Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome to the operator. Thank you. I would now like to turn the call over to Peter Dannenbaum, Vice President, Investor Relations.
Sir, please go ahead.
Thank you, Lara, and good morning. Welcome to Merck's Q1 2021 conference call. Today. Today, I'm joined by Ken Frazier, our Chairman and Chief Executive Officer Rob Davis, our President Doctor. Dean Lee, President of Merck Research Labs
to
Frank Flyburn, President of Human Health and Caroline Litchfield, Chief Financial Officer. Before we get started, I'd like to point out a few items. To the operator. You will see that we have got items in our GAAP results such as acquisition related charges, restructuring costs and certain other items. You should note that we have to the operator to conclude these from our non GAAP results and provide a reconciliation in our press release.
I would also like to remind you that some of the statements we make during today's call may be considered
to 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 to the operator's management and are subject to significant risks and uncertainties. If our underlying assumptions prove inaccurate or uncertainties materialize, to the operator.
Actual results may differ materially from those set forth in the forward looking statements. Our SEC filings, including Item 1A and the 2020 10 ks, to the company's financial 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 highlights of our results are all hosted on merck.com. With that, I'd like to turn the call over to Ken.
Thank you, Peter. Good morning and thank you for joining today's call. Everyone to our Q1 results. 2021 marks Merck's 130th year, which provides an opportunity to reflect on our company's heritage to the operator for bringing forward transformative innovation that has changed medical paradigms across many therapeutic areas. Everyone.
Today, we are well positioned to achieve sustained future success given our highly talented employees, our to our scientific expertise, our promising pipeline and our financial and operational strength. We also are taking the right steps to evolve Merck's operating model to best position the company for the future as the industry landscape continues to evolve. Everyone. The upcoming spin off of Organon will further enhance our focus on innovation and on our key growth drivers, to the conference operator
today. At this time, I would
like to welcome everyone to the conference call.
Smurf's leadership progressions have been thoughtfully planned to the conference operator today. Each of our newly appointed leaders have a proven track record of success and embodies the mission of the company. I am confident that this team led by Rob is more than ready to take the helm and lead this company into the future. Reflecting on the results this quarter, while the pandemic continued to impact both patient access everyone and healthcare provider capacity to treat. We delivered solid performance, especially considering a high proportion of physician administered products in our portfolio, particularly our vaccine.
And speaking of the pandemic, Merck remains committed to the development of molnupiravir as an important potential treatment to COVID-nineteen, and we are proud to partner with Johnson and Johnson on the production of their vaccine.
To the
conference call. This will be my final earnings call as CEO before I retire from the role on June 30. I want you to know that I appreciate the helpful and constructive input you all have given me over the years and I look forward to serving as Executive Chairman of the Board of Directors and acting in an advisory role and importantly to watching Merck achieve even greater success. And with that, I'll turn the call over to Rod Davis.
Thanks, Ken, and good morning, everyone. This is Ken's 42nd and final earnings call as CEO. And on behalf of all of us here at Merck, we thank him for his profound contributions to this company, to the scientific community and to our customers and patients around the world. We wish him much success and happiness as he embarks on life after his distinguished career as the CEO of Merck, and we look forward to his continuing counsel as he serves as our Executive Chairman. To the CEO role, one of my immediate priorities is to ensure that our experienced and empowered leadership team who continues building on the strong foundation and positive momentum we have across the company.
To that end, I'm very pleased to welcome Caroline Litchfield to the Executive Committee as our new Chief Financial Officer. Caroline most recently served as Merck's Treasurer and prior to this was Head of Finance for our Human Health Business. To the operator. She's had a distinguished 30 year career at Merck serving in finance roles across different regions and businesses and is exceptionally well positioned to lead our finance organization and provide strategic insight as a member of our senior leadership team. To the conference operator today.
I'm also very pleased by the expansion
of Frank's role to the President of our Human Health business, including both our commercial and marketing operations. To the operator. Frank's insight and leadership have been critical drivers of Merck's success over the past decade, particularly as we've built out our oncology business to the commercial and research operations remains strong. R and D is the lifeblood of Merck and Dean and his team are fully committed to driving scientific innovation and in efficiently allocating resources to our most promising pipeline opportunities. While our portfolio continues to feel the impacts of the pandemic, we are confident that underlying demand for our products remains strong and we are optimistic that a more normal environment is beginning to emerge.
