My name is Laura, and I will be your conference operator today. At this time, I would like to welcome everyone to the Merck & Co. Q3 Sales and Earnings Conference Call. All lines have been placed in mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to your host today, Peter Dannenbaum, Vice President, Investor Relations. Please go ahead.

Thanks Laura and good morning. Welcome to Merck's third quarter 2020 conference call. Today I'm joined by Ken Frazier, our Chairman and Chief Executive Officer; Rob Davis, our Chief Financial Officer; Dr. Roger Perlmutter, President of Merck Research Labs; Frank Clyburn, our Chief Commercial Officer; Mike Nally, our Chief Marketing Officer; and Dr. Dean Li, Head of Discovery Research. Before we get started, I'd like to point out a few items. You will see that we have items in our GAAP results such as acquisition-related charges, restructuring costs, and certain other items. You should note that we have excluded these from our non-GAAP results and provided reconciliation in our press release. We have also provided a table in our press release to help you understand the sales in the quarter for the business units and products. I would also like to remind you that some of the statements that we make during today's call may 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 2019 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 obligation to publicly update any forward-looking statements. Our SEC filings, today's earnings release and an investor presentation with some highlights of our results are all posted on merck.com. With that, I'd like to turn the call over to Ken.

Thank you, Peter. Good morning and thank you all for joining today's call. I want to start by acknowledging the extraordinary efforts of scientific experts across the biopharmaceutical industry who are rising to the challenge and working tirelessly to find solutions to help end the pandemic. We remain confident that science will prevail over COVID-19 and Merck is committed to contributing its scientific expertise and resources in support of these worldwide efforts. As we have mentioned in the development of medicines and vaccines to address the pandemic is a testament to the societal value of our industry's continuing investments in science and to the women and men who are working with urgency and dedication to make it happen. Merck has a special responsibility to apply its expertise given its long and productive history in antiviral and vaccine research and we are advancing our vaccine and antiviral programs through focused investment of effort and resources. We have made significant progress over the last few months across our COVID program and our learnings reinforce our confidence that the approaches we've selected are among the most promising. We are moving forward with dispatch and diligence, designing our clinical studies in a manner that is successful will provide physicians and patients confidence that our candidates are safe, effective, simple to administer and distribute, and capable of being used not just in millions, but billions of people. While we understand the importance of moving expeditiously in light of the pandemic, our experience with the natural history of other pandemic and epidemic viral diseases counsels us to seek enduring solutions that can be deployed globally now and for future generations. It is an exciting time at Merck and I am encouraged by our scientists enthusiasm for the innovative research happening in our lab, not just on…

Thanks Ken and good morning everyone. As Ken noted, we continue to be encouraged by the strength and resiliency of our business as we once again delivered year-over-year growth despite ongoing impacts from the pandemic. Merck employees across the organization are continuing their important work, addressing the pipeline, and ensuring patients have access to our portfolio, medically important medicines and vaccines, while contributing to industry-wide efforts to develop solutions to the pandemic. In the quarter, we saw a strong recovery in our performance and the underlying demand for products across our key growth pillars turning us up very strong close to the year as reflected in our updated guidance. We continue to execute on our long-term strategy, including our capital allocation priorities. We are investing behind our deep pipeline including our COVID candidates and have been active on the business development front. Of note, this quarter we successfully entered into a strategic collaboration agreement with Teijin to gain access to two oncology assets that further augment our pipeline. We are committed to investing in our business for the long-term and we will continue to do so in line with our mission of following the science to solve unmet needs of patients around the world. Now, turning to our third quarter results. Total company revenues were $12.6 billion, an increase of 1% year-over-year or 2% excluding the negative impact from foreign currency. The pandemic negatively impacted our third quarter human health results by approximately $475 million, mostly in our vaccines portfolio. There was minimal impact to animal health. Our revenue growth excluding this estimated impact would have been approximately 5% or 6% ex exchange. The remainder of my comments will be focused on the underlying performance of our key growth drivers and near term trends and will be on an ex…

