Good day, everyone. Welcome to Merck's first quarter 2015 earnings conference call. Today's call is being recorded. At this time I'd like to turn the call of the Joseph Romanelli, Vice President, Investor Relations. Please go ahead.

Thank you, Darla, and good morning, everyone. We'd also like to say good afternoon and good evening to everyone listening outside the United States. Welcome to Merck's First Quarter 2015 Conference Call. Before I turn the call over to Ken, I just want to point out a couple of items. First, you will see that we have items in our GAAP results such as the acquisition related charges, restructuring costs, and certain other items. You should note that we have excluded those items from our non-GAAP results. There are reconciliation tables available in our press release so you can get a better understanding of the underlying performance. We've also provided tables to help you understand the sales results in the quarter for the business units as well as for products. This can be found in table three of our press release and the reconciliation table I mentioned earlier is in table two of the release. During the call we will be referring to table two for the P&L and table three as it relates to revenue. Second, I would like to remind you that some of the statements we make during today's call might 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 belief 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 forth in the forward-looking statements. Our SEC filings, including item 1A in the 2014 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…

Great, thank you, Roger. Darla, I think we are getting ready for the Q&A segment of the call. For callers, I will ask you that you ask only one or two questions so that we can get to as many callers as possible. Darla, can you turn it to the Q&A session? Thanks.

Your first question comes from the line of Tim Anderson with Sanford Bernstein. Timothy Minton Anderson - Sanford C. Bernstein & Co. LLC: Thank you. Congratulations on TECOS. I'm not going to ask any questions, I'm imagining you won't say much. But on KEYTRUDA in lung, the debate continues to rage on about the utility of a biomarker and you filed your product. Are you willing to say that you have asked for a label that is specific to high expressers of PD-L1? Or was the data set you submitted really broader than that and you did not explicitly ask for a biomarker limitation? And then you raised guidance for the year on earnings. Is part of that related to hep C? Specifically, what is baked into your 2015 guidance about a potential launch before year-end, or would that not make a difference anyway? And your breakthrough therapy designation was limited in terms of what that status applies to. Can you talk about when the drug does get approved, is it likely to be a broad label? Roger M. Perlmutter - Executive Vice President & President, Merck Research Laboratories: Tim, it's Roger. First of all with respect to KEYTRUDA in lung, of course the entire data set, the totality of our data, has been filed with the FDA. And in those data, as I've said previously, what we know is that patients who have a high proportion of tumor cells expressing PD-L1, experience a higher likelihood of response. And in fact, the response rates for those who are above the 50% representation are really very significant. But that doesn't mean that patients with low or even no visible PD-L1 expression failed to respond, inevitably. There are responses in those patient populations as well, and I would expect that the labeling…

Great. Thank you, Roger. Thank you, Tim. And, Darla, our next caller?

It's from the line of Chris Schott with JPMorgan.

Congrats on the quarter. Just two questions here. First maybe just more broadly on KEYTRUDA in non-small cell lung cancer, can you just talk about a little bit more about your product's relative competitive position in this market and how you're thinking about the commercial rollout here? I know you just mentioned your filings with the entire data set, but commercially how do you think about your initial data versus your competitor which has OS data from a controlled study and how that plays out in the market? The second question was on the BACE program in Alzheimer's and just updated thoughts there following the recent Biogen data. I guess be interested in your views if I think about BACE versus plaque-specific antibodies and just how the treatment paradigm in Alzheimer's ultimately shapes up? Thanks very much. Adam H. Schechter - Executive VP & President-Global Human Health: Yeah, hi, Chris. This is Adam. I'll answer the question on the lung cancer market readiness. So we've been building our oncology business unit to make sure we maximize the potential of KEYTRUDA over time. And just like we were ready to launch in melanoma, we see lung cancer as a very significant opportunity for KEYTRUDA, and we will be ready to launch. Of course you'd prefer to have overall survival data to promote, but these data are maturing in our broad clinical program. We've been building our lung cancer capabilities, adding sales representatives and customer facing teams. We've been working with key scientific leaders, and we are just getting ready for the launch. In terms of competitiveness, we feel really good about the data we've shown, and if you look at the value in the PD-L1 diagnostic, I think that can really help identify patients who will have an enhanced likelihood for improved efficacy and benefit most from KEYTRUDA. And when I talk to opinion leaders but also when I've talked to governments, they see this as a way of allowing physicians to potentially have a different conversation with patients depending on their PD-L1 expression, particularly when we can see such a large effect of 45% in the high expressers, but it also allows physicians to prioritize treatment options which they're looking for. Payers around the world, particularly in Europe, have noted their interest in potential health economics and those that can be associated with identifying patients who could benefit most from KEYTRUDA and thinking about algorithms of treatment. So we feel very good about the data we have and our competitive position at this time.