We've executed important business development transactions this quarter that we made meaningful advancements in our pipeline. Frank, Caroline and Dean will speak to this in a moment. But I'll first give you an update on where I've been focusing during this transition period. I've been spending a lot of time with the leadership team and many others across the company to ensure we have open lines of communication and a clear path toward continued success. I'm using my time as President to listen to employees throughout the organization to help me flesh out further my own perspectives on our go forward strategy and to begin to shape our priorities to deliberate.
To the operator. In the meantime, I'm focused on ensuring that we continue to execute on the significant commercial and development opportunities we have in the short term everyone to realize our meaningful growth potential. We're also taking the necessary steps to transform our operating model to best prepare us for the evolving healthcare landscape over the long term. To that end, we will continue to focus on delivering our late stage pipeline and advancing programs out of our robust and growing early stage pipeline. And we will continue to augment our efforts through internal business through business development focused on meaningful asset additions.
The acquisitions of Panion and its potentially foundational immunology asset and the HIV collaboration with Gilead Sciences are great examples of transactions completed this quarter that each have significant value creation potential. To the operator. Finally, we will continue to take the necessary steps to help shape Merck into a leaner, more focused and agile company such as the upcoming spin off of Organon. We look forward to hosting an Investor Day on Monday, during which the full Organon leadership team will highlight the to our Investor Relations and Opportunities for Growth. We expect to complete the spin off on June 2 with trading in the new stock commencing on June 3.
To the company's call. We will continue to be focused on scientific innovation to the operator to be in the line with our speakers. I firmly believe that by keeping patients at the center of everything we do, to the operator to discuss our financial results. With that, I'll turn the call to Frank.
Thanks, Rob. Good morning. I am excited to expand my role as President of Human Health and to build on the commercial success we are driving. To the operator. We are very confident in the underlying demand for our key products and we continue to anticipate strong growth for our business for the full year.
To the operator. That said, the underlying strength in our human health business was impacted this quarter due to the increase in cases and additional lockdowns across the globe. These headwinds were in part a continuation of reduced patient access to physician offices and lower than normal wellness visits and were more pronounced early in the quarter given the wave of infections that occurred. The rollout of the COVID-nineteen vaccines and recommendations against coadministration have also impacted parts of our vaccine business. To the operator.
As a reminder, roughly 70% of our pharmaceutical revenue is comprised of physician administered products. It to the operator. It is important to keep in mind as well that our year over year growth was impacted by the particularly strong Q1 we had in 2020 along with quarter to quarter variability in sales of Gardasil. As a result of these factors, our sales were roughly flat compared to last year or negative 3%, excluding the positive impact of foreign exchange.
I'll walk you through some
of our expectations for future trends in just a moment, to the Q1 performance of our key brands. My comments will be on an ex exchange basis. To the operator. In oncology, KEYTRUDA sales grew 16% to $3,900,000,000 reflecting continued strong everyone to the call and answer session. In the United States, KEYTRUDA continues to maintain its leadership position in lung cancer, including capturing 8 out of to the TAN eligible new patients and is benefiting from strong usage across all key tumor types, including renal cell carcinoma, bladder, to adjuvant melanoma, our MSI high indication, triple negative breast cancer as well as the Q6 everyone to the line of our CFO and CFO and CFO.
Lynparza grew 51% in the quarter, everyone benefiting from ongoing launches and broader reimbursement that continue to solidify its position as the leading PARP inhibitor. To the Q1 of 2019. LENVIMA is essentially flat, reflecting competitive entrance in hepatocellular carcinoma and a one time accrual related to the recent NRDL listing for hepatocellular carcinoma in China. Our vaccine portfolio was impacted by lower than normal wellness visits, to the U. S.
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And U. To the operator. GARDASIL sales were negatively impacted by the timing of shipments to China last year and the timing of the U. S. Public sector purchases in both periods as well as pandemic impacts in the United States and in Europe.
Pneumovax sales declined due to a challenging year over year comparison given strong demand for pneumococcal vaccination at the start of the pandemic last year and the impact of CDC
to the conference call. Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator.
Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator.
Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator. To our operator.