Thank you very much, Rob. During the third quarter, our laboratories made important advances on many fronts, including regulatory approvals, filing of new drug applications, obtaining meaningful new clinical data, advancing new product opportunities into development, and forging new R&D alliances. Our press release tabulates many of these accomplishments, but cannot convey the rapid pace at which these programs are advancing. As an example, during the third quarter the United States Food & Drug Administration approved an expanded label for KEYTRUDA in the setting of relapsed or refractory classical Hodgkin lymphoma, based on our KEYNOTE-204 study that compared KEYTRUDA monotherapy to treatment with brentuximab vedotin a standard therapy. But note that approval of this indication was received at just three months after acceptance of the file, a reflection of the high quality of the underlying work by our clinical development and regulatory colleagues. KEYTRUDA is also under review for the first line treatment in combination with chemotherapy of previously untreated locally recurrent in operable or metastatic triple negative breast cancer, with tumors expressing PD-L1, the combined proportion score of 10 or greater, based on the results of our KEYNOTE-355 study for the PDUFA date of November 28. And also for the neoadjuvant and adjuvant treatment of triple negative breast cancer, based on the results of our KEYNOTE-522 study with a PDUFA date of March 29, 2021. Results from these studies have been previously presented. In Europe, the Committee for Medicinal Products for Human Use or CHMP adopted positive recommendations for Lymparza as monotherapy in the treatment of patients with metastatic BRCA mutant, castration-resistant prostate cancer who have progressed following treatment with a modern androgen blocking agent. Lymparza also received a favorable opinion for the first line maintenance treatment in combination with bevacizumab of advanced homologous recombination deficient ovarian cancer based…

Thank you, Roger. Laura, if you could assemble the queue for questions, please? And I'd like to ask the analysts today to limit themselves to one question. We're going to try to end right at nine because I know there's other calls that you're looking to get on.

Thank you, sir. [Operator Instructions] Beginning the Q&A, we have your first question coming from the line of Steve Scala from Cowen. Your line is now live. Go ahead, please.

Thank you and it's tough to limit to one question, but I'll comply. Can -- Merck has profoundly transformed under your leadership. In the wake of Dr. Perlmutter’s retirement, I wanted to note that I believe two years ago, can you agree to stay on beyond 2019? May I ask whether or not you will stay on as CEO of Merck, beyond 2021 to see this further transformation that the company is undertaking? Thank you.

Thank you, Steve. The Board will continue to evaluate the timing of CEO succession right now. There is no specified timeframe for CEO retirement. What I will say is that I am confident that we have internally strong candidates to take this job and I look forward to working with the Board to actively review our leadership and succession planning and to ensure that we have an orderly transfer when the Board deems it appropriate.

Thank you, Steve. Next question, please?

Thank you. Your next question will come from the line of David Risinger from Morgan Stanley. Your line is now live. Go ahead, please.

Yes, thanks very much. So I want to say congratulations to you, Roger and thank you for all of your contributions, including transforming cancer treatment for patients worldwide and your contributions will be missed. So my question is, with respect to the Phase 2 oral antiviral data from Ridgeback, could you provide some more color on how you expect that data to be communicated and what you would focus this on? Thank you.

Thanks very much, David. Yes, the, the Phase 2 studies carried on in the United States and the UK, are relatively small studies that are focusing on neurological endpoints. That is understanding reductions in viral load and reductions in virus infectivity from patient samples. So these data, I'm hopeful that as the studies complete enrollment and they are dose escalation studies, that these studies will provide data over the next couple of months. And once those data are looked at, and there's enough data that have accrued, then presumably, we would provide a top line statement about those data. But of course, the full scientific results will be published shortly thereafter. We will certainly move expeditiously because, of course, we know the world is very interested in this as we are ourselves.

Thank you, David. Next question, please?

Your next question will come from the line of Tim Anderson from Wolfe Research. Your line is now live. Go ahead, please.

Thank you. I have a question on KEYTRUDA and adjuvant. Previously, Astra announced a delay in the readout of their adjuvant lung trial because of the ADAURA results that necessitated a design adjustment for EGFR positive patients on Tagrisso. And I'm guessing that's going to impact other companies' adjuvant lung trials as well. Can you comment on the timing of us seeing your first lung adjuvant readout? And more broadly in adjuvant, what's the timing of the next adjuvant readout for you? Thank you.

I'm sorry.

Yes. Go ahead. Roger, please.

Yes, so our adjuvant studies in non-small cell lung cancer are proceeding as planned, where we are not at the moment undertaking any reevaluation of those studies. Again, it's difficult to comment on exactly when the studies will read out, because, of course, we're recruiting events. But we are anticipating that the first of an adjuvant lung study will be available sometime later next year and that's our hope, but time will tell.

Thank you, Tim. Next question, please?

