Merck & Co., Inc. (MRK) Earnings Call Transcript & Summary

Okay, great. I think we're at time here. Good morning, everyone. My name is Trung Huynh. I'm the large-cap pharma analyst here at UBS. It's my pleasure to welcome today, Jannie Oosthuizen, I think that's how you pronounce it, President of Human Health of the U.S.; and also Joerg Koglin, SVP of Clinical Research at Merck. Gentlemen, thanks very much for coming to the West Coast.

Thank you.

Thank you for having us.

I do have one point of admin for the audience. If you do have any questions, you should have an app. Please go into that app, type in your question, and I'll ask that question on behalf of yourself.

With that said, we've just got off 3Q results. I guess, can you just summarize how you think it's gone for the year and perhaps share, both of you, your highlights of what's happened so far?

Right. Yes, thank you. Well, thank you for having us. Yes, we feel really good about 2024 in general. When you look at quarter 3, we had a strong quarter. We came in at about $16.7 billion. That was 7% growth year-over-year for the Human Health business -- or for Merck overall, Human Health grew 8%. Animal Health had an 11% growth, so really strong performance across the business. Within that, really, our growth drivers continue to perform well in terms of oncology, both KEYTRUDA as we expand into new indications still as well as WELIREG with the expansion into advanced RCC. We've really seen a good uptake of WELIREG in the renal cell space as well. Beyond that, our launches, we believe have gone really well. We launched WINREVAIR in PAH in April of this year. And WINREVAIR is performing really well, very much in line with our high expectations as we enter into that rare disease. And another important launch was CAPVAXIVE, which we launched in July after the FDA and the ACIP recommendation came through, FDA approval, ACIP recommendation. It's still early days for CAPVAXIVE. It's a small start this year. Most of the CAPVAXIVE uptake will come in 2025 but it's critical that we start in a strong way, and we just recently had an expanded recommendation from ACIP in terms of the age base being lowered to 50-plus for pneumococcal vaccination in adults. So really, two solid launches kicking off in 2024. And then also in the third quarter, we had a significant contribution from LAGEVRIO, especially in some of our Asian markets, but also in the United States, where in line with the season, what we saw this year, we had a strong contribution from LAGEVRIO as well. So all in all, a strong quarter 3. It allowed us to narrow our outlook, our guidance for the full year. We have a leveraged P&L in 2024, and we look at continued strong growth into 2025 as well.

Okay, excellent. And Joerg, any highlights from you so far in the pipeline?

So 2024 was the year where we got sotatercept approved in the U.S. and in the EU. I think getting sotatercept approved based on the STELLAR results was not a surprise. I think we very much like the label that is very broad, that I think is well aligned with the STELLAR data and then showed that regulators thought about the data in a similar way that we are. 2024 was also a year where we really got started in late-stage development in immunology. We were able to kick off our IBD clinical trial work in Phase III for TL1A, our TL1A agent, tulisokibart that came out of an acquisition of Prometheus. It is a year where we are advancing our glucagon and GLP-1 asset, 6024, that we target from ASH in Phase IIb. And we go into 2025 with a number of major data readouts. We'll learn about the first lipid results for our oral PCSK9 in Phase III, that will come next year. Next year, we hope to expand what we can learn about sotatercept. There is a study called ZENITH, which is a real mortality study, looking at heart death and PAH-related hospitalization. Such a study has never existed in the PAH field. All the drugs that are out there improve symptoms and disease progression. There is no study out there that ever has shown that any agent really affect overall survival, so the ZENITH study. We'll reach out in September next year, that's the PCD date. But we'll see results about our heart failure asset as of Phase III results. So we take a lot of pipeline momentum from '24 into 2025.

Yes, if I could just add. We talked about the commercial performance. The clinical development performance have been robust as well. And in fact, if you look at our Phase III pipeline over the last 3.5 years, we've more than tripled the assets now sitting in the Phase III pipeline to the extent that in the next 5 years, we have the opportunity to launch as many products as we did at Merck in the last 10 years, right? So MRL and the work that Joerg and the team do is doing is really serving us exceptionally well. And we've got great visibility into the next decade and beyond of what the opportunities might look like.