Our hospital business continued its recovery from pandemic impacts. Briteon sales grew 11% year over year, driven by broader usage along with updated operating room protocols that allow for more normal levels of elective procedures. We remain confident in the underlying demand for our innovative portfolio given the meaningful values of our products to patients. With the strong rollout of the COVID vaccines, we expect that patients will be more comfortable to seek care in a timely manner. To the operator.
In fact, we are encouraged by the recovery trends we saw as we exited the Q1 with March wellness visits in the United States
to the
operator to track above pre pandemic levels. In oncology, since the start of the pandemic, there has been an unfortunate reduction in the level of cancer screenings, which has resulted in fewer patient diagnosis and reduced new patient starts for many oncology agents, particularly in areas like lung cancer. With the rollout of the COVID vaccines, especially among the elderly where cancer incidence is highest, along with increased awareness campaigns, to the operator. We believe screenings and diagnosis will soon return to normal levels. We expect continued strong growth of KEYTRUDA, given its leadership position across many current indications.
In addition, we're excited by the recent launch in esophageal cancer and by potential additional indications in renal cell carcinoma, including in combination with LENVIMA to NSS monotherapy in the adjuvant setting. In vaccines, the recent improvement in wellness visits is encouraging as our awareness campaigns that help raise the potential for catch up vaccinations across the portfolio as patient access improves. To the operator. We expect COVID vaccines to be available in the adolescent population in the future, and we will monitor the impact on Gardasil, especially in the back to school season. That said, in the United States, in order to enable safe return in person learning in the fall, there is to the Q1 of 2019.
We will now begin the call to discuss our Q1 of 2019. Thank you, around the COVID vaccine rollout to this cohort. We will also monitor many ex U. S. Markets where the rate of COVID vaccination has been slower to the operator to discuss the progress that in the United States and where there have been renewed lockdowns that are expected to impact physician well visits and school based vaccination programs.
To the operator. Overall, however, we believe there is strong global demand for GARDASIL, particularly in ex U. S. Markets like China. Everyone.
We have seen improvements in our capacity to manufacture this year, which will also benefit our sales. Given this, we expect to strong global growth for GARDASIL this year. To conclude, we are confident in the strength and resilience of our to the CEO of Innovative Medicines and Vaccines. We expect to return to more normal operations later this year and strong full year growth. Everyone.
There is underlying patient demand for our products and we believe that once we move through the temporary market dynamics created by the pandemic, our business will resume to a strong growth trajectory long into the future. To the operator.
Thank you, Frank. Good morning, everyone. I am extremely honored to Merck's new Chief Financial Officer and work more closely with the team of extraordinary leaders who share my deep passion for Merck's mission. To the company. I am excited by the opportunity to lead the Finesse organization and help ensure that Merck remains well positioned to make the investments in science and innovation necessary to sustain our unique legacy of making a difference in the world to the operator and answer session.
Now turning to our Q1 results. Total company revenues were 12 $1,000,000,000 in the quarter, roughly flat year over year on a nominal basis or down 1% excluding the positive impact of foreign to the operator. These results were broadly in line with our initial expectations. Frank describes to the underlying strength in the human health business as well as the ways in which the pandemic affected the quarter and we estimate the impact was approximately $600,000,000 Animal Health delivered a particularly strong quarter, to the operator to join the conference call. Growing 15% year over year, driven by demand across both companion animal and livestock, which grew 24% to the company's Q4 and
9% respectively.
In companion animal, growth was driven by higher global demand for a parasiticides, to the operator to discuss our Q1 results. Thank you, operator.
Thank you, operator. Thank you, operator. Thank you, operator.
Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator.
Thank you, operator. Thank you, operator. Thank you, operator. Thank you, operator. Thank you, across ruminants, poultry and swine as well as strong growth of our intelligence products.
To the operator.
I'll now walk you through the remainder of our P and L and my comments will be on a non GAAP basis. Gross margin was 75.7% in the quarter, to a decrease of 0.8%, driven largely by higher costs associated with COVID programs. To the operator. Operating expenses increased 10% year over year to $4,900,000,000 driven largely by higher clinical development costs, including our COVID-nineteen program, increased investments in our early stage pipeline and higher promotion costs in support of key growth drivers. The effective tax rate for the quarter was 14.1%, to a decrease of 2.8% from a year ago, driven by favorable earnings mix and discrete items.