Your next question will come from the line of Chris Schott from JP Morgan. Your line is now live. Go ahead, please.

Great, thanks very much and Roger, best of luck with everything and congrats on all the success over the years. My question was on GARDASIL in the U.S. What do you think it's going to take to normalize results here? I guess my question is, do we need to wait until we get another back-to-school season for this to normalize or do you think that trends can start to get back to normal even in a COVID environment like we're operating today? And I guess when things normalize, should we think about there being some sort of catch up bolus for the patients who missed their vaccination this year or is this going to go back to just kind of a normal cadence of what we've historically seen with that vaccine? Thanks so much.

Frank?

Yes. Hi, this is Frank. With regards to GARDASIL in the U.S. I think I'll take the second part of your question first, with regards to the catch up. Our hope is that we will see some catch up over time. In particular, as we put more commercial efforts, making sure that the adolescent cohort in particular are well aware of the importance of getting vaccinated with GARDASIL, so that is our plan. With regards to looking at the timing, I think back-to-school, as you head into '21 will be an important timeframe. Just to give you some additional color of what is happening in the U.S., well visits were down in the adolescent cohort about 30% compared to three-year historical averages. As Rob mentioned, we are seeing a more positive trend, although not what we expected. So we'll have to see here over the next several quarters how things evolve, but we're still very confident in GARDASIL growth in the U.S. as well as globally. To Rogers point, the Sweden data is very important data, which I think reinforces the importance of the chance to prevent cervical cancer for girls and boys around the world. We also saw significant growth continue in China, as well as Germany, and many of our ex-U.S. markets. So I would say, we're going to look over, obviously the next couple of quarters, but our confidence in GARDASIL, both mid and long-term is still very strong and we still feel very strong about the overall demand prospects for the product. Thank you.

Thank you, Chris. Next question please?

Your next question will come from the line of Mara Goldstein from Mizuho Securities. Your line is live. Go ahead, please.

Great, thanks so much for taking the question. I just wanted to ask on the COVID vaccine program, maybe if you could just discuss the clinical program in the context of the pending readouts from other vaccines and contingency plans to make sure that you're able to fully enroll those trials on a timely basis?

Right, thanks Mara. The -- of course it's very difficult to speculate on what the results of other studies will be. Like everyone else, we're hopeful that there will be many vaccines that yield positive readouts, in terms of reduction in morbidity and ideally, mortality associated with COVID-19 infection and time will tell. But in reality, we'll be sitting at the end of the year with what we hope will be quite strong single dose of immunogenicity data and we have well designed Phase 2/3 protocols that we can begin at that point. Those are global protocols and my expectation, and unfortunately, given the very large impact of the pandemic, my expectation is that it would not be difficult to enroll those studies in a relatively short period of time, just as has happened for the other studies that have been conducted using, for example, the mRNA vaccines or the and the virus vaccines. So I'm not sure that there's anything there to respond to, except that we're eager to see the data just as everyone else is and we hope very much that there will be efficacy and a good safety profile.

Thank you, Mara. Next question, please?

Your next question will come from the line of from Umer Raffat from Evercore. Your line is now live. Go ahead, please.

Hi, thanks so much for taking my question. Roger, I noticed for the COVID antiviral, there was a dedicated Phase 1, Phase 2 trial, evaluating viral clearance. However, heading into the two Phase 3s we're seeing online, it doesn't look like the viral clearance is the primary endpoint or even a secondary endpoint, at least not on clean trials. And I also noticed you mentioned good safety. So just wanted to understand are you expecting a viral clearance benefit? And how do you see the efficacy look different or similar relative to what we've seen in Remdesivir so far?

Right and thanks very much for the question. To be honest, I am expecting to see viral clearance improve and that's based on a whole variety of inputs and the fundamental mechanism of the drug. I do think that in terms of reduction of viral burden, that it is very likely that won't appear they will be superior to Remdesivir based on preclinical studies. Of course, that has to be demonstrated in the clinic, but we will have quite a lot of Phase 2 virologic data based on the [indiscernible] studies which of course were intimately involved with the dose escalation studies. From a certain perspective, ab initio, this is a virally mediated disease. If you get rid of the virus, you should get rid of the disease. The question is, can you get in early enough and is the effect strong enough? The good news is that this is an orally administered drug. It could in principle be given to individuals who either are symptomatic or who have been in contact with virally infected people. But in order to broaden the use, we need to understand both pre-clinically and clinically, that the drug is safe to administer to people who are otherwise healthy and just at risk. So when we speak about safety, that's really what we're concerned about and we're waiting for additional data from more subjects who have been treated with the drug. The drug has been used, it is in a five day regimen and across now several hundred people it seems to be extremely well tolerated. We're not aware of any safety signals at all with the drug right at the moment. So we will just wait and see. I mean, that's the important information that we need to have.