Okay. Roger? Roger M. Perlmutter - Executive Vice President & President, Merck Research Laboratories: And, Chris, with respect to BACE, as you know, of course, our BACE inhibitor is currently under study in two large Phase 3 trials, one in patients with mild to moderate cognitive impairment and the other in patients with prodromal disease. The data set from Biogen, which, as you know and as they characterize, is a small data set, is intriguing because it appears to show that there can be a dose response curve for plaque reduction using an antibody directed against Abeta. The data with respect to cognitive improvement, of course, are, as everyone has commented, immature. I think what we would say is to the extent that one believes that actually reducing Abeta and plaque has an effect on cognitive function, we feel very good about our clinical trials. However, the trials are the trials. We wait to see how they develop and we are eager to understand whether we can have an impact on this horrible disease.

Great. Thank you, Roger, and, Darla, our next caller, please?

It's from Mark Schoenebaum with Evercore ISI.

...taking the question. Maybe I could just double down on Tim's question at the risk of annoying you but, Roger, is it your expectation that the FDA will write a label for KEYTRUDA in lung cancer that will allow for broad use irrespective of PD-L1 status in the commercial setting? Yes or no? And then perhaps for Adam, if the answer is yes, how do you think physicians are going to choose between KEYTRUDA and OPDIVO given that at least for a while OPDIVO will be the only one with a – presumably, the only one with an overall survival benefit actually described in label? And then also, Roger, you mentioned, this is what everyone on Wall Street wants to hear you say so I'll just ask it. I don't know what you'll say, but you mentioned no "imbalance in hospitalizations for heart failure." I assume that that clearly means no statistical difference between the arms. What everyone is asking though in our world is, can you also give us some comfort that there wasn't some sort of numerical difference that just optically is going to frighten us when we see the data? Thank you. Roger M. Perlmutter - Executive Vice President & President, Merck Research Laboratories: Okay. Mark, so first of all, there is no yes or no answer to your question about FDA labeling. The FDA will make its own decision based on the data which you've seen and which we presented. I think that the data with respect to KEYTRUDA in lung cancer speaks for itself and FDA will want to inform physicians of the actual information that's available so that they can make their best judgments, and we'll see how that turns out. I can't predict yes or no what exactly that labeling language will look…

Thanks. I really appreciate it.

Thanks, Mark. Thanks for the call – the question, excuse me. Great. Darla, next caller, please?

Is from the line of Jami Rubin with Goldman Sachs. Jami Rubin - Goldman Sachs & Co.: Thank you. Just a follow up, Roger, what gives you confidence that the FDA will approve KEYTRUDA without a survival benefit just given that Bristol has now proven overall survival both squamous, non-squamous in both PD-L1 positive and negative express patients? So just if you could share that – your level of confidence in that issue. And secondly, when do you plan to file in lung in Europe? And then thirdly a question for you, Rob. I noticed that you highlighted a revenue hedging benefit and based on my math that would seem to be $200 million or about $0.06 to earnings. Is that how we should look at that and is that something that's going to continue for the rest of the year? Thanks. Roger M. Perlmutter - Executive Vice President & President, Merck Research Laboratories: Jami, I have confidence that the data that we have provided to the FDA are registration worthy. We've identified a population of patients for whom we received breakthrough designation. We've had lots of discussions with the FDA. I think we recognize the benefit that inures to these patients from treatment with KEYTRUDA and we'll move forward on that basis. With respect to the European filing, of course, as I mentioned, and as you know, KEYTRUDA's under review in Europe for melanoma and while that review process continues we'll wait and sit back and once we know what that answer is we'll be in a position to file with respect to non-small cell lung cancer. Robert M. Davis - Chief Financial Officer & Executive Vice President: Good morning, Jami. With your question on the hedging, it's a little less than the number you quoted but generally you understand it correctly. It flows pretty consistently from the revenue down to earnings and as you look for the rest of the year, obviously it will depend on where currency rates end up. But assuming they continue where they are today, you should expect to see a proportion of benefits similar to what you saw in Q1 for the remainder of the quarters. Jami Rubin - Goldman Sachs & Co.: Thank you.