Everyone. Together, we earned $1.40 per share, a decrease of 7%. Joining to our updated 2021 guidance for Merck, including Organon. 1st quarter revenues were broadly in line with our expectations and we continue to expect revenues of $51,800,000,000 to $53,800,000,000 representing growth of 8% to 12% versus to 2020. The underlying strength of our growth pillars provides us with confidence that we will see strong acceleration in revenues throughout the remainder of the year despite a slightly less favorable impact from foreign exchange and a higher projected impact from the pandemic.
To our Q1 results. Our revenue guidance does not include revenue from the potential launch of Monyupiravir. Our gross margin is now expected to be roughly to 76%, slightly less than prior guidance as a result of the impact of COVID.
To the operator.
We now expect operating expenses to grow at a mid to high single digit rate, a lower growth rate compared to our prior guidance, to the operator to discuss our financial results, largely driven by diligent management of SG and A expenses. Normalized for the impact of COVID, to the operator. Operating expenses would be expected to grow closer to a mid single digit rate. Our guidance for other income and expense, tax rate everyone to the operator and shareholders. Taken together, we continue to expect non GAAP EPS to be between $6.48 to $6.68 reflecting growth of 12% to 15%.
To the operator.
This range includes a positive impact from foreign exchange of less than 3%. With respect to Organon, on a pro form a basis, assuming it operated as an independent company for the full year, Organis now expect to achieve revenues of $6,100,000,000 to $6,400,000,000 Assuming completion of the spin off, to the operator. We continue to expect operating efficiencies enabled fiber spin of approximately $1,500,000,000 over 3 years, including $500,000,000 in 2021. Due to the higher profitability of the Organon products versus overall Merck, to the operator. We expect Merck's operating margin from continuing operations to be slightly lower in 2021 versus what it would have been without the spin off, to accelerate and be higher within 12 months to 24 months versus where they would have been in the absence of the spin off to be greater than 42% in 2024.
We remain confident the transaction will benefit the patients to the operator to discuss our financial results and create value for shareholders. Merck expects its revenue and earnings growth rates to be higher after the spin to the company. Combined with the fast growth we expect the Organon products to achieve in an independent structure, we expect combined EPS of the to the highest within 12 to 24 months versus what would have been achieved without the spin. To the conference call. Upon the close of the Organon spin off, we expect to receive a special tax free dividend of $9,000,000,000 which we hope to deploy in value enhancing strategic business development opportunities.
In the absence of meaningful business development, to the operator. We intend to return cash to shareholders through share repurchases. As always, we remain committed to ensuring appropriate investments in our business, both in support of our key brands, but also to drive forward the innovation progressing in our pipeline. And we will look to increase our dividend payout ratio over time. In summary, I am excited to embark upon my journey as CFO and to be stepping in at a time in which our company is in such a strong financial position.
We remain confident in the outlook of our business and I look forward to doing my part to ensure Merck remains well positioned financially to drive sustainable value to patients and shareholders. With that, I'd now like to turn the call over to Dean.
Thank you, Caroline. For my remarks today, I will cover key regulatory milestones and clinical update initially in oncology and then in our broader pipeline and finally, I will discuss recent business development activities. Everyone to the operator. In the Q1, the FDA accepted and granted priority review for a new drug application for belzutafan, our investigational HIF-two alpha inhibitor that we acquired from Peloton for the treatment of certain patients with von Hippo Lindo disease associated renal cell carcinoma with a September PDUFA date. We are evaluating this asset further in 3 ongoing Phase 3 studies in RCC.
To the operator. We initiated a Phase 3 study evaluating vivostelumab, our investigation of anti TIGIT antibody in combination with KEYTRUDA to patients with non small cell lung cancer whose tumors express PD L1. This is one of several co formulated assets to the call today. We are on track to advance this year from our oncology portfolio that builds on the success of KEYTRUDA. Turning to to the FDA approvals.
KEYTRUDA was indicated in combination with chemotherapy for the treatment of certain patients with advanced esophageal carcinoma, regardless of PD L1 expression based on KEYNOTE-five ninety. This marks the 11th approved indication based on a clinical to the study that demonstrated overall survival. Now outside the United States, the European Commission approved new indications to the operator for adult and pediatric patients with relapsed or refractory classical Hodgkin lymphoma based on results from KEYNOTE-two zero four everyone and for patients with microsatellite instability, high or mismatch repair deficient previously untreated colorectal cancer based on KEYNOTE-one hundred and seventy seven. Everyone. Earlier this month, we announced that following an interim analysis KEYNOTE-five sixty four, our Phase 3 study evaluating KEYTRUDA as an to the conference call.
