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

And speaking of that, I think it stems back to an event a few years ago where you talked about all the tumor types for which KEYTRUDA is indicated and then moving obviously towards premetastatic adjuvant. That was kind of the conversation when you guys said, look, we've had hyper growth, a step-up in growth in the past couple of years. And now that's moderating, but it doesn't appear really to be moderating. So is it that the penetration rates in the market is much bigger premetastatic? Or is it the OUS opportunity is sort of catching up? What's been the bigger driver of kind of KEYTRUDA upside over the past, say, I don't know, couple of quarters?

Yes. So we're proud of the impact that we're having for cancer patients. The growth that we've seen in recent quarters has really been driven by the penetration we're having in earlier-stage cancers. And that includes triple-negative breast cancer. It also includes the early-stage lung cancer setting, where we're launching here currently in the United States. And we've seen really strong penetration in both settings. So in the early-stage triple-negative breast cancer setting, we've seen great utilization of KEYTRUDA prior to surgery. And we've seen a strong continuation for patients after surgery, which has provided growth for our business and important impact for those patients. In non-small cell lung cancer, what we've seen thus far with the KEYNOTE-671 launch is we've moved the level of treatment on IOs from 35%, which is where it was prior to our entry into the early-stage lung cancer setting, to now 65%. So that's really enabled the strong performance that we've seen in KEYTRUDA here in the United States. And the story is somewhat similar outside the United States where we're seeing strong impact for patients and the strong performance in the product. Now as a CFO and as a business person, we love to see growth of 20-plus percent. I do think we'll see some level of moderation of that as we do reach the peak saturation for those patients, but we're excited at the opportunities for KEYTRUDA moving forward as we launch indications outside of the U.S., but also as we get, hopefully, the endometrial cancer indication here in the U.S. with the PDUFA in June. We're very excited about bladder cancer with A39 currently and a portfolio of indications hopefully to come. We look forward to impacting patients and driving KEYTRUDA growth into the future.

Great. That's helpful. When you think about the grinding out oncology, you guys are obviously a leader in IO and you've added assets and ADCs. What other tools and technologies do you think are still underutilized and you could fully leverage? I mean thinking more in particular of gene and cell therapy. I know this isn't -- has been a leading area for Merck, but clearly, there's a lot going on in that direction in the field of hem/onc.

So we are focused on leveraging our position with KEYTRUDA, building out precision molecular targeted product and ADCs, which we see as the next generation of chemotherapy. And given how well KEYTRUDA and chemotherapy has worked in certain tumor types, we see that as a great evolution for patients and the company. So that's where our focus is and remains. That said, we continue to watch the field and how the field evolves, and we'll continue to evolve our pipeline with the goal of providing best impact.

Okay. Maybe if we switch gears to GARDASIL just a little bit. Has -- GARDASIL has performed very, very well -- quite well, say, exceed expectation, especially on the ex U.S. business. Just maybe just kind of walk us through how you think that trend will continue to evolve kind of this year or maybe even longer term. And obviously, there are -- I think China has its own -- trying to make its own 9-valent HPV vaccine. Kind of how Merck is thinking about that potential kind of competition?

So we feel very confidently about our GARDASIL business and its outlook going forward. Every day, 1,000 people in this will die from cervical cancer. Today, we've just protected a fraction of the global population. So we have an opportunity, and I would argue in an imperative to help protect more lives all around the world. And the opportunity set is to increase vaccination rates for adolescents. Even in the United States, the vaccination coverage rate is 74% for males, 78% for females. And the WHO would suggest a vaccination coverage rate of over 90% is necessary to eliminate cervical cancer. We secondly have an opportunity to improve on gender-neutral vaccinations and improve the vaccination rates for males all around the world. And that includes getting regulatory approval for the male vaccines in certain countries, including in China. The third opportunity we have is to ensure people in the age cohort 27 through 45 get vaccinated. GARDASIL is now 14, 15 years old. So people weren't necessarily in that adolescent cohort when they were being vaccinated. Now there's an opportunity to vaccinate those people, especially given 50% of infections happen while you're in that age group. And finally, we have the opportunity to supply further GARDASIL to low- and middle-income markets to help coverage and protection there. So we're confident in our opportunities for growth. And that growth is global. In the United States, as I've mentioned, it's the adolescent cohort and the mid-adult segment. Outside of the United States, we're really looking forward to improving on rates, improving male vaccinations and creating what we described for some countries as a private market for the mid-adult segment because in certain countries, if you're in the age group of 27 to 45 and it's a government paid health system, there isn't a way to get GARDASIL. So we're trying to create a private market where I would pay out of my pocket to get the vaccine. As it pertains to China, China is a large market. And today, we are approved in girls and are addressing people who have the affordability to pay for the vaccine out of their pocket. That's a group of around 200 million people. Today, somewhere between 30% and 40% of that group have received an HPV vaccine. The opportunity to provide further protection is still huge. We've been competing against a local bivalent vaccine. We're aware of competition looking at a 9-valent, and we're confident in our ability to compete at the same time moving into the male segment subject to regulatory approval. And we sought our filing there at the end of 2022. So we're confident in our business globally, and we remain confident in the opportunity to protect lives in China.