Thank you, Jami. And, Darla, next caller?

It's from Marc Goodman with UBS.

Hey, guys. First question is if you could give more detail on KEYTRUDA and what's happened so far, number of patients on drug? How's it being used? Mono versus combo? First line, second line, that kind of thing? Second question is on Hep C, can you talk about the potential here that there's some limitations just in the experienced patients just given the data that we saw? And then third just on BRIDION, we keep hearing the same thing on BRIDION, is this ever going to make it through the U.S. FDA? Is there something new that they're bringing up or is this just the same old stuff and we're going to have to go back and do more data or what's happening here? Thanks.

Okay. So, Adam, do you want to take the KEYTRUDA mix of patients? Adam H. Schechter - Executive VP & President-Global Human Health: Yeah, absolutely. Good morning, Marc. First of all, what I'd say is we had rapid penetration of our on-label indication, and if you look, we had sales of about $83 million. The U.S. was $66 million of that. Most of the patients that have been treating are on label. So we think about 75% of the patients are in the approved indication. This is where we promote KEYTRUDA. The NCCN coverage takes some time for physicians to become aware of and for them to adapt. I think that that will increase over time, but it's still early.

Roger? Roger M. Perlmutter - Executive Vice President & President, Merck Research Laboratories: And, Marc, with respect to – you had two questions. First, with regard to our doublet treatment of HCV, and spoke of limitations, I actually think the data are extremely strong, and they are especially strong actually in patients that are difficult to treat who have for a variety of reasons fit into the category where it's difficult to get therapy to result in sustained virologic response. So I actually think the totality of the data set, and it's a very large data set, is really quite strong. I don't see it as limited in that way. With respect to BRIDION, we think our data set well characterizes the hypersensitivity reactions that can occur with BRIDION administration. FDA is eager to get additional information about that study in particular, which they have asked for sensitivity analyses about, and they also intend to scrutinize the data from each individual site. And as soon as we can get that done, I'm hopeful that we and they will agree that BRIDION is appropriate for the U.S. market, but it's important that they have their questions answered, and we're doing everything we can to get those answers to them.

Great. Thanks for the question, Marc. Darla, next caller?

It's from Gregg Gilbert with Bank with Deutsche Bank.

Thank you. First for Adam a KEYTRUDA commercial question. In the PD-1 space, so far I assume that the price is the price from the two companies. But my question is about whether you see these products moving into a contracting environment in lung cancer or perhaps not until there are more players or perhaps never in this class? What's your views on that and how it evolves over time? And then for Roger, where do you see the field settling on first-line melanoma treatment, monotherapy PD-1 or combo therapy with ipi [ipilimumab]? Obviously some data out in both of those cases recently. And lastly, Roger, beyond CETP, are there any sweet spots in cardiovascular research that you think make sense for Merck internally or externally given your current portfolio and heritage in the area? Thanks.

Adam? Adam H. Schechter - Executive VP & President-Global Human Health: Hi, Gregg. The first thing is if you look at KEYTRUDA, the vast majority of formularies have put both products on formulary. And they are looking at this as a way to allow physicians to have choice. In this class, obviously, reimbursement is different, so the way in which you can contract is different than in other classes and how you might think about it. But I'd also say with so many different tumor types being developed, with so much different data by indication being developed, I think that over time there will be multiple products that will continue to be available so physicians can choose which product they want for which indication, which tumor type, and I don't see that necessarily changing right now over time.

Thanks.

