Merck(MRK)2024-10-31 17:07Financial Data and Key Metrics - Total company revenues for Q3 2024 were $16.7 billion, an increase of 4% or 7% excluding foreign exchange impact [23] - Gross margin increased by 3.5 percentage points to 80.5%, driven by reduced royalty rates for KEYTRUDA and GARDASIL, as well as favorable product mix [33] - Earnings per share (EPS) for Q3 2024 were $1.57 on a non-GAAP basis [34] - Full-year 2024 revenue guidance narrowed to $63.6 billion to $64.1 billion, representing 6% to 7% year-over-year growth [35] - Full-year 2024 EPS guidance is $7.72 to $7.77, including a negative impact of $0.30 from foreign exchange [37] Business Line Performance - Human Health business sales increased by 8%, primarily driven by oncology [23] - Animal Health business delivered strong growth with sales increasing 11%, driven by companion animal sales growth of 17% and livestock sales growth of 7% [32] - KEYTRUDA sales grew 21% to $7.4 billion, driven by increased uptake in earlier-stage cancers and robust global demand for metastatic indications [24] - GARDASIL sales declined by 10% to $2.3 billion, primarily due to a decline in China, but saw double-digit growth in almost every other region [26] - WINREVAIR global sales reached $149 million, with approximately 1,700 new patients receiving prescriptions in Q3, bringing the total to over 3,700 since launch [28] Market Performance - KEYTRUDA growth in the U.S. was driven by increased use in resectable non-small cell lung cancer and first-line advanced urothelial cancer [24] - Outside the U.S., KEYTRUDA growth was driven by earlier-stage cancers, including high-risk early-stage triple-negative breast cancer, and inflation-related price increases in Argentina [25] - GARDASIL achieved strong double-digit growth in almost every major region outside of China, with inventory levels decreasing in China but remaining high at Zhifei [10][11] - CAPVAXIVE sales increased by 13% to $239 million, driven by ongoing launches in international markets [27] Strategic Direction and Industry Competition - The company's Phase 3 pipeline has nearly tripled over the past three years to more than 20 unique assets, with the majority having blockbuster potential [8] - Merck is advancing novel clinical programs across diversified therapeutic areas and modalities, including oncology, infectious diseases, and immunology [7][18] - The company is leveraging business development to broaden its pipeline, including the acquisition of a novel bispecific T-cell engager from Curon and the acquisition of EyeBio and Elanco's aqua business [19] - Merck remains focused on maintaining durable leadership in oncology, with KEYTRUDA being the only PD-1/PD-L1 inhibitor to demonstrate significant overall survival benefits in four earlier-stage cancer settings [49] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to achieve long-term success and create sustainable value for patients and shareholders, driven by strong progress across the business [6] - The company expects GARDASIL sales in China to decline in 2025 but remains confident in achieving over $11 billion in sales by 2030, driven by long-term growth opportunities globally [13][65] - Merck is focused on driving demand for GARDASIL in China through increased promotional resources and patient education efforts, although this will take time [11] - The company is optimistic about the launch of WINREVAIR, CAPVAXIVE, and clesrovimab, which are expected to contribute to future growth [71] Other Important Information - The company completed the acquisition of CN201, a novel CD3/CD19 T-cell engager, now known as MK-1045, which has potential applications in B-cell malignancies and autoimmune diseases [61] - Merck initiated the Phase 2b/3 BRUNELLO trial for MK-3000, an investigational tetravalent trispecific antibody for diabetic macular edema, following the acquisition of EyeBio [60] - The company received FDA approval for KEYTRUDA in combination with pemetrexed and platinum chemotherapy for the first-line treatment of unresectable advanced or metastatic malignant pleural mesothelioma [52] Q&A Session Summary Question: GARDASIL inventory and demand dynamics in China [64] - Management expects GARDASIL shipments to China to decline in 2025, with sales projected to be in the $2 billion to $3 billion range over the next several years, including potential growth from male vaccination approval [65][82] Question: WINREVAIR safety and dosing [67] - No significant safety issues have been observed with WINREVAIR, and adherence has been strong with fewer discontinuations than expected [68] Question: Outlook for 2025 [69] - Management plans to provide 2025 guidance with Q4 earnings, expecting solid growth driven by KEYTRUDA, WINREVAIR, CAPVAXIVE, and Animal Health, offset by headwinds from GARDASIL in China and the expiration of agreements for REMICADE and SIMPONI [71] Question: Capital allocation and therapeutic areas of interest [74] - Merck remains focused on business development in oncology, immunology, and cardio-metabolic areas, with a preference for transactions in the $1 billion to $15 billion range [76] Question: Pneumococcal vaccine opportunity [78] - The ACIP recommendation for CAPVAXIVE in adults aged 50-64 represents a significant opportunity, with 60 million potential patients in the U.S. alone [79] Question: GARDASIL sales in China and inventory dynamics [81][91] - GARDASIL sales in China were approximately $500 million in Q3 and are expected to be similar in Q4, with inventory levels decreasing but still high at Zhifei [82][92] Question: Global GARDASIL growth in 2025 [93] - Management expects it will take time to work down inventory and build demand in China, but remains confident in the long-term growth potential of GARDASIL globally [94] Question: V940 in lung cancer [96] - The Phase 3 trial for V940 in lung cancer is based on data from KEYNOTE-671, which showed an overall survival benefit, and targets patients without a pathological complete response after surgery [97]