Excellent, good. We'll certainly kick the tires on those pipeline assets in the second half. For the first half of this talk, I just want to -- given that you're here, it's not often we get to speak to commercial leads within the U.S. We've had the election. Trump is going to be the next President of the country. He looks like he's going to be a very powerful President as well. Historically, he has gone after drug pricing within pharma. However, this time around in the buildup to the election, it doesn't look like there's been as much focus. He's been perhaps more slanted towards tax or the economy or immigration. Perhaps, can I just get your thoughts on a potential Trump presidency impact to health care, impact to Merck potentially?

No, exactly. I think what you said is exactly our reflection in leading up to the election. We obviously continue to be close observers of who's being appointed, what's potentially going to happen. And needless to say, we will continue to engage across the spectrum, right, with the decision-makers and policymakers. We've always done that regardless of who is in the administration, but it's also the power of Congress, right? And also in the United States, the power of local governments and states, right? So we have to engage at all levels and with all decision-makers. And that's certainly something we'll continue to do, but keep that constructive engagement so that we can either keep good policy in place or continue to work to get better policies in place moving forward. But we'll be definitely very close, and I know this engagement with the transition teams to start to get an understanding of what's potentially in the works.

Excellent. And on drug pricing, IRA. IRA is coming next year. January 1, I think, is going to be the redesign, that you're going to lose the donut hole. You're perhaps going to pay a lot more in the catastrophic cover. How are you thinking about this impact? Have you quantified any?

Yes. I think right now, I think we're starting to really have good visibility of what's coming, and we are able to plan for that as we move into '25 with the contribution towards the catastrophic, as you say, getting rid of the donut hole. We believe that aspect is really good for patients, right? And we would have preferred the government to go further than the $2,000 out-of-pocket cap. But I think that's a good start, and we are really supportive of that element in the redesign. So that's planned for in our numbers, no surprises there. And again, we hope that patients will be able to get on the prescriptions and stay on their prescriptions more so moving forward than what has been the case in the past.

So do you expect this push and pull between volume and price? Do you see a volume uptick for some of your products because they're paying less?

Yes. I mean, we obviously think through that as an opportunity. We don't have a massive exposure in Med D. We're definitely not disproportionate versus our peers. But you have to believe that with the smoothing and patients not facing the donut hole or the out-of-pocket in the past, that this should facilitate an easier ability to get on product and stay on product, right? So definitely, we think that compliance with therapies should be a positive impact moving forward.

Excellent, okay. If we look down the P&L in the U.S., if you look at consensus, is there any assets that you think is really underappreciated by investors?

Yes. I don't know if it's underappreciated. I think we're pretty much -- we feel good about where we are versus how we're also meeting the Street expectations. So I don't think right now there's anything that we feel is highly unappreciated in terms of what we're working on today. I think pipeline continues to be a different discussion, right? So I think as we learn more and the engagement with MRL, I think that's probably where the conversation is, is the pipeline adequately valued, especially as we look at LOE coming. You've heard Rob speak increasingly that we see this cliff more as a hill moving forward as the pipeline starts to mature. And as I said earlier, we're starting to really see good visibility into the next decade and even beyond of what we have coming through the pipeline in terms of product launches to continue to offset some of the losses that we might see. So I think that's probably an area where we need to continue to engage on valuing the pipeline adequately.

Okay, excellent. And on GARDASIL, is there anything you can say? I know you look at the U.S., but ex U.S., I think investors were very happy to see some of the clarity that you provided on the 3Q call. Where are we now? How has that developed since a month ago?