Thank you, Umer. Next question, please?

Your next question will come from the line of Gregg Gilbert from Truist. Your line is now live Go ahead, please.

Thank you and best of luck to you Roger and Dean for what's next. I have a question on V114 sort of a maybe an R&D and marketing question. Other than the timing advantages you might have versus Pfizer, particularly on the pediatric side, how do you envision having a meaningful share of this market over time if Pfizer successfully develops its 20-Valent product? Investors tend to view this as a winner take all type of market? I think you've made some comments to the contrary, may be you can put some more details on how that could be achieved? Thank you.

Mike Nally?

So thank you for the question. When we look at the market, the first and foremost area that we're looking at, is making sure that we actually confer protection across the 13 shared serotypes of PCV13. And I think what we've been able to demonstrate in the Phase 2 results that you've seen in the pediatric population is that you see a robust immune response across those 13 shared serotypes. And that's after dose three, which I think is also an important factor, because the primary series completion is really an important time point. When you think about what's next, then it's about how do we add to those 13 shared serotypes. And for our program, we've been able to show a robust immune response on 22F and 33F, as well as a really robust response on serotype 3, which is a key contributing factor to residual disease. And so, I think when we look at the real effort on V114, it's always been about making sure that we provide the relevant level of protection in the core serotypes, but then add all the serotypes to it. I think the question on the first year of life will be an important one as well. And we're looking forward to seeing more data from both our program as well as Pfizer's program.

Thanks, Gregg. Next question, please?

Your next question will come from the line of Navin Jacob from UBS. Your line is now live. Go ahead, please.

Hi, thanks for taking the question. My congrats as well to Roger. Roger, wondering if you think it's feasible for a COVID vaccine, specifically yours, but also just generally to achieve sterilizing immunity. Obviously the focus of most of the trials currently is reduction in symptoms, but given the discussion around herd immunity and the importance of herd immunity for opening the economy fully back open, what does that mean if vaccines aren't able to achieve a significant amount of reduction in infection?

Right. Okay, thanks for the question. I think first and foremost, of course, what we want out of a vaccine is to prevent clinical disease. I don't think any of us would care that much if people were infected, but didn't develop any disease. If we could guarantee that, that would always be the case, of course, provided that enough people can be can be immunized. I think sterilizing immunity will be difficult. Just in the nature of things, in these respiratory infections, it is difficult to prevent any viral colonization. That will be challenging. But frankly, we are still in the early phases of understanding COVID-19 and SARS-CoV-2 the causative agent. So we really don't understand a lot about the viral dynamics here. The state of the immune response in the natural infection setting and the durability of that immunity either from natural infection or what we hope we'll see after immunization, there's a lot, yes, that we need to study. It is clear that at least in rare circumstances, individuals who have been infected and cleared the infection can be re-infected and that should be a cautionary note for all of us. Over time this could evolve in a fashion that re-administration of a vaccine is required in order to prevent recrudescence of disease after exposure to the virus or it may be the case that we're able to control it with a single administration, which is of course what we hope for. I just think we don't have that information right now and we'll learn a great deal over the next few months as additional data become available.

Thank you, Navin. Next question, please?

Your next question will come from the line of Geoff Meacham from Bank of America. Your line is now live. Go ahead, please.

Good morning, guys. Thanks for the question. Roger, congrats on the retirement. It's been great working with you both at Merck and at your time at Amgen. Question on molnupiravir, just wanted to see if you had any more details from the Phase 1 such as common AEs or SAEs? And given that it's an oral, it does seem ideally suited for newly infected but mild patients. I want to get your perspective on that. Thank you.

