Good morning. My name is Grace Lakra, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Merck & Co. Q4 Sales and Earnings Conference Call. All lines have been placed on 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 Peter Dannenbaum, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Grace and good morning. Welcome to Merck’s fourth quarter 2021 conference call. Speaking on today’s call will be Rob Davis, President and Chief Executive Officer; Caroline Litchfield, Chief Financial Officer; and Dr. Dean Li, President of Merck Research Labs. 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 provide a reconciliation in our press release. I would like to remind you that some of the statements that we make today 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 beliefs 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 2020 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. During today’s call, a slide presentation will accompany our speakers’ prepared remarks. The presentation, today’s earnings release, as well as our SEC filings are all posted to the Investor Relations section of Merck’s website. With that, I’d like to turn the call over to Rob.

Thanks, Peter. Good morning, everyone, and thank you for joining today’s call. 2021 has been a year of significant achievements and meaningful progress for Merck in the face of what has been a challenging environment for all of us. We delivered on our strategic priorities and took important steps to set a foundation for success in 2022 and beyond. We achieved strong operational performance, accelerated our broad pipeline, including molnupiravir, completed the spin-off of Organon, and acted on key strategic business development activities. We enter 2022 with strong momentum, and are pleased to reflect this in our initial revenue and EPS guidance. We continue to evolve with a more focused, more efficient and faster growing company, with an increased urgency to bring forward innovations to address critical unmet needs. This remains the core of our strategy to benefit the patients we serve, and in turn, create long-term value for all stakeholders, including our shareholders. Our business achieved strong revenue and earnings growth. Total revenues increased 24% in the quarter and 17% for the full year. Commercially, we have executed extremely well across all of our key performance drivers, including KEYTRUDA, GARDASIL and Animal Health. We delivered initial molnupiravir shipments to customers around the world, and following the FDA Emergency Use Authorization that was granted in late December, made meaningful progress towards our commitment to the U.S. government. Our dedicated teams worked diligently, including through the holiday season, to deliver 1.4 million courses of therapy to the United States, United Kingdom and other countries by year-end. Throughout 2021, we invested in the discovery, development, production and commercialization of medicines and vaccines, furthering the long-term sustainability of our business, all while delivering meaningful operating leverage and strong EPS growth. In total, 2021 was a year of strong execution of our strategic priorities…

Thank you, Rob. Good morning. 2021 was a year of exceptional performance for our business. We drove robust top line growth of 17% and bottom line growth of 33%. Our teams performed with agility and executed with excellence, despite challenges from the ongoing pandemic. We are also very proud of the significant efforts to bring molnupiravir to patients worldwide. These results reinforce the confidence we have in our science-led strategy and in our outlook for strong growth. We will continue to invest in our portfolio and pipeline as well as in business development to maximize growth over the near and long term and to create value for patients and shareholders. Now, turning to our fourth quarter results. Total company revenues were $13.5 billion, an increase of 24% or 23% excluding the impacts of foreign exchange. Molnupiravir contributed $952 million in revenue or 9 percentage points of growth. The remainder of my comments will be on an ex-exchange basis. Our Human Health business continued its strong momentum, growing 23%, driven by our key pillars and contribution from molnupiravir. Our Animal Health business also delivered robust performance with sales increasing 8%, driven by companion animal products. Now, turning to the fourth quarter performance of our key brands. In oncology, KEYTRUDA grew 16% to $4.6 billion, reflecting continued robust global demand. In the U.S., KEYTRUDA continues to demonstrate durable momentum across all key tumors and is benefiting from the recent launches in neo-adjuvant and adjuvant triple-negative breast cancer, renal cell carcinoma and in cervical cancer. KEYTRUDA continues to extend its strong IO class leadership and maintain its position in non-small cell lung cancer, capturing 8 out of 10 eligible new patients, despite competition. Outside the U.S., KEYTRUDA growth continues to be driven by lung cancer and the ongoing launches in head and neck…

