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

Thank you very much for joining us today for the lunch session. My name is Mohit Bansal. I'm Biotech and Pharma Analyst here at Wells Fargo. And I'm very happy to have the Merck management team with us. We have Caroline Litchfield, the EVP and CFO of the company. We also have Eliav Barr, to talk about all the pipeline here, exciting pipeline. So Eliav is the Senior Vice President and Chief Medical Officer of all the pipeline here, managing all the pipeline development here at Merck. Thank you very much for joining us today.

Thank you.

So Caroline, why don't we start with -- just give a high-level overview of what the progress Mark has been making and what you are -- how -- what is the investment case in the company right now, given the investor set up here?

So thank you all for being here, and thank you for your interest in and support of Merck. Merck is at a time of transformation. We're moving forward with the diversified set of growth drivers for our future. Indeed, we're in the midst of launching 20 products all of which have the potential to advance patient care, almost all of which have blockbuster potential. We have stated that we have the potential for more than $50 billion of revenues by the mid-2030s from this expensive pipeline. And as a team, we're focused on bringing forward these innovations and excelling in the marketplace. We're pleased with our recent launches of WINREVAIR of CAPFAXIVE. We're at the early stages of our ENFLONSIA launch. You've seen some data readouts. Just this week, we highlighted our Phase III data for enlicitide, our oral PCSK9. We'll have readouts in ophthalmology in HIV in the coming months next year. So we're excited about our future and are confident in our ability at navigating the KEYTRUDA LOE is increasing. But we acknowledge we're not yet done. We continue to look to bring forward our pipeline to excel in our launches and augment our pipeline and portfolio with business development as we did with the planned announcement of the acquisition of Verona. So we're excited for our future, and we look forward to all of your questions.

Awesome. Great. So why don't we start with a small product named KEYTRUDA you have? So the product has been growing. So again, people are concerned about the cliff and all that, but we'll come to that. But before that, we have seen tremendous growth and then in early lines of setting. So what are the next avenues of growth there? And can this sustain the growth in the next few years here as well?

So if I start, Eliav can add to what we have coming through, we're really proud of the impact that KEYTRUDA is having for the patients as they're being treated with cancer. And as you all know, we are offering treatment for a wide range of different cancers, 42 indications now approved in the United States across 18 different tumor types and tumor agnostic indications also. So we've seen profound impact for patients and extremely strong growth and impact for our company, as we go forward, we do expect continued growth for KEYTRUDA the opportunities for growth will come from new indications. We are still launching the early-stage lung cancer indication in our ex U.S. market. We have women's cancers such as endometrial cancer, cervical cancer, which are important opportunities for patient impact and growth. And we have bladder cancer indications some launching right now, some that we're hopeful for readouts next year. So we do see continued growth in KEYTRUDA, albeit it will slow as we continue to penetrate in some of those indications we've been in for some time. Another opportunity for us with KEYTRUDA is also the new formulation, our subcutaneous version. And that will enable us to benefit many patients by having an administration that will just take a minute or 2 for the patient, it's going to be extremely helpful for patients, we believe who are taking KEYTRUDA in monotherapy or in combination with another oral agent or in the earliest stage cancer setting. Today, about 25% of the revenue of KEYTRUDA is for patients being treated in the earlier stage second, and that's growing. And this will be an opportunity for those patients. So as we look at the subcutaneous opportunity. We're very excited about that and would expect adoption to be around 30% to 40% of the overall KEYTRUDA business in about an 18- to 24-month window, post-launch. So there seems the element we remain excited about as we continue to help patients with cancer.

And can you talk a little bit about, I mean, what could make this adoption faster or slower? I mean -- and I mean, there is another PD-1 with subcu option out there. So what can you learn from that experience?

So I think what's unique for KEYTRUDA is the breadth of indications it has and its utilization in the earliest stage setting. And that will, we hope, enable more patients to benefit from a subcutaneous formulation in their treatment journey. What we've learned from others is the importance of pricing access and the J-code. So as we look at entering the marketplace, we are pricing to enable broad access for the product. And we are also mindful though that within that first 6-month window where we will not have a permanent J-code. We will expect that to be somewhat of a headwind to growth in those initial months. That said, and as I mentioned, we still expect to see us get to a 30% to 40% adoption and to get to that level in an 18- to 24-month window.

Got it. Very, very helpful. I think the question is for you, again, if you think about now like -- last few years, you have been trying to build up pieces of the puzzle to actually fill that perceived holes when KEYTRUDA goes off patent, so you have TROP2, you have PD-1/VEGF, now early stage and you use a bunch of other assets. So if you look at that portfolio, I mean, if you have to like how would you -- which give you like the most kind of question, right?