Yes, there's 2 things, right? So the one you saw in quarter 3, we did have on $2.3 billion of sales, about a 10% decline on GARDASIL year-over-year. That was driven by China, some of the lower-than-anticipated shipments into China with our partner, Zhifei. There's been a lot of focus on that. I think we have a good grip on and understanding of what's the situation with inventory at POVs, CDC and with our partner, Zhifei in China and working hard with Joe Romanelli and the team to continue to find a way forward to get vaccinations back up to the level that we think is needed. So the promotion and educational effort has really been stepped up significantly between MSD, China, and our partner, Zhifei. But I think what we shouldn't lose focus of is how we continue to go after the opportunity in other markets. And in quarter 3, we see -- we saw significant growth with GARDASIL in almost every region outside of China. The EU, Latin America, Asia Pacific, EMEA as well as the United States, we had high double-digit growth. And that really is driven by, if you look at today, only about 10% of patients are vaccinated throughout the world, right? There are, no doubt, countries where there's higher rates. But if you look at the average, only about 10% of people have been vaccinated. So we know there's still a huge opportunity to vaccinate eligible people around the world. So we continue to pursue that, so that would be eventually an expansion into low-, middle-income countries. So we continue to work on that opportunity. And then in the more developed markets, the United States as well as Europe, we're looking at the mid adult population. And there's still a very legitimate reason to vaccinate beyond the age of 26, with 50% of infections happening fairly late in life beyond the age of 25, 26. So still a lot of protection that we provide for that population. That's mostly a private market or an out-of-pocket market. That's what we've seen in China as well with the female opportunity. So that's an area where we continue to make progress. And then I will just say in China, moving forward, we will add the male indication in China, which we haven't had up until today. So you think about gender-neutral vaccination or the male indication, that continues to be an opportunity in a lot of markets, including China, specifically, where we will get that in 2025, right? So there's still opportunity to grow in that segment in China. So I think GARDASIL, overall, still a lot of opportunity and still a lot of good that we will continue to do as this vaccine is just immense in the value that it brings to society.

Can I ask you what gives you the confidence in getting males to get vaccinated? For me, beyond talking to Merck and being in this industry, it never really occurred to me to get vaccinated. So...

I don't think we're naive that it's probably -- it's going to be a harder lift, right, than what we've seen to date with adolescents, definitely. And in the United States, we've vaccinated adolescent males at a 75% vaccination rate now. Females are sitting at 78%, right? So we know that over time, we make significant progress on male vaccinations. So we can get there. But if you look at the United States today, the incidence of HPV-related oropharyngeal carcinoma or squamous cell carcinoma is higher in males than females. It's about 2.8x -- 2.7x, 2.8x, what it is in females. And the mortality associated with males is at that same level, 2.7x higher than in females, right? So you just look at the incidents and what that means for the male population, it is a significant impact. It's higher than cervical cancer. So I think we need to educate and get action behind that. And I think it's possible, right? So we will put the resources there and make sure that we activate the systems to be ready to provide this vaccine to males as well. And in countries like Korea, we're learning a lot from Korea, where we've been able to move the needle quite a bit. How do we transfer that to other markets? So just learning from places where we have been successful in doing that.

Okay. Excellent. And last one on GARDASIL. Next year -- you spoke about visibility that you have, so now you've got more visibility on POV. It seems like you're more aligned with your partner, Zhifei. Next year, we will see, I think, Wantai are going to have an HPV-9 competitor, "generic", coming in. Like what's your expectation how market will evolve as more of these generics...

That's right, yes. And I think that brings me to an important point. I think with China, we always knew that the bolus will start to be worked through in China in terms of the female vaccinations and that we will start to see a slowdown, especially on the female side in China, and that it will shift more volume into the rest of the world. And that's how we get to what we still committed to, the $11 billion by 2030 for GARDASIL. But we've also taken into account the competition that we will have with 9-valent in China. So that's part of the outlook. There's still a lot of people to be vaccinated in China as well, right? So I think there's still ample opportunity. And our differentiated position will be, we will be the vaccine with a male indication, right? So that will be a differentiator in China, and we will have that in '25. And we will definitely pursue to make that as significant as possible.

Let's switch gears to KEYTRUDA. On the call, I think it was mentioned that it's been 10 years on the market.

That's right.

So it's been a great run. The most recent exciting stuff has been the early data, the adjuvant data. How is that investment bearing fruit? So 671, are you starting to see that come through? And is the duration surprising you? Are people staying on KEYTRUDA longer in the adjuvant setting here?