Thank you, Caroline. Good morning, everyone. I will provide a brief summary of notable achievements in 2021 and then report on progress since the last earnings call. In 2021, we made meaningful advancements across our broader pipeline with approvals for new molecular entities, including VAXNEUVANCE, Verquvo and WELIREG, and an EUA for molnupiravir. We also made strides in women’s cancers with U.S. regulatory approvals for KEYTRUDA in cervical, endometrial and triple-negative breast cancer. In total, we received more than 30 approvals and filed more than 20 NDAs and sBLAs in the United States, EU, Japan and China. In 2022, we look to build on this progress and momentum. I will now cover notable regulatory milestones and clinical updates for our molnupiravir, oncology, pneumococcal, HIV and cardiovascular programs. As we enter the third year of the pandemic, the Omicron variant continues to wreak havoc on our communities and health care systems. In the United States alone, we are now seeing approximately 2,000 deaths a day. Vaccines and treatment options have the potential to help combat this pandemic. Since the first authorization for molnupiravir by the UK in November, we have received authorizations in 9 additional countries, including an Emergency Use Authorization in the United States and a special approval for emergency in Japan. In addition, other countries have provided authorizations to our voluntary license holders. Findings from the MOVe-OUT clinical trial published in the New England Journal of Medicine at the end of last year showed molnupiravir significantly reduced hospitalization or death in adult patients most in danger of progressing to severe disease. Importantly, for physicians and patients, approximately 90% fewer deaths were seen in those taking molnupiravir. These results reinforce that molnupiravir can provide an important oral treatment option for certain adults at high risk for severe illnesses. The Director…

Thank you, Dean. Grace, would you please start the Q&A? And we’d like to ask analysts to limit themselves to one question this morning, in order to get to as many questioners as possible. Thank you.

[Operator Instructions] Your first question comes from the line of Geoff Meacham from Bank of America.

I guess, one for Dean or for Rob. How strategically important is molnupiravir? Is the goal to maximize the revenue this year assuming that resistance doesn’t emerge, or are you guys making investments in a potential combination to turn this business into maybe a longer contributor? Thank you.

Yes, Geoff. Thanks for the question. So, as we look at molnupiravir, we’re obviously -- you heard from Caroline, the guidance we’re giving for this year, but I think you’ve hit upon an important point, which we do see the potential for molnupiravir beyond the current situation with COVID-19 and the pandemic, given the fact that it does have such good activity more broadly in mRNA viruses, and as we believe, it can be pan-coronavirus effective. And as we showed recently with six preclinical studies, working well against the Omicron variant, and we believe we’ll continue to work against future variants. But maybe I’ll turn it over to Dean to expand upon what we’re thinking about from a developmental perspective for longer term.

Yes. So, if I may, let’s just frame how many deaths we have a day in the United States. I mean, it’s quite staggering where we are at this point. Now, I would just emphasize molnupiravir is an oral drug as all know. It’s effective in reducing hospitalization and death. And I really think when we think about the death rate in the United States and throughout, having access to medicines that can reduce mortality greater than 80%, 85%, 90% is going to be really important. And molnupiravir is one of such drugs that can do that. And I think that needs to be sort of emphasized throughout. Now, in relationship to molnupiravir directly, those people who we have to be concerned about drug-drug interactions or renal insufficiency or liver insufficiency are often those people at the highest risk. And the fact that molnupiravir has a profile that is really useful in those patients is important. I do want to emphasize that by first principle, the whole mechanism and the molecule is designed to be as variant proof as can be theoretically possible. And what we’ve seen with the Omicron and potentially what we will see with other variants is that theoretical becomes real. With Omicron, for example, all of a sudden, there’s a series of antibody treatments that are no longer effective. And then the other point that I would make is, when we sent our EUA in October, we also held hands that we would be able to produce, supply, distribute this drug immediately. And I think that’s been shown that when we send our EUA in October, we were in that position. And we demonstrated when we got an EUA in late December how fast we could distribute. And I just want to emphasize that I think…

And if I may add, this is Caroline. We have guided to $5 billion to $6 billion of revenue this year. That’s on the basis of approximately 10 million courses. To Dean’s point, our company remains focused on ensuring there is enough supply depending on how things move forward. So, we are still committed to the 10 million courses we did manufacture in 2021 and more than double that in 2022. So, we will have in excess of 30 million courses to support how the pandemic and how the use of molnupiravir progresses.

Your next question comes from the line of Chris Shibutani from Goldman Sachs.

On KEYTRUDA, important part of that leadership strategy is the adjuvant opportunity as both combinations with the adjuvant. Can you just comment a little bit more in terms of what you think you’re seeing so far and how that’s progressing? And with the combinations, it looks like the data is scheduled to read out more in the ‘24, ‘25 time frame. Dean perhaps, is there an opportunity that we might potentially be able to get a look earlier than then on any of the combination efforts? Thank you.