Well, you have to be careful not to discriminating against all of your children, but -- we have -- but in reality, we've got 24 oncology assets in clinical trials right now. Among those, we can divide them into 3 categories. those to continue the immune stimulation against cancer and V940, our collaboration with Moderna on personalized individual neoantigen therapies, one. The second category is to improve on chemotherapies and other tissue targeted approaches. And here, I would highlight our TROP2 fact as well as our collaboration with Daiichi Sankyo. And among those, both I-DXd and R-DXd, these are 2 compounds for in small cell, prostate ovarian cancer and others. And so you can see they're relatively broad. With respect to the last category, the last category is specific targeting agents that address those drivers of tumor growth. MK-1084, our KRAS G12C mutant inhibitor is really an outstanding exemplary of that. Belzutifan is already marketed and is continuing to be in large-scale clinical trials. We've had some positive results there. And then there'll be others like KRAS and other agents that are novel hormonal agents that I think will be very important in the treatment of different kinds of cancers. So we have a very large portfolio in oncology. I really feel confident that we'll be able to leverage pembrolizumab to create very important new medicines that will help outcomes and improve lives.

Got it. So like let's start with TROP2 ADC here because you have a massive program going on. We have not seen a ton of data, but you obviously have seen the data. So can you talk a little bit about your confidence level in terms of what you are seeing with the data Kelun has been generating? And what gives you confidence to start this past program?

Absolutely. So the TROP2 ADC from -- that we have, sacituzumab, tirumotecan or SAC-TMT is a unique molecule that was developed in Kelun in China. And one of the things that very much helps us with this is that we have a lot of advanced notice from them in the clinical trials that they've seen there. But it's unique to the extent that it's very potent. It does not have interstitial lung disease issues. And if the dose we've chosen is actually fairly well tolerated and can be used in the more maintenance settings. So if you compare the strategies that we've employed compared to some of the other TROP2 ADCs, they're quite different. We have seen a very exciting early signals that have led us to 14 clinical trials that are available, 9 of which that are publicly available on ct.gov, 9 of which are for new indications where others have not gone and 5 of which are where we have a differentiated approach. We think that those -- that TMT will be a great workhorse agent for -- to combine with pembrolizumab or any other immune checkpoint inhibitor. And we're also -- going back to the beginning with Kelun, we've already seen they have some pretty amazing results in China. Of course, we have to replicate that in the global setting. But that provides us with a lot of confidence.

Got it. So what's the confidence level that this TROP2 ADC or Kelun TROP3 ADC would be able to differentiate against especially Trodelvy, right? Because obviously, the other one has ILD issue, but to that will be set.

Sure. And Trodelvy has got pretty significant GI tox. But those drugs have been focused on specific lung and breast indications whereas and they've not done very well elsewhere. We have actually a program that's much broader in maintenance settings. And the first indications will be in things like GYN cancers. Caroline mentioned the importance of pembrolizumab in the patient population. And we're -- we think that, that will be an important leverage point for us. I'd also point out that there's a lot of excitement at least for us, in maintenance settings where we've seen, for example, in lung cancer, maintenance chemotherapy, it has been difficult to take and maintenance VEGF has been difficult to take. But with TROP2 ADCs, we think we'll be able to achieve that. So it's a differentiated program. We think we're going to have we've hit the sweet spot in terms of the dose. And with that, I think it's going to be a very important addition.

Got it. Very helpful. Thank you for that. Now let me just talk a little bit about the immune checkpoints, right? I mean, so before we get to VEGF 3D 1, I mean, the question I want to ask is that, we have seen multiple iterations like there was IDO, there was LACC,hey were TIGIT. Like, again, early trial kind of proves that KEYTRUDA is a very good drug. So like if you're trying to compare against it, what is different with VEGF PD-1 versus the prior failures, which made you look into it?

Sure. So just to step back, VEGF inhibitors have been tested pretty extensively in the setting of various cancers. One of the things that's clear is that in some cancers, they have both PFS and OS benefit. So the most important is overall survival benefit, right? Progression-free survival is important, but nothing like overall survival. So that mechanism of action has been important. One of the things that's notable about VEGF inhibitors in general is that they have really good progression-free survival and not so good overall survival. And so that's been sort of a cloud and a limitation to that field where there's only been a few indications where VEGF inhibitors have been incorporated. We've done an extensive program looking at the combination of VEGF inhibition and PD-1 separately. In those cases, the benefits are really quite limited to renal cell cancer and endometrial cancer, which are really quite vascular tumors. Now come the PD-1 VEGF bispecifics, and there's all sorts of theories around why these drugs might have a specific and special benefit. The results so far that we've seen with ivonescimab and to some extent, with BNT327 has been interesting with respect to progression-free survival. Akeso has noted that there is -- that they have hit in the final analysis and overall survival benefit in one of their studies in EGFR mutant non-small cell lung cancer. But that was only in the final analysis. So the big question with all of these drugs will you be able to have an OS advantage. And the reason for that is that VEGF inhibition chronically administered is not well tolerated. And there's always been a question about the second agent that is after you progressed, whether you've created a change in the biology that leads to high resistance that's why everyone has been so focused both from an investor point of view and certainly for us, where is the OS benefit? Is there OS benefit? Is that OS benefit convincing? Does it justify some of the talks that they've seen in what specific settings will that be good? So we'll have to see about that.