Yes. So I'll start with the last one. As you know, it's a more finite dosing regimen in the early setting, right? So whether it's a perioperative, so presurgery, post-surgery, it's much more finite. We still -- it's still a bit early to determine whether we are seeing exactly what we saw in the clinical trials, but these patients survive much longer than metastatic patients, so there shouldn't be a reason why patients do not continue for longer. It doesn't mean that every patient is going to take it all the way to the end. But we're hopeful that patients will stay the course and get the most benefit from the full regimen, right? To your question whether the early-stage investment is paying off, I would say absolutely. We now have 9 indications registered for KEYTRUDA in the early-stage setting, in 4 indications in lung cancer, renal cell, cervical and triple negative, we have overall survival in the early stage, right, which is really significant. And we're getting close to the early-stage setting being almost 1/4 of KEYTRUDA's volume by this year and next. So really a significant contribution already in absolute volume for KEYTRUDA as well as what it's contributing from a growth perspective, so absolutely. And apart from that, it's a setting in which we give patients the best chance for not just longer survival, but eventually, even -- that's more of a curative setting than the metastatic stage. So really important that we bring these treatments to patients as early as possible. And then the other one is, it's a setting, especially in lung cancer, where we continue to look at how do we just expand diagnosis, right, to make sure that patients are actually diagnosed as early as possible to benefit from these treatments now.

Yes. It's an interesting point. When you get to that metastatic setting, you dominate all the areas. How are you thinking about the growth rate of that going forward?

Yes. I mean the metastatic is still important. Obviously, we have a huge foundation in lung cancer, where we're still getting 8 out of 10 patients, right? So that continues to be a strong support of our growth. But when you look at other significant metastatic indications, bladder cancer is one where we recently launched with A39 in combination with Padcev and really significant change in how potentially the outcomes will come together for patients in that metastatic setting, where the mortality rate is still pretty high prior to KEYTRUDA plus Padcev. Endometrial is another big one where we have 84,000 patients in the United States alone and the mortality rate is still high. So we still have fairly significant metastatic indications coming through as well that will contribute alongside the early-stage indications. So certainly, we're not done with metastatic. KEYTRUDA has been established as a standard of care in multiple metastatic settings, and that will continue to be a strong foundation, adding more metastatic, but then in addition, a good expansion into early stage as well.

And I'd love to get your thoughts on potential data from the Summit data for next year. They're going to give some OS data. Maybe this one for Joerg. From the data that you've seen, what's your thoughts about this and...

Yes. I mean, it's an area that we obviously monitor very closely. We've looked at PD-1 VEGF with our LEAP-007 with KEYTRUDA and Lenvima as well, where we've seen toxicity with that regimen being preventative for the treatment. So it's going to be interesting to see whether the bispecific performs differently from an efficacy and a safety perspective. So we're watching this. Right now with Summit where they started, it's a China-only study. We know that East Asian populations respond differently efficacy-wise as well as safety to this combination, so we have to see how that comes through. The current standard of care, the comparator they use is not the standard of care in that setting. So KEYTRUDA monotherapy is not the standard of care. It's in combination with chemo. So I think there's still a few things that need to shift, but we'll continue to watch that. In terms of impact on KEYTRUDA, we see this to come through very, very late in the KEYTRUDA life cycle. It will probably not be until the time of LOE when potentially they could get in with an indication in the United States. So that, from a timing perspective, we don't see that as a significant threat to KEYTRUDA. But again, if this evolves standard of care for patients, I think it's a good day for patients, right? And Merck will definitely continue to be close to how the science evolves.

Okay, excellent. And then perhaps one more question from my side, and I'm conscious of your time as well when the clock is counting down. But just on WINREVAIR, you touched upon it. This is the big launch. Maybe just give us some thoughts on how that's going. And then there is a competitor next year. There's some Phase II data from a company called Keros here. So they have a slightly different mechanism of action. Potentially, that's thought to spare some of the bleeding issues that you're getting. So just perhaps some thoughts there as well.