Roger? Roger M. Perlmutter - Executive Vice President & President, Merck Research Laboratories: And, Gregg, with respect to therapy for melanoma, just to elevate a little bit, the good news is that more and more profound results are being obtained in patients who previously had no hope of treatment. And the results that we saw with KEYTRUDA monotherapy versus ipilimumab, previously the best available therapy for people with advanced disease, were so impressive that the Data Monitoring Committee had to stop the study early for a difference that emerged very early with respect to overall survival. So that's very good news. The question is can we get beyond what we see with monotherapy in combination therapies and do better yet? And for there, first of all we need to see direct comparisons between the combination of a PD-1 directed therapy plus, let's say, a CTLA-4 directed therapy versus a PD-1 directed therapy alone. We are doing such studies. Bristol-Myers is doing such studies. We'll have an opportunity to see what those kinds of data look like, and that will be important. And beyond that there are other combinations, which may prove to be attractive, and we and others are pursuing those as well. I see a better bright future for this, and I think we're going to continue to make strides. The platform of PD-1 directed therapy is, I believe, foundational for the treatment of this malignancy and for many others, and we're going to see further advances over the next few years; all good news. With respect to cardiovascular disease, obviously we're doing a great deal. One of the things that we have been working on is the soluble guanylate cyclase activators. As a result of our recent interaction, we now have access to Adempas and in addition, we have a set of other compounds which come from Bayer and from us too, which address a whole family of interesting potential indications in that area. So we are doing a lot of work in cardiovascular research, and we're finding (48:38).

Thanks.

Great, thank you, Gregg. Darla, our next caller.

It's from Alex Arfaei with BMO Capital Markets.

Good morning. Thank you for taken the questions. Congratulations on the quarter. Roger, do you anticipate having difficulty recruiting for the KEYNOTE-024 study in PD-L1 positive lung cancer patients given what you showed at AACR? If a patient has greater than 50% PD-L1 expression, why would they agree to go on chemo? And then a follow-up for Rob. How much of the gross margin was driven by FX versus product mix? Thank you. Roger M. Perlmutter - Executive Vice President & President, Merck Research Laboratories: Yes, Alex. It is a changing environment and data are coming in very, very rapidly. I think it's important to recognize that these studies are conducted around the world, in a variety of jurisdictions where we are at different stages in terms of the availability of PD-1 directed therapies. As is typical in such cases there are opportunities to do studies directly comparing the therapies that exist locally. There are important questions that are being asked in KEYNOTE-024, and so we are eager to see those studies completed and to be able to present those data. Robert M. Davis - Chief Financial Officer & Executive Vice President: And then with your question to product gross margin, if you look at the gross margin in the quarter, it grew about 240 basis points. And one of the major impacts was the fact that we had the divestitures of MCC and some of the other products, so the change in product mix. But if you look at it, a little less than half would have been coming from the benefit of FX.

Thanks, Rob. Thanks, Alex. Darla, our next caller.

It is from the line of David Risinger with Morgan Stanley. David R. Risinger - Morgan Stanley & Co. LLC: Thanks very much. I've had a number of my questions asked and answered already, but I guess I have a few more. First, can you comment on the expected EPS accretion from Cubist in 2015? And then, could you provide a little bit more color, I know that you commented on the hedging benefit, but other revenues stepped up dramatically in the first quarter of 2015 relative to the fourth quarter of 2014. Could you provide any more quantification of the hedging benefit? And then, as we look to modeling the second quarter of 2015, how should we model other revenue sequentially versus what you just reported in the first quarter of 2015? Thanks very much. Robert M. Davis - Chief Financial Officer & Executive Vice President: So if maybe I will take the second question first, and then we can jump into the Cubist question, as well. So if you look at other revenue in the quarter, it's really probably worth unpacking it a little bit because while in some ways it looks like a decline year-on-year, I would have you recall that in the first quarter of last year, we did have the gain from the sale of the U.S. SAPHRIS rights as well as the fact that we do have AstraZeneca joint venture revenues that were in that line that no longer repeat. So in reality, we did see year-on-year an increase of about $250 million in that line. And if you look at it from that perspective, the vast majority of that was FX hedging gains we had in the quarter, as well as we did have the third-party manufacturing sales as a result of the MCC divestiture we still were supplying Bayer, and that sits in that line, and then we had alliance revenue. So those really are what drive the change in other revenue, but the single biggest piece of it, if you look at it year-on-year or frankly sequentially, is going to be the foreign currency hedge gains we had. And then with regard to the Cubist accretion, recall when we gave the guidance on this deal earlier, we said we would expect it to be modestly accretive in 2015, and that continues to be the case.

