutely yes.
Speaker Change: I think you had a question in terms of cell therapy with immunology I think there was interesting data there, but as you know we've when we've looked at cell therapy in relationship to cancer, especially not in <unk>, but in solid we've been a little bit probably more exploratory and right now our view of cell therapy in immuno.
Speaker Change: <unk> is one that might be.
Speaker Change: More similar to our view of cell therapy in solid tumor a little bit more exploratory.
Carter Gould: Please go ahead. Thank you very much for taking the question. Good morning.
Speaker Change: Thank you Chris I think we have time for one more question. Please.
Speaker Change: And for our final question will go to the line of Louise Chen from Cantor Fitzgerald. Please go ahead hi.
Louise Chen: Hi, Thanks for taking my question I just wanted to ask you on your ADC platform. If you feel that what you have is enough for now or do you want to expand or add on to it and any interest in radiopharmaceuticals. Thank you.
Dean Lee: Maybe following up on the commentary on V116, you talked about the potential to reach a majority market share. What does that sort of imply around the potential ASIP recommendation or the potential for a catch-up opportunity in the adult segment? So, yeah, so I'll just, you know, so again, we're talking about V116, we're talking about FDA potential action in June 2024, followed by ACIP, followed by MMWR. I think it's in March that we're going to be presenting Stride 3 and 6, and I think the data will be out there. And as you'll see in that, between Stride 3 and throughout Stride 3 all the way to 6, you'll see data in relationship to vaccination of those who are naive versus those who are previously vaccinated. And you will see data in the patient population or the population that's 65, but also in the 50 plus as well. And that data is digested both by the FDA and, probably, very importantly by the ACIP. I think those data will guide how the ACIP makes its decision. Great. Anything else?
Speaker Change: Thank you very much for that question. So when we think about tissue targeting we think of Adcs and the answer is I think the ADC fields will continue to develop and I think.
Speaker Change: There'll be other payloads other linked groups, but also the specificity by which you.
Speaker Change: Do the tissue targeting in relationship to the antibody may change. There's also clearly evidence of potential movements into peptide drug conjugates that we're interested in as well as the possibility that the payload is no longer chemotherapy based but other sort of compound. So we're interested in that and tissue targeting more.
Speaker Change: Broadly we are interested and so we view that as okay. That's how we're going to move sort of toxic cell chemotherapy agents into tissue targeting sort of skiing, making chemotherapy precision medicine, but we also are very interested in the I O space in relationship to tissue targeting and that is our <unk>.
Speaker Change: Foray and that has really helped by our our proposed acquisition with Harpoon that has a very interesting asset in relationship to tissue targeting an engaged yours Greg.
Dean Lee: OK, next question, please. Next, we'll go to the line of Evan Segerman from BMO Capital Markets. Please go ahead.
Speaker Change: Great.
Greg: Thank you Luis and thank you all for the really good questions and I. Appreciate you sticking to mostly one question, we got to a lot of questioners. So appreciate that do you have any follow ups. Please reach out to IR will be seeing you soon thank you.
Evan Segerman: Hi guys, thank you so much for taking my question. I was wondering if you could expand on some of the nuances of your guidance. Specifically, do you include meaningful revenues from SATA, ADERCEPT, or B.1.1.6, assuming their approval at some point this year? Thank you for the question, Ev, and this is Caroline.
Speaker Change: Thank you all for participating in the <unk> Company Q4 sales and earnings Conference call that concludes today's conference. Please disconnect at this time and have a great rest of your day.
Caroline Litchfield: As we've guided for 2024, we're very confident in the underlying momentum in our business across oncology, across vaccines, and across animal health. We also are very excited about the potential launches for Cetatocept and B.1.1.6. For Cetatocept, given the significant clinical data we have and the understanding that there are many patients that have already been identified who can benefit from Cetatocept on top of the treatments they have, we are expecting a strong launch. For B.1.1.6, as Dean just outlined, we'll wait for FDA approval, and the ACIP recommendation. We'll then expect MMWR to publish and therefore expect to have impact with B.1.1.6 coming towards the end of this year. Great. Thanks.
Dean Lee: Do you combine it with chemo? Do you combine it with PD-1? How do you think about that?
Dean Lee: I think those are, you know, questions that our clinical team thinks deeply about, but we also think deeply about what line of therapy and also what the standard of care is. And if you want to move to first line, the standard of care is KENOTE-189 with a chemo pembrbrol basis. So one has to think about how one would advance a TROPE2 from different lines all the way to first line.