Right. So I'll cover where we are from a launch perspective, and maybe Joerg can comment on Keros. But yes, to your point, we launched in April. We've seen some really good penetration into this 40,000 -- PAH is about 40,000 patients in the United States to date. We've had prescriptions generated through September for 3,700 patients, and 2,600 patients are actually on treatment, had their prescriptions filled. So we're reaching this 10% of the total population. Within that, we add on a monthly basis about 400 to 500 new patients, so there's a steady addition of new patients. And then obviously, patients are really tolerating WINREVAIR really well, so the compliance is high, discontinuation is low. So we also see significant repeat prescriptions coming through. In fact, to date, we've had, through September, 10,000 prescriptions being written for WINREVAIR, right? So that continues to build. Just a little bit of a breakdown on the patients. We see about 80% of patients are patients that are on a background prostacyclin at the moment, so it's either triple therapy or at least a dual regimen that includes a prostacyclin. So that's about 80%. We do see more and more physicians moving into pure dual-therapy patients or patients that's not yet on a prostacyclin. So that continues to provide opportunity as well for continuous expansion. And we have some datasets that will hopefully create increasingly a sense of confidence to do that as well. But we feel really strong -- or really good about the strong start we've made and the way that the prescribing community is expanding on a monthly basis as well. We have about 800 physicians through September writing at least 1 script and a number of them multiple prescriptions already.

And I can talk a little bit about the risk-benefit profile of sotatercept and then what are the opportunities to expand the risk-benefit profile of an activin signaling inhibitor. Right now, the risk-benefit profile is essentially described, characterized by the STELLAR study, which had remarkable results for efficacy, with a safety profile that, in general, was deemed acceptable. We continue to expand and further characterize the risk-benefit profile through SOTERIA, our long-term duration study. We are able to show the benefits that is established early on with initiation of sotatercept is really well maintained out over years to come. We'll continue to publish data from this long-term registry that now covers more than 400 patients going out over 3 years. And actually, those patients, when you look, for example, at medium 6-minute walk distance, they stay stable, which is absolutely remarkable for a progressive disease like PAH. In terms of -- and then we'll learn more. We learned more about mortality. We talked about ZENITH. We learned more about what's the impact of starting earlier, so risk profile. The STELLAR study established the risk profile, mechanism-based. We saw bleedings. So majority of the bleedings that we see are minor. These are nosebleeds. These are gum bleeds. They are well manageable. They typically don't lead to discontinuation of the drug. These bleeds happen in patients that often take anticoagulants, that are co-treated with prostacyclin-based agents, which has -- have a label, bleeding risk. So this is a patient population where physicians know how to monitor the bleed. Actually, the number of severe bleeds or the number of bleeds that lead to discon in the STELLAR study was really small. And that is going to be further validated through SOTERIA long-term registry. We see a safety profile that's very consistent with what we saw early on, and it's still early days. It is confirmed through what we see in pharmacovigilance. So you talked about Keros and then their activin signaling inhibitor. I think the hypothesis to be tested there, is more selective activin signaling inhibition going to translate into less bleeding? And the second hypothesis that has to be tested, do you still maintain the same efficacy profile? So we'll learn more about that. I think the Tropo study is fully enrolled, so we'll learn about that in the second half of next year. But I think you sense, we continue to be very comfortable with the risk-benefit profile and the long-term risk-benefit profile that we see. And then -- and we'll supplement that with more data that will come out over the next 1 and then 2 years.

Excellent. So one of the pipeline assets you mentioned at the start was the oral PCSK9. Can you talk about your confidence going into the Phase III? Do these sort of -- we look at injectable PCSK9, they translate quite well from Phase II to Phase III. So perhaps what gives you confidence here? And then it is -- an oral statin adherence is not the best. Could that have an impact on the trials at all?

So we are very excited about this oral PCSK9. It utilizes -- it's the first agent that's built upon our cyclic peptide platform. It's this medicinal chemistry feed of being able to minimize the size of an antibody, essentially to 100 so that you can give it orally. We showed in our Phase IIb data that we published last year at ACC and there was a simultaneous publication that we are able to get an efficacy profile that is very comparable to that of injectable PCSK9 antibodies, a little bit better than the efficacy profile that you see with an siRNA. So LDL reductions up to 60%. We were able, in that study, to get up to 90% of patients to the LDL treatment goal. When you look across the development history of LDL-lowering drugs, you actually see pretty remarkable translation from LDL effects in the end into outcome effects. So our first approval, of course, will be built on LDL. And that Phase III program in the end is pretty similar to what we already tested in Phase II in, I think, over 400 patients. So the probability of success that you would see a similar risk-benefit profile is pretty high. And then we'll follow up a little bit later with some outcome studies that's also enrolling fairly well. And I think the probability that a certain LDL reduction results in a certain outcome reduction is also exceptionally high. There is no example in the drug development history where LDL reduction didn't result into outcome benefits. In terms of adherence, we continue to like the side effect profile of our oral PCSK9. It's well tolerated. We are able to keep patients in our studies on drug, and we are able to keep them in the study. The side effects that we observed are mild and are well tolerated. And so we don't see some of the side effects that sometimes also lead patients to stop therapy. And then you remember our oral PCSK9 is not a titrated drug. That's another issue that we have with statins that you start with a low dose and in theory, you should up-titrate. In clinical practice, very often, up-titration to be diligently run to the end is an issue. If you have a drug with 1 fixed dose, you might face less of that issue. We truly believe that our oral PCSK9 could be something that might have a pretty profound public health impact.