Thank you, Rob. Thank you, Dave. And Darla, our next caller?

It's from the line of John Boris with SunTrust Robinson.

Thanks for taking the questions. First one on KEYTRUDA. There certainly has been a lot written in the trade publications, especially from the head of the FDA oncology division; he certainly has put his pen to approving products. We saw CYRAMZA approved in nine weeks, OPDIVO approved materially earlier than anticipated. Just your thoughts on is this a new paradigm out of the FDA, and could we see potentially earlier than expected approval of KEYTRUDA in lung, and if so are you ready commercially to match share of voice within the marketplace? On HCV, just reiteration of your filing timeline there, and then Adam, any comments about Europe and Japan growth dynamics? Certainly it would appear that a lot of the growth is coming from ex-U.S. relative to U.S., but your commercial readiness to potentially launch HCV before the end of the year? And then just lastly, can we anticipate Zilmax back in the model before the end of this year or back in the market? Thanks.

Okay. You want to start, Roger, with KEYTRUDA and timing, and Adam, go to share of voice? Roger M. Perlmutter - Executive Vice President & President, Merck Research Laboratories: Yeah, so for KEYTRUDA and the KEYTRUDA review, I just would say that Dr. Pazdur speaks for himself. He is the head of the oncology review division, and he's made plain that he is eager to advance these programs as best he can working with his colleagues. He spoke at the meeting (54:28) directly to this point. We've tried to provide the agency with the information they need to make their decision, but it is their decision. I really can't speculate on timing. With HCV with respect to filing, again, we will file by midyear. Adam H. Schechter - Executive VP & President-Global Human Health: And then with regard to lung, so we are ready. As soon as we have approval, as soon as the FDA provides that to us we're ready to launch. We've been building our lung capabilities. We've added sales representatives. We already have sales representative selling Emend in many of those offices already, so we've built the customer facing teams, we've begun working on our scientific platform with key scientific leaders. So we are ready as soon as Roger and the team can work with the FDA to get us approval. In terms of HCV, so we've been in this market for a long time, and if you look at our success when we launched our protease inhibitor, we did very well everywhere around the world. And if you look at markets in Europe, our market share was very high, I think higher than most people would have expected. When we no longer promoted our PI in those markets, we kept a commercial presence because we knew at some point we'd be launching again into the marketplace. So we never left the market for HCV in Europe or Japan. In fact, in Japan we continued to promote PI in that market. So we are ready for HCV. We are very excited about that opportunity, and frankly as soon as Roger and the team work with the FDA to get us approval, we'll be off to the races. We think this is a very exciting opportunity for Merck. It's an exciting opportunity for patients, and we are certainly ready. Robert M. Davis - Chief Financial Officer & Executive Vice President: And, John, with your question regarding Zilmax, recall that we voluntarily withdrew that product. Right now we are in the midst of trying to work through an infield study working with our industry partners and given the timing of that we really can't speculate when we'll be back in the market. We're continuing to work through that, but right now for purposes of how we'd look at the year, I would not assume any Zilmax.

Great. Thanks, John. Thanks for the call – questions. And, Darla, next caller?

It's from Seamus Fernandez with Leerink.

Thanks for the questions. Just a couple of quick ones on KEYTRUDA. I know it's short-lived but maybe, Adam, if you can help us with the percent of sales in the community versus academics? And if you can't give us that number maybe you could help us in terms of the increased penetration of physician – oncology physician practices for the on-label indication? And then separately for the on-label indications, can you give us a sense of where you see the duration of therapy evolving at least in the melanoma setting? And then my last question, as we think forward to your update on anacetrapib, can you just remind us how that sort of fits in terms of what your expectations were in terms of timing previously? What is the anacetrapib update coming toward the end of this year a little bit of a delay implying that events are coming in just a little bit more slowly? Thanks a lot.