Caroline Litchfield: Next question, please, Ivy. Next, we'll go to the line of Terence Flynn from Morgan Stanley. Please go ahead.
Dean Lee: So those considerations come in quite heavily. Thank you, Andrew. Next question, please, Ivy. Next, we'll go to the line of Seamus Fernandez from Guggenheim Securities. Please go ahead.
Terence Flynn: Great. Thanks so much for taking the question. A competitor recently reported some disappointing data with their TROPE2 ADC and later line lung. I recognize, you know, these TROPE2s are all different given the technology, the linkers, but does this impact at all your development strategy for your TROPE2 and lung or perhaps increase the need for a biomarker strategy here? Thank you. Yeah, this is Dean.
Seamus Fernandez: Thanks very much for the question. So, and congratulations on the quarter and the guidance. Can you just talk a little bit about subcutaneous Keytruda, how you anticipate payers' acceptance of this new delivery modality, as well as potential economic benefits to patients given the shift from Part B to Part D? I think there could be some benefits from the updated catastrophic cap, you know, being drivers there, but struggling in the face of potential biosimilars of Keytruda after 2028 to see how payers would treat this. Just interested to have a little bit more color on the economic benefits, not just the benefits to the patients of subcutaneous Keytruda. Thanks so much. So this is Dean.
Dean Lee: Thanks for that question. So I'll just step back. And I think I've said this previously, especially in the long term, it's very important to understand what the standard of care is, and that one would have to beat it in a significant way. And the standard of care, in our minds, in the late stage is roughly keynote 189. And now in the earlier stage, it's clearly in keynote 671, both with clear OS data.
Dean Lee: I'll take a first question and then I'll hand it over to Rob and Caroline because the economic question and the payer are also related to the innovation that you provide. I just want to make sure that our way of thinking about something like Pembro with hyaluronidase giving it sub-Q is really going to be a call for that innovation. I'll just emphasize we constantly speak about earlier stage cancer, and right now, we have nine approvals, and as I've said in relation to the imperative mark, you know, of those approvals, the only two that have checkpoint inhibitors that are of less benefit are Keytruda base, which is for early lung cancer, and RCC. I actually just came from a meeting speaking to a bunch of thoracic oncologists about this, and it's quite interesting to hear how they speak for those who are thoracic oncologists who are linked to a setting with medical oncologists. They very clearly understand why Keynote 671 perioperative is Category 1. In situations where you may have a CT surgeon outside of a major care plan or a major medical center, sometimes you have CT surgeons moonlighting doing lobectomies and the such, and for that, the Keynote 091.
Dean Lee: What we have said previously is that we are unclear that any one ADC can have as broad of an impact as keynote 189 or 671, and that in order for an ADC to have a substantial advantage in those patient populations, one may need to focus on a biomarker-selected patient population. And so the data that we saw does not change our way of thinking.
Dean Lee: It's the way of thinking that we discussed previously. And I would just add that it's really important. There is data out there where people are doing retrospective biomarker data and this. For us to demonstrate true efficacy in any patient population, we need a biomarker strategy that is prospective and one that can be easily actionable throughout the world. Thanks.
Terence Flynn: Thank you, Terence. Next question, please, Ivy. Next, we'll go to the line of Tim Anderson from Wolfe Research. Please go ahead. Hi. Thank you for taking our question. This is Adam on behalf of Tim.
Dean Lee: And constantly, what we hear from physicians and providers, and many of them are in provider systems of all different types, is the need to have an alternative way to get Keytruda to them, either Q3, Q6, given the regimen. So I just want to emphasize that the sub-Q pembro plus hyaluronidase is an innovation that is going to be demanded and is being demanded by the field. Yeah, thanks, Dean.
Adam: On Gardasil, a two-dose regimen was recently approved in China, and we're wondering if that poses a revenue problem. Potentially, it doesn't if it just means that more supply gets spread out across more people and Merck ends up selling just as many doses in total. Can Merck share its perspective here? Adam, thanks for the question. So there's actually been Chinese competitors with an offering for some time in the Chinese market. And that market is large. And we continue to believe in the eligible cohorts, and just the urban females, which are the tier one to tier three cities, are about 200 million, a little over 200 million women. And so of that, we think probably about 30% have actually received the vaccination. So you're still looking at 120, 130 million eligible population.