Adjuvant monotherapy treatment in patients with renal cell carcinoma met its primary endpoint of disease free survival. To the operator. These data will be shared with regulatory authorities and presented at ASCO. This provides another proof point for the benefit of KEYTRUDA and earlier lines of therapy, where we expect additional readouts in several other tumor types this year, and it also supports our broad development program in patients with renal cell carcinoma. We recently received a positive to the next question and answer session.
Thank you, which builds upon the 6 week dosing schedule already approved in monotherapy indications. And at the AACR Annual Meeting, to the operator to discuss this new formulation and other innovative modes of administration and dosing to the operator to provide increased benefits and access for patients. Along with our partners at A side, we presented potentially practice changing data demonstrating the benefit of KEYTRUDA plus lympema in the first line treatment of patients with advanced renal cell carcinoma and in second line advanced endometrial carcinoma based on results from KEYNOTE-581 and KEYNOTE-seven seventy five, respectively. Everyone to the operator. These studies demonstrated statistically significant improvements across primary and secondary endpoints, and we look forward to working with global regulatory to the FDA's filings.
In February, in collaboration with AstraZeneca, we announced that following an interim analysis, the Phase 3 OLYMPIA trial to the company's leading LYNPARZA as maintenance therapy in the adjuvant treatment of certain patients with germline BRCA mutated high risk HER2 negative to the operator to discuss the superiority boundary for its primary endpoint of invasive disease free survival versus placebo. To the next question. The trial continues to evaluate the dual primary endpoints of overall survival and distant disease free survival, and this data will be presented at ASCO. We are also pleased with the positive outcome of yesterday's Oncologic Drug Advisory Committee review to our first line advanced bladder cancer indication and recognition of the efficacy and safety that KEYTRUDA has demonstrated in clinical trials. Everyone.
We look forward to further discussions with the committee on other accelerated approvals under review. Last month, to the operator. We announced the decision to voluntarily withdraw an indication for KEYTRUDA for the 3rd line treatment of patients with metastatic small cell lung cancer. To the operator. As announced, we received a complete response letter from the FDA for a supplemental biologics application for KEYTRUDA for the neoadjuvant and adjuvant treatment to the next interim analysis from this trial in the Q3 of 2021, and we look forward to further discussions with the FDA.
Now turning to our broader pipeline. Everyone to the operator. Along with our partners at Ridgeback Biotherapeutics, we announced interim results from the dose finding phase to Phase twothree studies in both outpatients and hospitalized patients. After analysis of the data, we have decided to proceed to Phase to the company's 3 in our patients with enrollment focused on higher risk populations. We will be evaluating Molnupiravir as a post to the next question and answer session.
As previously discussed, we have made the decision to discontinue the development of MK-seventy to the conference call for COVID-nineteen and plan to focus our pandemic efforts on advancing Molnupiravir and on producing Johnson and Johnson's COVID-nineteen vaccine. To the transcriptase translocation inhibitor. Data presented at the Croix meeting last month supports the potential of vazilastrevir to the potential for the subdermal Lutzotraver implants to provide drug concentrations above the target pharmacokinetic threshold for at least everyone to the operator to discuss our Q1 results. We are pleased to build upon our legacy of innovation in HIV through our collaboration with Gilead Sciences to co develop and co commercialize silatravir and lenacapavir. Both have unique properties that we believe have the potential to enable the creation of effective long acting oral and injectable regimens that provide important new treatment options and address the remaining unmet need for people living with HIV.
Our pneumococcal vaccine V114 remains on track for potential FDA approval for adults in July and a readout of pediatric data and associated filings by year end. V114 is the first of a to the next suite of promising pneumococcal vaccine candidates, which also include V114, our adult focused vaccine, where a readout from our Phase to the 1 FLASH II study is expected later this year. Finally, we announced that the FDA accepted our new drug application for gefepixent, to a potentially 1st in class P2X3 inhibitor in adult patients with refractory and unexplained chronic cough. The decision is expected in December. To the conference operator today.