Adam? Adam H. Schechter - Executive VP & President-Global Human Health: Yeah, Seamus, so first of all with regard to KEYTRUDA, if you look at our sales, right now the vast majority of those, we believe greater than 75%, are for the approved indication in melanoma, and if you look at the break out between community-based versus not-community-based physicians, the majority of sales still are from the non-community-based physicians, from the big institutions. But you should know, we are in all the offices of not only the large institutions but the community practices as well and we continue to have a strong presence covering over 90% of the prescriptions of physicians prescribing for melanoma. In terms duration, it's just too early. In this market the data is hard to find, so it's very difficult for us to tell you how long people in the marketplace that are starting a product have continued in taking the product. So it's just very early for us to have that type of data. The data in oncology is a little bit harder to get than in primary care.

Okay. Roger M. Perlmutter - Executive Vice President & President, Merck Research Laboratories: And just to follow up on that, Seamus. This is Roger. As you know the duration of therapy in our clinical trials is two years because there is no marker that we can follow in responding patients that would tell us that it is essential to maintain the drug in order to keep the response, and that's one of the questions that is continuing to be explored in additional studies across the entire program. And then with respect to anacetrapib, the protocol revision that has been proposed by the steering committee, assuming that it is accepted by governing bodies, will delay by a few months the first interim analysis but it's not going to affect the conduct of the study at all, which is proceeding exactly as planned and is, of course, end-point driven.

Okay, great. Thank you.

Great. Thanks, Seamus. And, Darla, I think we have time for one more call.

Your final question comes from the line of Colin Bristow with Bank of America.

Hey, guys. Thanks for taking the questions. On hep C, could you talk about your level of confidence in developing a shorter regimen with one of the triplet combinations? And when will we first see data from that C-CREST trial? And also on hep C, can you talk about how you see the pricing environment evolving in 2016 given the market's going to become increasingly crowded? And then just a quick one on odanacatib, can you provide us an update on this program? Thanks.

Okay. Roger, do you want to talk a bit about this? Roger M. Perlmutter - Executive Vice President & President, Merck Research Laboratories: Yeah, so for the hep C program, the question is, of course, can we – we have a terrific set of data that we presented with respect to doublet, and we've talked previously about developing a triplet therapy which would be pan-genotypic, shorter duration and could be used irrespective of comorbidity. So we continue to work on that. Our triplet with 3682 is under study in Phase 2. We hope to be able to begin Phase 3 sometime perhaps in the beginning of next year or so. Data from the Phase 2 study should be available sometime around the end of this year. And once those data are available, that will help us to understand what we can do. Of course, we've already previously published data demonstrating that we can use a shorter regiment by using sofosbuvir as the nucleoside inhibitor in combination with the doublet therapy. So we have some confidence that one could do that, but it needs to be explored, of course, with 3682, and that we'll do. With respect to odanacatib, the program continues as we indicated before. We are working to adjudicate the set of adverse events that were scored in the study. It's a large study, and the adjudication process is proceeding in an independent and blinded fashion. We worked with the FDA to create that adjudication process. We hope it will be done soon and then we'll be in a position to file the drug. Adam H. Schechter - Executive VP & President-Global Human Health: And Colin, in regard to the hepatitis C market, first, it's a very large market. There's more than three million patients in the U.S. alone, and there's more than 100 million patients worldwide, so we think that this will be a very big, a very important market over time. We've seen some of the pricing and contracting that's occurred in the market, but we believe that with our product, and that we're developing a highly-effective, well-tolerated ribavirin-free pan-genotypic regimen that has a minimal treatment duration for a broad variety of patients, that we can be successful in this market. And we believe that despite what's happened in the past with some of the pricing that it'll still be a very big important market for us. So we remain very excited about coming back into the hepatitis C market in the United States but also globally.

Okay. Thank you, Adam. And I'll turn it over to Ken. Kenneth C. Frazier - Chairman & Chief Executive Officer: Okay. Just to close the call, we are seeing steady progress, as you've heard, in our pipeline, and we're also experiencing solid growth in our underlying business. We're pleased with the momentum of the business, and we look forward to speaking with you again. Thanks.

Thanks, everyone.

Ladies and gentlemen, this concludes Merck's first quarter 2015 earnings conference call. You may now disconnect.