Right. So, I just want to emphasize, there are two types of combinations that we have. We have an IO-IO combination, and I think that’s what you’re referring to, in relationship to KEYTRUDA, whether it’s with our TIGIT LAG3, CTLA-4 and that. And you’re right, those readouts are event-driven and such. And that will be -- we’ll see where it is, but I think your timing is a reasonable sort of timing in terms of Phase 3 readouts. In relationship to other combinations, I want to draw your attention to the combinations of KEYTRUDA with chemotherapy, with other ADCs that we’ve worked with other companies with. But I would also focus your attention also on the readouts of KEYTRUDA with Lenvima, that continue to spool up, [ph] and KEYTRUDA with Lynparza. And the reason why I think that’s important is, we think about how to raise the immuno-oncology profile of KEYTRUDA with other I-O agents. But also, as we see Lynparza and Lenvima, they are -- they give us readouts of how to think about DNA repair and recombination in second and third generation of different sort of compounds in that place. And also, in relationship to Lenvima, where you’re looking at blocking vascular endothelial growth factor, RTKs, it gives us a thought as to how to think of drugs such as WELIREG, which also plays in that sort of same sort of place. And so, we’re very interested in seeing how WELIREG plays out in sporadic renal cell carcinoma. And then, we will ask ourselves outside of renal cell carcinoma where else should it play where an anti-angiogenesis agent has been shown to be effective.

Yes. And maybe, Chris, just to answer the first part of your question, how are we seeing the adjuvant space? Obviously, we are very excited about moving into earlier lines of therapy. We think this is a real area of growth. Obviously, the strength we’re seeing in KEYTRUDA is about how we’re able to expand into new indications and continue to broaden. If you look, we had just in 2021 alone 21 approvals of new or expanded indications for KEYTRUDA. Three of those were in the adjuvant space, with adjuvant, triple-negative breast cancer, adjuvant renal cell carcinoma and moving into a stage 2 cancer in adjuvant melanoma. So, important growth there. And if you look at that combined with the remaining other indications we already have and the other ones in adjuvant mel and what we hope to have soon with KEYNOTE-091 in adjuvant non-small cell lung cancer, we’re looking at movement into the earlier spaces, driving approximately 50% of the growth for the drug for KEYTRUDA through 2025. And we think by 2025, it will be about 30% of our total revenue coming from the adjuvant indications we have. So, this is an area where we’re starting to put runs on the board. And I think we’re going to show that the breadth of what KEYTRUDA could do both in maintenance as well as in the metastatic space is going to be very important as we build the leadership for the long term.

And to be clear, Rob’s referencing the U.S. markets.

Your next question comes from the line of Steve Scala from Cowen.

I’d like to ask about a more obscure pipeline agent. Sanofi believes that there is no discernible evidence of benefit of the Merck RSV monoclonal antibody versus the Sanofi monoclonal antibody, and that Sanofi is so far ahead that Sanofi unquestionably will dominate. So, I’m wondering what Merck thinks. And if you disagree with Sanofi, then why is your antibody better than theirs? Thank you.

Yes. I want to be a little bit careful that I’m answering questions about another company’s drug. I think that having monoclonal antibodies that can treat RSV in a really important patient population is critical. We have data that will be coming out, and we’ll have to see what that data looks like. But we do think that there is opportunity to have a really effective drug that really is easier to provide to that patient population. So, I’m a little bit hesitant to comment directly. But we are very confident in the profile of our RSV antibody studies, and we will just have to see what the clinical data looks like as the clinical data comes through.

Next, we have Umer Raffat from Evercore ISI.

Hi, guys. This is Jon Miller on for Umer. Thanks so much for taking the question. On islatravir, is there -- obviously, the long duration and the long PK here is a major selling point. But is there any chance to avoid CD4 monitoring or maybe to get around some of the potential product issues that you’ve been looking at or evaluating. If you stick to sub milligram daily dose rather than trying to push for the weekly or monthly doses, is that a potential path forward for islatravir in the HIV franchise?

Yes. So, let me take that. So, we are evaluating a considerable body of data. You mentioned trends of lymphocytes that have been observed in different trials that we’ve had. I would point out that our Phase 3 with islatravir doravirine demonstrated the efficacy and just the highly efficacious nature of islatravir in that combination, which is QD. We will have a near-term evaluation of the future options, but we are still very committed to this longer acting sort of point of view as well. So to get to your question, we have data in relationship to QD islatravir, doravirine and it’s highly efficacious. We are going to look at the body of data in relationship to are there ways to continue to make that long sort of resident time, be able to have a less frequent either prep or a treatment. And we’re evaluating that data as we speak.

Next question comes from the line of Mara Goldstein from Mizuho.