Great. But maybe on kind of V116, right, kind of we're expecting approval relatively soon. And then obviously, the ACIP meeting in June will be very important. How is Merck thinking about the potential recommendation and the opportunity in that space?

Yes. So we've taken a very targeted approach with V116, our adult pneumococcal vaccine, to provide the best coverage and protection for adults for invasive pneumococcal disease. And so what we have is a vaccine that protects against 83% of the prevailing disease at that age group. We've got clinical studies that show the effectiveness of the vaccine in age group 50 through 64, in age group 65 and above who have not had a vaccine previously and age group 65 and above who have previously been vaccinated. So we're looking forward to the ACIP discussing what the appropriate recommendation is that they will give. And as a company, we have enough capacity to support whatever the outcome is of the ACIP meeting.

Sticking with infectious disease. So RSV lots of excitement there. So talk a little bit about Merck's approach with the antibody versus the internal vaccine and the opportunity that you see looking forward and with respect to competition as well.

So RSV is a very important area. Indeed, all our babies by the age of 2 have the potential of contracting RSV, and it's important that they're vaccinated. We have a monoclonal antibody, clesrovimab, that will have data reading out later this year in August. And what we have in this antibody is, number one, the opportunity to have a single fixed dose that can be given to the babies, which is different to others, which are weight-based. So we have a simplicity around the dosing schedule. What we also have is a treatment -- prevention treatment that will provide protection for the whole of the RSV season, which is longer than what others have in the market today. We also have the ability to provide that to babies ahead of the season. And we do think it has a high barrier to resistance. Now this is a big market. It's a market that needs support, and we're looking forward to seeing our data and hopefully providing an option to the market in the near future.

Perfect. Well, let's go back to what you said in the beginning with respect to the LOE and the offsets and so the BD climate. So I wanted to maybe ask about capital allocation. And I know it's -- you guys have or among the few pharmas that still have capacity to do deals. There's not a need to delever at this point. How do you work through the process with us? And sort of what -- how -- is the urgency as acute as it was previously? And then is the hurdle rate different to look outside of the Merck core therapeutic areas? Clearly, there's a focus outside of oncology still.

Yes, there is. Our capital allocation priorities as a company have remained unchanged. First and foremost, it's to invest in our business. We've got a rich and broad pipeline, and we are committed to investing in that pipeline to hopefully enable patient benefit and drive growth for the future. We also seek to augment that pipeline with scientifically focused, hopefully, financially disciplined business development. And so we're looking at that pipeline in all different therapeutic areas. We're looking to augment in areas that we have strength to perhaps accelerate our efforts, but we also look to augment in areas maybe where we don't have such strength or we've seen the science evolve externally so that we can play a role in advancing the science and having impact across the world. So we are very active in BD. We've done deals in the past that cover the range of therapeutic areas, oncology, outside of oncology, but also cover a range of deal constructs from collaborations through to outright acquisitions. And I think you could look at what we've done in our past history as a good indicator of what we're likely to do in our future. But we remain focused on business development, and we have humility that great science happens within Merck but also great science happens outside of Merck. And we stay abreast of that science, and we'll seek to move on any targets where we think we could add value for patients, for our company and for our shareholders.

It does seem like a lot of your peers are moving towards -- I wouldn't call it orphan but more narrow indications that are sort of one click away, for example, more rare I&I indications. And Prometheus, you could say, is an element of that. Is that how Merck is thinking about it as well? There's not an intended strategy in rare disease per se, but it could be a similar capability that you have currently, right?

Yes. So there isn't an intended strategy in rare disease. Our strategy is really following the best science. And if that science is in an area of unmet medical need and in our hands, we have the opportunity to really develop the program and enable impact for the world, for society, that's where our focus is.

I have to ask, and I wouldn't -- you know what I'm going to say, but given JANUVIA, JANUMET, you have a history in metabolic disease and existing -- I don't know how much organic research there is still in that category. But if there is a company that could scale in a large indication, obesity, perhaps, is that -- how do you view that opportunity, especially as you look at other companies sort of scrambling to add an asset?

We today have a GLP, glucagon dual agonist. And we are researching this in MASH. And the data that we have is quite compelling at this stage. There was more than 70% liver fat loss for this product, which is superior to what we've seen with other compounds. And there was 10% to 12% weight loss, and that was after, I think, 24 weeks. So this is a program we're advancing. And within our company, we have great competency in this area. As we look at the future, our teams are focused in the area of cardiometabolic. We have programs internally beyond MK-6024, and we do look externally at the field and the opportunity to see what we can do to bring advancements to patient care. As we think about obesity specifically, we do think there's the possibility for second and third waves of innovation, maybe with oral agents, agents that have more tolerability, maybe combination products and maybe products that will have weight loss that is more fat loss, not muscle loss. And it's an area we're focused on. So as a company, we look to build our strengths, and we will look to invest internally while we'll also evaluate the external landscape.

Perfect. Okay. Thank you very much.

Thank you. Very good. Thank you all. Thank you all here.