Robert M. Davis: And to the questions on the economics, and I think we've commented on this a little bit in various settings. But, you know, as we think about our strategy for bringing this to the market from a commercial perspective, our view is that the quality of life benefits this brings do demonstrate and afford us the ability to get a premium price. But we also are very cognizant that any subcompensated Imbro will have to be considered in the context of a generic IV version. So, you know, we will price our sub-Q to drive for volume and to encourage conversion, which means we will be looking at prices really more in line with where you would see the generic version at a premium that history has shown is very manageable and expected and covered by payers today when you look at the different delivery forms. So, you know, in that sense, we think we will be able to manage this. The whole question of Part B versus Part D, we'll have to see how it plays out as far as the ultimate administration side is concerned.
Robert M. Davis: As we look at this, and as we've seen over time, we continue to be very competitive. We maintain a vast majority share in the private market. And really, you're seeing most of the local competitors go to the lower tier cities and to a different population than we've been targeting.
Robert M. Davis: But if it does end up being in the Part D category, which is a reasonable chance, you are correct in that some of the new coverages that are out there and catastrophic and with the cap, also then from a patient perspective, should, you know, lower the burden they're going to face, which we also think could help with conversion. All right, thanks, Seamus. Next question, please. Next, we'll go to the line of Geoff Meacham from Bank of America. Please go ahead.
Robert M. Davis: So that does not change our view of the growth potential in China. Long term, obviously, we will continue to face competition there, and we are positioning ourselves to continue to succeed there. But the approval you're talking about is not changing our view.
Geoff Meacham: Hey guys, good morning. Thanks for the question. Caroline, on margins, you highlighted a benefit from Keytruda and Gardasil this year, which I think was expected, but looking forward, is the guidance this year a reasonable target until the Keytruda LOE? I wasn't sure if there were other drivers going forward or whether mixed results could impact margins as well.
Caroline Litchfield: The only add, if I may, is we have a significant opportunity to protect further females in China. At the end of 2023, we also submitted our data on Gardasil for males to the regulatory authorities. So we're hopeful to introduce that in the Chinese market in the future. Great. Thanks, Adam. Next question, please. Next we'll go to the line of Mohit Bansal from Wells Fargo. Please go ahead.
Caroline Litchfield: Thank you. Thank you for the question, Geoff. So, as you all know, our company has made great progress in expanding operating margin over a number of years. As we look to 2024, we expect operating margin to improve. And that's really driven by the strength of the top line and mix of revenue, by the roll-off of royalties that we've noted on Keytruda and Gardasil, being disciplined in our expenses, while we do invest fully behind our expansive pipeline. As we go beyond 2024, we still point to an operating margin of greater than 40% in 2025.
Mohit Bansal: Great. Thank you very much for taking my question and congrats on the progress. Maybe one question on V116 as well.
Robert M. Davis: So Pfizer has recently made comments around the adult market shrinking at this point. So could you comment on how you see the peak opportunity for V116 in the context of the adult market shrinking and then you taking share from a shrinking market? Thank you. Yeah, I'll start and then Caroline can jump in as well.
Caroline Litchfield: But our focus as a company and as a team is to really ensure that we are fueling the pipeline, supporting the portfolio of products that we're launching to drive growth into the long term. Great. Thanks, Geoff. Next question, please. Next, we'll go to the line of Steve Scala from TD Cowan.
Robert M. Davis: But, you know, as you look at the market size and the comments, I don't want to speak to comments that others have made. I think it's also important to understand that as we bring a vaccine, which brings significant incremental coverage at 83%, versus if you look at PCV 20, just as an example, it's closer to 50%. So you're looking at significant incremental coverage, which I think can have an impact on how you think both about catch-up to cover the diseases, as Dean noted in his prepared comments. You know, we have eight serotypes covering 30% of what is causing the disease, which is unique to us. So we think that that will have implications both in terms of catch-up, as well as potentially being able to go for patients 50 and plus versus 65 and plus So if you take all those things into account, we still see this as a very large opportunity for us. In our view, it's about an $8 billion market in 23, and we anticipate it actually growing to be over 10 billion later in the decade. And with that being said, the pediatric segment of that is about 70%.
Steve Scala: I believe the Merck RSV monoclonal antibody phase two slash three study is registrational and reads out this year. Is that correct? And, assuming positive, how soon could Merck be on the market? And how might this product be differentiated from by Fortis?