We continue to pursue business development across the most exciting areas of science. To our Q1. Our acquisition of Pandion Therapeutics expands and complements our internal pipeline of candidates targeting autoimmune diseases. Andean's lead IL-two candidate has the potential to be meaningfully differentiated based on high selectivity and we plan to initiate the Phase 1btwo study this year. We continue to make strong progress with the pipeline.
This momentum is due to the passion and and the commitment of the scientists within our research laboratories to bring life saving medicines and vaccines to patients around the world. Now I will turn the call back to Peter.
Thank you, Dean. Lara, we're ready for questions. I'd like to end the call today at 9 o'clock. We ask that questioners limit themselves to one question, please.
Thank you, sir. Everyone. Your first question will come from the line of Terence Flynn from Goldman Sachs. Your line is now live, sir. Go ahead please.
Great. Thanks so much for taking the question. I guess, I was just wondering on the KEYTRUDA KEYNOTE to the U. S. And RCC, if you believe you'll be able to file on disease free survival or if FDA will also to the Q1 of 2019.
And then regarding the commercial opportunity here, maybe a question for Frank. I think the current treatment rate here in the neoadjuvant Given adjuvant setting for RCC is around 10% to 15%. Can you give us any thoughts on how much higher that might move if KEYTRUDA is approved here? Thank you.
So I'll address the KEYNOTE-five sixty four question. In relationship to what the regulatory agencies will accept, we're clearly going to have discussions with them. But to the end point that we reported is a registrational end point and we hope to have further discussions with the FDA. Clearly, we are advancing the studies to do the other endpoints that you've to Alvine in terms of overall survival as well.
Yes, Terence, and this is Franco. And to the opportunity, the majority of renal cell carcinoma patients do present in the adjuvant setting, everyone with the remaining in the metastatic setting. So think of it about 75% are presenting at the early stage. So it is a very nice opportunity for us. To the operator.
When you do look at our study, when we see and evaluate the eligible patients, it's probably about Eve and Terence between the adjuvant opportunity and metastatic opportunity, but we are very excited about this opportunity if approved going forward.
Thank you, Terence. Next question please.
Thank you. So your next question will come from the line of Umer Raffat from Evercore ISI. Your line is now live. Go ahead
Thanks so much for taking my question. I just wanted to focus on the Molnupiravir outpatient trial, if I may. And a couple of pieces to that. 1, portion. What percentage of Phase 3 has to be older to get to the number of events you have in mind over the target timeframe?
And also, I know the endpoints focused on hospitalizations and deaths, but the trial sites are primarily in U. S. And Europe, where there's a lot of vaccination going on. So is there openness to perhaps adding sites like to India, etcetera, where hospitalizations are high. Thank you very much.
So let me take that question. Thank you very much for that question. To the operator. We are very confident in our Molnupiravir program. As you outlined, we are advancing the outpatient.
And I should also say that we are poised to start the Phase 3 portion of that outpatient study imminently. To the operator. As you know, this is a global trial with a recruitment strategy focused in areas where we are looking at vaccination rates that are to the operator. We are in South America. Those will be very important sites.
To the conference operator today.
At this time, I would like to welcome everyone.
We anticipate that there will be more than 100 sites to contribute. This is a GLO LO study. In terms of your question and relationship everyone. With India, we have entered into a voluntary license agreement with 5 Indian generic to expand global access to molnupiravir. At this time, we are not extending our clinical trial to the operator for move out into India.
And then finally, what I would say is our clinical safety and virologic data gives us with great confidence to evaluate monofirubin, not just in the MOVE OUT study, but also for post exposure prophylaxis in a study starting later this year.
Thank you, Umer. Next question please.
Thank you, sir. Your next question will come from the line of Chris Schott from JPMorgan. Your line is now live. Go ahead please.
Great. Thanks so much. I just had a 2 part question on BD. You're getting $9,000,000,000 with the organ on spin. The company obviously generates a lot of cash.
I guess, if we continue the current pace of these tuck in type acquisitions, it seems like market at some point becomes overcapitalized. So I I guess when you look at the BD landscape, are you confident that there are actionable opportunities to deploy this capital into transactions? Or is there reach a point where we need to think about further capital return to shareholders? And maybe as you talk about the BD landscape, I I just want to be interested in the landscape environment you're seeing. I guess, is a string of smaller tuck ins kind of more likely for Merck given the environment we have?