I’m wondering, in the last couple of weeks, there have been a number of comments made by some of your competitors around valuations in M&A. And since you did discuss acquisitions as part of strategy, I’m wondering if you could maybe opine as well as to where you think valuations are relative to the overall strategy of continuing to supplement the Company’s pipeline?

Yes. Thanks for the question, Mara. So, as you pointed out, we are seeing in the biotech space, valuations have pulled back quite a bit of late. I think it’s too early to see whether or not this is a permanent rebasing in the market or if it is just a temporary change in the marketplace. We need to see how that plays out. And the other thing that’s going to be important is what happens with the investment flows into the space. You are seeing IPOs start to slow. And it would be interesting to see if cash investments start to also slow down as people look to invest into the space with a lower valuation in the market, as you point out. Whether or not that drives to sellers being willing to see the restatement of value that will allow us to do deals at different levels, we’ll have to see. But it doesn’t change the importance we see of doing business development for the Company. Obviously, we’re very focused, first and foremost, on driving and accelerating our own pipeline, but we know we have to augment it. And we are going to continue to focus in this area, and I’m confident that we’re going to find the opportunities where the scientific opportunity match to our capabilities and where we see good value, will allow us to do value-enhancing deals regardless of the market situation.

Your next question comes from the line of Tim Anderson from Wolfe Research.

This is Adam on behalf of Tim Anderson. On your oral PCSK9 program, you say that you’re going into Phase 2 in 2022. Assuming that this takes two years to wrap up, what would a Phase 3 trial look like in terms of length and comparator? Guessing that this might not take until the late 2020 to report out. Thanks.

Yes. Thank you for that question. So the question is about our oral PCSK9 drug. We presented the Phase 1 sort of readouts in relationship to that. The Phase 2 readouts will be very important. As everyone recognizes, cardiovascular risk is just a tremendous risk throughout. It’s actually -- you could view it as an epidemic that continues. And there will be two sort of important considerations to take. One is, as we advance the oral PCSK9, the biomarker of reducing LDL is a powerful biomarker that has been established as an important biomarker that has provided a path for registration based on that, even prior to having sort of readouts in terms of cardiovascular outcomes in terms of death and heart patient end points. So, we believe that we’re going to have to do both. But we’re very eager to see how well this agent works in our Phase 2 trials in driving the levels of LDL down. And that will give us the confidence to really advance this for patients. But again, driving the LDL down will be an important registrational point that has been a path for other drugs as well. But we will also have to do outcome study in addition to that.

Next up, we have Matt Harrison from Arris. [Ph]

This is Charlie Young for Matthew. Thanks for taking the question. Can you provide, in terms of your launch expectation of VAXNEUVANCE this year and perhaps even next year, especially after the pediatric indication approval? Thank you.

Yes. So, obviously, we’re very excited about what VAXNEUVANCE, the opportunity that this presents, starting with, as you point out, the adult indication, which we received. And as you probably know, we did do the MMWR come out and validate the ACIP recommendation. So we’re at a point now where reimbursement is established in the marketplace, and we are beginning to ship product. As we look at this, we see a real opportunity, because if we look at what is the profile of VAXNEUVANCE in combination with PNEUMOVAX23, you’re looking at an agent that has the broadest coverage. Between the two, we have 15 serotypes in VAXNEUVANCE. We’re adding 9 additional serotypes, 4 which are unique to PNEUMOVAX23. And as we look at the coverage, obviously, in things like serotype 3, we showed with VAXNEUVANCE that we are very competitive, if not superior to competition in the marketplace. And we know that serotype 3 is an important contributor and driver of disease, as is serotypes 22F and 33F, which are in ours as well. So, as we look at it, you’ve got very broad coverage. You’ve got important coverage in high disease-causing serotypes. And we have important data showing how the drug works in at-risk and immunocompromised patients, which will be in the label -- is in the label. So, we’re well positioned. We’re going to have to obviously fight it out at the commercial level, but we think we’re well positioned to do that. And we already are starting to look forward to what we see in the pediatric space. Right now, hopefully, we’re going to see -- with the PDUFA in April, we’re going to see hopefully the opportunity to get that drug into the marketplace. But obviously, we’re going to build on the momentum from the launch in adults to then carry that forward into the pediatric setting. So, so far, all started well, good contracting underway, and we’re off to a good start. Thanks.

We have Andrew Baum from Citi.

A question on islatravir. Are you in a position to disprove mitochondrial toxicity as the cause for the lymphocyte compression, or would you file for approval for the once-a-day combination if you have no clear line of sight on a longer dosing period formulations?