Right, Geoff? Thanks very much. Yes, molnupiravir from the -- again, small number of subjects who have received the drug in Phase 1 studies and now are in Phase 2 studies it seems to be extremely well tolerated in a five-day course b.i.d. doses that are well above what we believe is required to suppress viral replication or actually result in aero catastrophe and essentially the elimination of the virus. So, all of that looks, looks quite good. As you say, because it's an orally administered drug, in principle, all other things being equal, it could be administered even prophylactically in individuals at high risk. At the moment, we are waiting for additional data because I pointed out that the drug is Ames-positive and bacterial mutagenesis assay, and although the drug did not score in eukaryotic micronucleus assays, and there are other reasons to believe that that won't be a problem. Nevertheless, we're performing a whole variety of studies to explore immunogenicity. Assuming that those studies are negative, then I think we could think much more broadly about prophylactic administration. At the moment, we're thinking mainly about the place where benefit risk is clearly the strongest, and that is in individuals who are infected, particularly symptomatic individuals early in the course of disease, an ideal place for an early administered drug to attenuate the effects of that infection.

Thank you, Geoff. Next question, please?

Your next question will come from the line of Terence Flynn from Goldman Sachs. Your line is now live. Go ahead, please.

Hi, thanks for taking the question and best of luck, Roger. Thank you for everything you've done for the field. You guys are advancing a co-formulation of KEYTRUDA and your CTLA-4 into Phase 3 for lung cancer. Just wondering how broad your co-formulation strategy is and if it's also possible, you could co-formulate KEYTRUDA with your anti-TIGIT. Thanks.

Right? Well, the reality is, we've been working on checkpoint inhibitors for a long time now as have many others, and KEYTRUDA in particular, but PD-1 directed therapies more generally have very dramatic effects that are easy to see. We hope to find something that would be even better than KEYTRUDA, but neither we nor anyone else has found such a thing. We are pleased that our agents have activities when administered by themselves, but the activity is modest. It's not KEYTRUDA like activity and where we see the greatest effect is in combination with KEYTRUDA. So it makes sense that these things should be administered with KEYTRUDA. That's the place where you're going to see the biggest benefit and where co-formulation is possible. That's kind of the ideal. That's what we would do because then with a single administration get both drugs, assuming that you don't add a substantial safety burden. So we've conducted our studies and looking at those kinds of questions. Clearly for our CTLA-4 directed therapy, that makes a lot of sense, but it makes a lot of sense for all of the agents that we're looking at and we are looking both at the physical compatibility for co-formulation, and as well, whether that makes sense from a clinical perspective. Where it does, it's kind of the right thing to do for patients.

Right, thank you Terence. Next question, please?

Your next question will come from the line of Seamus Fernandez from Guggenheim Securities. Your line is live. Go ahead, please.

Thanks very much, and Roger, best of luck, and it's been great working with you over the last many years. I wanted to ask a commercial question. We're starting to see a lot of promotional efforts by other pharmaceutical companies to kind of drive a return to growth and a return to physicians' offices, as it relates to primary care visits, and obviously impacting diagnosis of disease. I'm just wondering what Merck is doing on the commercial side, and believes is necessary to really kind of get us back on the right track in 2021? How much of that are you seeing in your business and what are you doing to drive growth in '21?

Yes, hi Seamus, this is Frank. I think that's really important and we're putting a lot of effort. As you can imagine, a lot of those activities right now are still virtually being done, especially in certain markets around the world. But if you look at what we're doing, in particular, in the vaccine area, I think you may be have seen some of our non-branded commercial activities to raise awareness about the importance of HPV vaccination. You can see that we are continuing to put a lot of effort behind KEYTRUDA with healthcare professionals, as well as with our consumer campaigns and activities. And we also are in many markets around the world, continuing to engage in educational programs to make sure that physicians are well aware of a lot of the new data that you've heard Roger speak about here this morning. So we have significant efforts around the world and that's why we're confident in our overall growth profile, as we look towards not only the rest of this year as we head into 2021.

Thank you, Seamus. And thank you all for limiting yourselves to one question. Great questions. I'd like to turn it over to Ken for closing comments.

Thanks, Peter. As you've heard, we remain extremely confident in our strategy and we're highly motivated by the opportunities before us. We believe our ongoing scientific leadership, promising pipeline, upcoming launches, and track record of solid commercial execution will drive long-term growth. We remain committed to bringing Merck mission alive by sharpening our focus on R&D and being at the forefront of life saving research that will be essential to solving for this pandemic, as well as other healthcare challenges. So thank you for joining us today. I hope that you and your family stay safe and healthy.

Thank you so much, presenters, and again, thank you, everyone for participating. This concludes today's conference, you may now disconnect, stay safe and have a lovely day.