Or is there still the opportunity to think about to the merger or later stage acquisitions over the near to intermediate term. Thanks so much.
Yes. Chris, this is Rob. Maybe I'll address the question. As you point out, to the company. The company is very well capitalized and we are looking forward to getting the $9,000,000,000 special dividend as part of the spin off of Organon.
As we look at it and as Caroline made in her prepared comments, to the operator. We intend to use that capital both for business development and potentially share repurchase, but our clear priority is business development. We believe that's the most value enhancing use of our capital long term. To the question of whether or not I think there's enough assets out there, everyone. There are a lot of opportunities.
So our goal is to deploy that capital to BD and more time will have to pass to be able to see how that evolves. To the operator. But to your other question, if we do not ultimately use that capital for business development, I'm not looking to build excess cash or improve our ratings. We would return that to shareholders. And then to the last part of your question about size, we've been very clear, we are open to any opportunity to add a meaningful asset.
To the operator. Size is not determined by dollars. Size is determined by complexity and the disruption it brings to our business. So as we look at it, we are open to all to the operator to go after all forms of deals. We continue to believe where we had a lot of value is in products that are in earlier stages of development, which is what's driven a lot of the deals we've done, but we're not limiting ourselves to that and we're looking at all opportunity.
Thank you, Chris.
Next question, please.
Everyone. Next question will come from
the line of Andrew Bong from Citi. Your line is now live.
Sir, go ahead please.
Many thanks. Thanks to Ken for the strong leadership within Mercka more broadly. And a question for Rob. To our conversations with investors on Merck are unsurprisingly dominated by the KEYTRUDA concentration risk, particularly post Organon. My question is, do you believe the market is anywhere close to reflecting the revenue potential of the current pipeline products, drugs such as everyone.
Would Merck ever think about giving an aggregate forecast for the existing pipeline to the operator to discuss the financial results. Even as
GSK has intended to do, give a 2,030 guidance
just to help investors gain some visibility about to the ability of Merck to manage the pending LOE associated with KEYTRUDA. Many thanks.
Well, I think to maybe just I do think that our belief and confidence and the overall value of our pipeline, both what we have in the mid to late stage and I can go into more specifics on what that is, everyone to the next stage on top of what we see as continued opportunities to expand in oncology and the neoadjuvant adjuvant spaces in combinations and to the full formulation. If you look at the totality of everything, we continue to believe and over time, I recognize we're going to have to demonstrate, to the operator. We continue to believe that frankly The Street is underestimating the potential in our pipeline and thus while we who are very aware of the potential LOE of KEYTRUDA. We do not see the cliff in the same way the Street does.
To the operator. I think we're very well positioned with what we have
internally to address a meaningful part of that. And then obviously, as we said, we understand we need to continue to be to continue to augment it, but I do think there is a disconnect to the operator. I'm confident we will be able to demonstrate. As it goes to long term guidance, I don't want to take a to the specific position today on whether or not we would ever do that, but I can tell you historically, I do agree with the position Merck has had, which is everyone. That can paint you into corners that cause you to make decisions that are not always in the best long term interest.
So I doubt you're going to see us giving 10 year guidance and what you've heard from others, but to the operator. We'll have to see. I think though what is important to understand is I recognize also though over time we're going to have to pull the cover back in a balanced way around our portfolio. I respect our science. I want to make sure we keep the integrity of our science pure and that's very important.
That's who Merck is. But I also understand that there is a balance to give some sense of understanding of what's in the pipeline to share our confidence over time.
Everyone. Great. Thank you, Andrew. Next question please, Blair.
Your next question will come from the line of Geoff Meacham from Bank of America. Your line is now live, sir. Go ahead, please.
Everyone. Good morning, everyone. Thanks for the question. I just had a follow-up on MolynepiRiver. As you guys get closer to the Phase 3 results, How are you thinking about the commercial picture, assuming that it will have a rest of world bias, especially given the case burden in India?
And then when you guys look at the prophylaxis or the outpatient setting, what's the right way to stage patients from either a viral load
to the questions that you could address.
Thank you. Yes.
That's a great question. This is Dean. I'll try to to give a scientific point of view and then I'll send it to Frank to give a more commercial sort of point of view. In relationship to ammoniapira, we are imminently going to do the Phase 3 trial in the to the outpatient setting. As was noted in the previous question, to the operator.