Dean Lee: It's just a little odd that this could be a billion-dollar opportunity, not that far off, and Merck never talks about it. Thank you. I really appreciate the question, so I will talk about it. In relation to the RSV monoclonal antibody, it's for early birth. It's an antibody, it's passive immunization, and it's for the pediatric population. This is a single shot. This is not weight-based, and we believe it has a longer season in relationship to other choices.
Dean Lee: And so we think it's an important readout, and we're very excited and interested to move on this RSV monoclonal antibody. I would also emphasize that the New England Journal of Medicine just published a series of papers, not in RSV, but also in dengue, that we're also very excited about, and we're moving that forward quickly. And then more broadly on the ID vaccine, you know, I've said previously that I'm very intrigued to see the results of our NRTTI Islachever and our other NRTTI MK8527. So that will also be coming out this year; we'll be able to see those.
Robert M. Davis: So we're looking at 30% of that to be the adult piece. So, you know, as we see it, this is a still growing market, a good market, and we remain very confident that B116 will both have a majority share and be a meaningful contributor. Great. Thanks, Mo. Next question, please. Next we'll go to the line of Chris Schott from J.P. Morgan.
Dean Lee: So it is the RSV, it is the dengue that was just out there, and it is the HIV data that we're going to be very interested in seeing this year. Yeah, and Steve, just to maybe from a commercial perspective build on the question, from a launch timing perspective, our expectation is that we would be in the market in 2025, and obviously, we're working to be ready for that season in 2025. And then, you know, a differentiator for us, you know, recall that our coverage covers what is the full prevention season for RSV, which is five to six months, or a single fixed dose, not a weight-based administered shot.
Chris Schott: Please go ahead. Great, thanks for the question. Just a bigger picture question on business development.
Robert M. Davis: The company's obviously been very active in the past few years, and I'm just trying to get a sense of the kind of size and stage of assets that you consider, just given the current R&D investments you're making and the amount of capital you're allocating there. So I guess specifically, are deals along the lines of an Acceleron or a Prometheus still deals that Merck would look at and prioritize? Or, at this point, should we be thinking about maybe earlier stage assets that would be more of the focus? Thanks so much.
Robert M. Davis: So for us, those are all very important things. And the last thing I note is that the side of action for us really, we think, has a low risk of developing resistance and is different than the competition. So we actually are very bullish on this. I think we don't talk about it enough, frankly, because we have so many other good things to talk about, it sometimes gets lost.
Robert M. Davis: But that doesn't mean we're not excited about this, and or dengue, which frankly, I still believe dengue is a little bit, obviously, later than this, but huge for us. So those are things we're excited about. It just reinforces the breadth of the portfolio we have. Thank you, Steve. Next question, please, Ivy. Next, we'll go to the line of Chris Shibutani from Goldman Sachs
Chris Schott: Please go ahead. Thank you. If I could ask about immunology, essentially a re-entry into that realm with the Prometheus acquisition, if you could just update us on what we should be expecting to learn and also what you find interesting, perhaps, Dean, to further build out on the immunology platform. For example, the clintrials.gov site has the phase two maintenance data that UC is enrolling. Should we expect to hear from you on results there? I did not observe anything there about Crohn's disease. What's the update on that program?
Robert M. Davis: Chris, thanks for the question. You know, obviously, first, I just want to reinforce the pride I have in what Dean and the team have been able to do and the meaningful progress we're making both in our internal pipeline and what we've been able to do through business development, which is, you know, in some ways, in a weird way, underlying your question. But, you know, as we sit here today, while I feel very good about the progress we've made and the growing portfolio, the diverse and deep portfolio we have in our pipeline, we do continue to believe we need more, and we will continue to prioritize business development. And I would say that our views on deals like Prometheus, like Acceleron, are still the size of deals we are very interested in if we can find great assets. So, clearly, that's an area of focus, but also continuing to do smaller deals as well, like what you saw with Harpoon. So, there's going to be a range of deals.
Dean Lee: And then in immunology further. It appeared from the start of the year that there was a lot of excitement about different modalities, cell therapies in particular, oral advanced treatments. Share with us some views on where you think immunology could go to take Merck to be a relevant presence in the 2030s. Thank you. Chris. That's a great question and an expansive question.
Dean Lee: So let me just hit on the T01A antibody. We have our ulcerative colitis trial moving forward, and that's been approved, and that's moving forward. I think probably the really important thing for me that I should look out for is getting the Crohn's disease trial moving. The reason I think it's really important is I should remind myself that T01A is in the super TNF family, but it may be different than run-of-the-mill TNF in its ability to not just dampen inflammation but affect fibrosis. So going from ulcerative colitis to Crohn's disease, Crohn's disease has lots of strictures.