Excellent. And to be a major player in cardiovascular disease and that is your commitment to try and do, you need a GLP-1. Now you have one. It's in MASH and you're studying that, and we've seen the Phase II data and it's got great liver enzyme lowering. What's your thoughts on if you were to have a GLP, what would make you differentiated? What's the differentiation that you would need to have it in Merck's portfolio?

So I liked the way how you framed the question. Obviously, scientific field is learning fantastic data through incretin-based therapies being studied in big studies. Finally, we start to understand how many of the diseases that really drive public health like MIs and obesity and diabetes and peripheral artery disease and Alzheimer's all come together. We start to understand metabolic syndrome and insulin resistance, how it links those things. I believe that the injectable GLP-1s certainly are only the first chapter. But the field will evolve. I assume that physicians will pay more attention to comorbidities and try to figure out which GLP-1 helps which patients based on which comorbidity. We clearly will see that field moving from oral GLP-1s -- from injectable GLP-1s to oral GLP-1s. I think in obesity itself, we'll see a focus that goes beyond a percent weight loss towards quality of weight loss and durability of weight loss. But you're also right, it is a field that through injectable GLP-1s at this point of time, is well served. So when we look at GLP-1 as an opportunity, we pay a lot of attention to how do we differentiate. Where can we be first-in-class? Where can we be best-in-class? And as you mentioned, our GLP-1 glucagon coagonist is one of those examples where we are driven by the promise of, so here is a patient population whose major problem is a liver problem is MASH. Obesity is not their major problem. How do we develop incretin biology to have a best-in-class MASH agent? And so we learn more. We've finalized the enrollment of our Phase IIb study. I think we just announced our OPI so we'll have results in a year from now and then we can make the right decisions here. Beyond that, we have discovery efforts. We are active in business development, and then we look for other opportunities to play a differentiated role in the fields that I believe is only going to grow even further.

Excellent. And we're entering the last minute. I've got -- I should ask you more but I've got one last one. Maybe on immunology and the TL1A. We have the data now for the Phase II. Perhaps can you discuss the time lines you're thinking about with the Phase III? Have you spoken to FDA about that Phase II data here?

So we are excited also about our TL1A asset. We were excited about the biology, which is offering us an opportunity to have an agent that is anti-inflammatory and anti-fibrotic. We were excited about the Phase II data that showed an effect size in a fairly advanced patient population. The majority of those patients were treatment-experienced patients with failures on other biologics. And we saw an effect size that placebo corrected, we believe, is very competitive with the best agents out there. At the same point of time, we were excited about the safety profile. And safety profile as with TL1As in the end, of course, also opens the door at some point of time to think about combinations and what can you combine this with. What we like about our data besides the effect size after an induction therapy, both on clinical and endoscopic endpoints, is also the long-term data. We just presented our 52-week data, where you see that the effect size were well maintained over time. What we pay attention to in a Phase II study is also, do you see a dose effect? We saw a dose effect that typically tells you as a drug developer, this might be real, what you observed. And right now, we like the idea of having a chance to be first-in-class with the TL1A in the UC field. We started our UC Phase III study essentially a year ago. The enrollment is advancing nicely. We were able to start our CD study just earlier this year. And I think the PCD date, the primary completion date for our TL1A, what we've posted out there is, at this point of time, November 2026. So we're well on track for that.

Excellent. Well, we're at time now. Gentlemen, thanks very much for talking to us.

Thank you.

Thank you.

Thank you, everyone, for attending. And I hope you have a good rest of the conference. Thank you.

Great.