And you have quite a lot of experience with your own Lenvima experience there. So how can you use those learnings into the development of this program?

A lot. There's a lot of -- so one of the things that is so wonderful about our oncology group is that we have all of the data from hundreds of pembro trials now forming the basis of standard of care around the world. As well as the so-called LEAP program, which is the program that was with lenvatinib. From all of the data, we can model out what are the potential additional issues -- benefits that you have? And what might be the places where you start to see problems with VEGF inhibition. And so we've looked at that carefully. And our development strategy for MK 2010, which is the -- our PD-1 VEGF will be very much focused on settings where we might -- where we think the sweet spot will be. Again, it still remains to be determined whether these ages are going to be just PFS agents but have issues with OS. And that uncertainty, even with that one result still remains. And remember, in China, for a regulatory approval, you need progression-free survival. That's it. In the United States, OS is king, and FDA has insisted on it, especially in settings like frontline metastatic lung cancer. So that's going to be the challenge for the field.

So this brings me to the next question because if you look at the front runners, Summit/BioNTech. They're all going after KEYTRUDA in it's strongest indication that is lung cancer, right first-line lung cancer. Logically makes sense. But at the same time, you are going after KEYTRUDA in an indication where KEYTRUDA is very good. So I mean when you think about -- I mean you will have an advantage of like slightly behind, but at the same time, you can learn from them. Is there a room -- is there a way to think about going after indications where KEYTRUDA works, but it could work better with the VEGF PD1 or how -- you get my question here, right?

I get the question. So the question is whether you can -- is there places where there's room to go with your PD-1 inhibition? And the answer is that's very -- that's one of the reasons why we are so excited that we have the ability to look across therapeutic indications with pembro, not only with lenvatinib, but also recall, we've done some clinical trials with a whole variety of other TKIs based on collaborations that we've done with ADCs, with all sorts for of things. So we can take a good look at where that special advantage might be. the way I consider PD-1 VEGF, there won't be -- it's not going to be another KEYTRUDA. They're just not. They're going to be specific places with specific potential benefits and specific strata of patients. That's that last bit is the important bit because all comers is going to be -- it's sort of a very high bar to win in a drug like pembrolizumab that is pretty extremely active. So you'll have to look at even in places where KEYTRUDA is somewhat less active where the hazard ratio is a little bit less -- it's still a pretty high bar because oftentimes, it's given with chemo.

Got it. Very helpful. And then so now that you're generating data with your partner in China. So could we expect a TROP2 situation where you start to see the data and then you invest in this program?

We are always -- we give all of our asset stage appropriate investment deserves no more and no less. So we're very, very data-driven. We've had a lot of -- we've had a pretty rapid development program in China. And based on that, we'll come forward with some interesting trial designs. It's also helpful that our partner, Kelun there as well. So we can do a lot of work in that environment and prepare for Phase III should the data support it.

Is there -- like what is your internal understanding about? There are differences in molecules, but is it going to be a PD-1 like situation where ultimately, clinical profiles were different than the molecules as such?

Well, I do think in this particular instance, it's going to be important to look at the ratios. And I'm not -- and this isn't because of some magic, it's just too much VEGF inhibition. If you get bevacizumab VEGF inhibition, that's not so good. They're just not tolerable it. The same is true with some of the other TKIs that are valuable, but only in a specific segment of patients. And so you have to get to that sweet spot. We've always been a believer in PD-1 inhibitors, that PD-L1, but that all will depend on the clinical profile.

Yes. This is what I've heard light. I mean, bevacizumab has a 21 days half-life in bispecific, at least the one which has reported is only 4 days. So that may be one of the reasons why safety is...

But the other piece is if you have to really thread that needle, you wonder. I mean, that's going to be an issue that we have to address. Again, I'm excited about this class, but it has to be in a very data-driven way and OS is king.

And where are you with the cancer vaccine program at this point? I mean we had some interesting Phase II data. So how do you think about development there?

So one of the things that's been exciting about this program is how enthusiastic investigators are. I've always believed that enrollment speed is a not bad indicator of excitement and interest in the mechanism of action and then subsequent commercial success. The area where we've chosen a different development strategy than other cancer vaccine simply because we're interested in early cancers. We're interested in those cancers where patients have a potential curative opportunity where they still have a fairly intact immune system and where we can define the tumor mutations that are going to be most immunogenic. That said, we are spreading out. We have now looked at some cancers that are very immune responsive but don't have quite as many tumor mutations. And we will be doing some evaluations in the first-line metastatic settings. But more than anything, I think that this -- the Phase III trials that we've put together in the Phase II programs are really focused on early-stage cancers. The readouts will occur in the next couple of years. and with melanoma being first, and we're really excited to see what those results are. In the meantime, Moderna is gearing up to prepare for the good news should it occur, and we'll be ready.

Awesome. So before we go into non-oncology side, so I have some questions for you. So obviously, you have to talk about MFN and tariffs there. So the macro has like how do you see all these macro headwinds at this point coming out from administration? And how can a company like Merck can prepare for something like MFN, tariffs and all those situations.