You broke up just a little bit. In relationship to the mechanism by which the lymphocyte trend that we disclosed is going down, we’re looking at the mechanism of action. I would say just two brief points. One is, there’s a question of whether or not there are ways to get around it by looking at the dose that was provided. And then, the second sort of question is the mechanism. The mechanism, we’re still evaluating. I believe your question was in relationship with mitochondrial toxicity. That does not list as the first place that we would go in relationship to the data that we have right now. But I don’t want to rule out anything right now, as we’re evaluating all the data as we speak.

Next, we have Louise Chen from Cantor.

So, I want to ask you if the headlines about the logistical obstacles for oral antivirals, how accurate are they? And if they are, how are you working through them? Thank you.

Yes. I appreciate the question, Louise. So, if you look at the situation, and I think you’re probably focused mainly in the United States, we are in a situation where we did deliver to the United States doses of courses of therapy before the end of the year, a little over 900,000 courses of therapy were delivered to them. Since then, we continue to add to that. And by the end of this week, we should be to the full 3.1 million courses delivered to the distribution hubs that they have. Obviously, at that point, it’s us working with the government. But it’s up to the government on where and how they distribute it from the hubs out into the pharmacies and the local markets. I think, the real thing we’re focusing on in discussions with the government is how do we increase the messaging to help people understand how they can find out where they can go to get to antivirals. And there’s locator sites that the government has on the web. And we’re trying to make sure as much as we can to help people know to go look there, because the drug is in the marketplace, you just have to be able to find out where to go find it. And we will continue to partner with the government any way they need to ensure we can get access as quickly and as affordably as possible. Obviously, we’re very focused beyond the U.S. as well, and I feel very good about what we’re doing. You probably saw we announced that we had a deal with UNICEF for 3 million courses. Now, that really us trying to help make sure we could accelerate access to the low and middle income countries as we wait for the generic manufacturers, so we have the licenses with as they ramp up production. So hopefully, that will help fill in the gap in those markets as we wait for the generics to be able to ultimately come on line.

Next, we have Daina Graybosch from SVB Leerink.

I’m going to go back to KEYTRUDA in oncology and IO combination. So, we’re going to see this year, I think, multiple randomized readouts of TIGIT from Roche. And I think as somebody mentioned earlier, you guys have multiple trials of TIGIT and LAG3 coming in the future. I wonder if you could talk to how your development strategy could be differentiating for these IO-IO combinations. In particular, can you highlight anywhere where your base position of KEYTRUDA may give you an advantage?

Let me take the scientific question in relationship to that. So, thanks for that question. I would emphasize just the general principle that we have, which is we believe that there are ways to improve the immuno-oncology sort of access of PD-1 by adding another checkpoint inhibitor. We believe that that is going to be potentially a different checkpoint inhibitor or a different addition to PD-1, given a different tumor cut. So, we’re not so sure that there is one additional checkpoint inhibitor that you could add to PD-1 that would have as broad of a impact as P1 has itself. So, our strategy has been to invest in CTLA-4, to invest in TIGIT, to invest in LAG3, to invest in ILT4. I think the strategy of some of our other colleagues is to place a larger bet on each of those combinations more broadly. So I think that’s something that I think is really important. The second point that I would also emphasize is you want to show contribution of components. And you want to show that what you’re added on to the PD-1 is really better than the PD-1. And the reason I want to emphasize that is that one should also look at what the base of our PD-1 response is compared to others in relationships. So, it is my belief that targeting the PD-1 axis is, in general, more effective than, for example, a PD-L1. So, that gives us a distinguishing position as well. And then the third issue is, especially in lung, where physicians are very comfortable in relationship of where we stand in relationship with PD-1, with our PD-L1 monotherapy sort of differentiation as well as PD-1 plus chemo in relationship. And also, we’re driving our PD-1 into earlier stages of cancer, for example, in lung and others. I think that gives us sort of a leg up as well. So, three things: One is, how we think strategically about IO-IO combinations; and then, the second sort of thing is, in relationship PD-1 versus a non-PD-1 sort of position, so PD-1 versus a PD-L1; and also, our ability to sort of paint the whole from adjuvant all the way to later stage is something that I think gives physicians enormous comfort in our base drug.

Great. Thank you, Dean. Thank you, Daina. And thank you all for your good questions today. We realize there is a peer call starting right now, so we want to be mindful of that. If you have any follow-ups, please reach out to the IR team at any time, but we appreciate the good questions today and your interest. Thank you.

Thank you.

Thank you, everyone. Ladies and gentlemen, this concludes today’s conference call. Thank you all for joining. You may now all disconnect.