Robert M. Davis: But I think as you look in that zero to kind of $15 billion, $1 to $15 billion, it continues to be where we will look for. And then, obviously, you know, we've also, I think, shown that not only are we very open to doing acquisitions, but we see collaboration as an important tool as well, very similar to what we did with Daiichi Senkyou. So, we're going to be looking at the full suite and including deals that fit those categories. Great, thanks Chris. Next question, please Ivy. Next, we'll go to the line of Andrew Baum from Citi.
Dean Lee: That'll be important. And it'll also be important to look at and follow. I will follow our data in T01A in relationship to lung disease and scleroderma.
Dean Lee: So that's with that. I would also emphasize that there are other assets within the partnership or acquisition that we did with Prometheus, and those compounds, which have already been discussed previously, are advancing through the pipeline as well. And then the other question that you have is, are we interested in other platforms and moving forward? The answer is absolutely yes. I think you had a question in terms of cell therapy and immunology. I think there is interesting data there.
Andrew S. Baum: Please go ahead. Thank you. I was going to ask you about your expectations for the ACIP recommendation on revaccination of prevenal vaccinated patients, but I suspect you may not want to share that view. So instead, maybe I could ask you about the first line TROP2-SKB non-small cell trial that you're running in combination with Keytruda. Some recently published academic data suggest that TROP2 internalization is a biomarker in patients who are primarily resistant to PD1.
Dean Lee: But as you know, when we've looked at cell therapy in relationship to cancer, especially not in heme but in solid tumors, we've been a little bit more exploratory. And right now, our view of cell therapy in immunology is one that might be more similar to our view of cell therapy in solid tumors, a little bit more exploratory. Great. Thank you, Chris.
Chris Schott: Ivan, we have time for one more question, please. And for our final question, we'll go to the line of Louise Chen from Cantor Fitzgerald. Please go ahead.
Dean Lee: So it just seems like an odd population to be exploring the drug and assuming that it is a real and not a fake signal. And I completely take the caveat that it's retrospective data analysis in other settings, but given that it would seem to be more sensible to have a combination with chemo and layering it on top. And can you do this given the profile of the drug in terms of bone marrow suppression?
Louise Chen: Hi, thanks for taking my question. I just wanted to ask you about your ADC platform, if you feel that what you have is enough for now, or do you want to expand or add on to it, and whether you have any interest in radiopharmaceuticals? Thank you. Thank you very much for that question. So when we think about tissue targeting, we think of ADCs. And the answer is that I think the ADC fields will continue to develop.
Dean Lee: And I think there will be other payloads, other linkers, but also the specificity by which you do the tissue targeting in relationship to the antibody may change. There's also clearly evidence of potential movements into peptide drug conjugates that we're interested in, as well as the possibility that the payload is no longer chemotherapy-based but some other sort of compound. So we're interested in that. In tissue targeting more broadly, we are interested in, so we view that as, okay, that's how we're going to move sort of toxic cell chemotherapy agents into a tissue targeting sort of scheme, making chemotherapy precision medicine. But we also are very interested in the IO space in relation to tissue targeting, and that is our foray, and that is really helped by our proposed acquisition with Harpoon, which has a very interesting asset in relation to tissue targeting and immune engagement.
Dean Lee: Yeah, so I'll just answer more broadly in relation to TROP2 as an ADC and specifically our compound. One of the things that is extremely useful to us is its adverse effect profile, especially for lung cancer patients in relation to lung toxicity, which is readily manageable.
Dean Lee: It's quite a good profile. In terms of your question about the paper that I think that you talked about, about internalization and this, I think those are interesting and important papers for us to consider. But I think one of the things that's also important for us to do is to do the clinical experiment and see what the results are in relation. We are confident that TROPE2-ADC will have an impact because TROPE2-ADCs and breast cancer have had an impact. And we believe that our TROPE2-ADC, especially with the linker payload, will have an important impact on lung cancer. And then the question that you have is, how do you combine it?
Dean Lee: Great. Thank you, Louise. And thank you all for the really good questions and appreciate you sticking to mostly one question. We got to a lot of questioners, so I appreciate that. If you have any followers, please reach out to IR.
Peter Dannenbaum: We'll be seeing you soon. Thank you. Thank you all for participating in the Merck & Company Q4 Sales & Earnings Conference Call. That concludes today's conference. Please disconnect at this time and have a great rest of your day.