We're tightening up the inclusion criteria, reducing the allowable symptom duration for enrollment to be less than 5 days and we're trying to enroll patients early in the course of disease who have a high risk for poor outcomes. That includes age and other risk factors such as obesity and diabetes. So we think that will be critically important to have a successful to the clinical trial. In relationship to the post exposure prophylaxis, there's a number of ways one can design that trial. To the operator.
If I can just take it as a higher elevation, we think that this move out and the prophylaxis to the next question and answer session.
Thank you. Thank you. Our next question comes from the line of David. Please go ahead. Hi, good morning.
Hi, good morning. Good morning, everyone.
Hi, good morning. Good morning, everyone. Hi, good morning. Good morning, everyone. To the company, albeit extremely low, creating a reservoir for ovarian, the ability to have a small molecule everyone that can easily be delivered orally is going to be really important for the world.
So that's what we've been focused on. But let me turn it to Frank to focus on the framework that you've asked in terms of the commercial
Yes. I think Dean you covered it well. Obviously, we'll have to see how the endemic phase everyone. Evolves around the world in vaccination rates, but we see this as a really important therapeutic to Dean's point having a small molecule oral option, to the operator to the operator. Especially in many markets outside the U.
S, we have significant commercial experience, strong execution in getting to our therapeutics vaccines to patients around the world and that will be a significant focus for us. So we think this is a really important opportunity, to the operator to speak with you. Especially in markets, you think about what's happening not only in India, but you think about the low to middle income countries, you think about to what's happening in Europe. So upon if we're successful, we think this is a really important opportunity for us as we go forward.
Thanks, Jeff. Next question please, Laura.
Thank you, sir. Your next question will come from the line of Ronny Gal from Bernstein. Your line is now live. Go ahead, please.
Everyone.
Good morning and thank you for taking my questions. A question over the mRNA technology. Can you let us to know a little bit how you're thinking about integrating messenger RNA vaccine technology into your business or not. And can you speak specifically about Gardasil? To the next question.
And do messenger RNA technology poses a risk to that? Can they reach the necessary polysilocy to develop those It seems to be simply a cheaper way of making the same vaccine from at least a cost of manufacturing perspective.
Thank you for that excellent question. This is Dean. Let me give a little bit framework for the mRNA. I would and reemphasize that Merck has been very interested in mRNA and other nucleic acid technology and specifically everyone to the next question and answer session. Please go ahead.
Thank you. Thank you. Our next question comes from the line of Robert. Please go ahead. Thank you.
Thank you. Our next to the disease and vaccines for cancer. The validation of the mRNA technology in COVID is impressive and at least personally it's deserving of admiration and thanks. We continue to be interested in RNA and other nucleic acid to the next question and answer session. I would highlight in specific to your question about Gardasil.
When you have multiple sort of antigens that you have to deliver, to the operator. I think there is a role for those sort of platforms, protein based. I think there's going to be many different platforms that need to be done specifically for the vaccine and the threat that you're trying to prevent. So RNA and other nucleic acid based technology to the operator for the call. Thank you, operator.
Thank you, everyone. Thank you, everyone. Thank you, everyone. Thank you, protein subunit, other vaccine platforms that will still be relevant moving forward.
Thank you, Ronnie. Next question please, Laura.
Thank you, sir. Your next question will come from the line of Louisa Hector from Berenberg. Your line is now live. Go ahead please.
Thank you for taking my question. It's on the Pneumovax franchise. I just wonder whether we should effectively look at 2020 as a peak for NuVax specifically. And then how should we think about the competitive landscape here versus your own pipeline suite with to B-one hundred and fourteen emerging very soon and then everything else behind versus the competitors. Thank you.
Yes. So on Pneumovax, what I would say is that, if you look at what happened in the first to the Q1 of this year, we were down versus prior year because of the strong 2020 and the prioritization of pneumococcal vaccination. To the operator. So we do anticipate as you get to the back half of the year, you'll see Neumabx really have an important to the operator. We have also mentioned that we are supply constrained as you look at Neumovax, especially in some of our markets to the U.
S. And the U. S. And the U. S.
And the
U. S. And the U. S. And the in the initial introduction of E-one hundred and fourteen, we still see Pneumovax playing a very important role for pneumococcal disease going forward.
Thank you, Louisa. Next question please.
Thank you, sir.
Well, as you look and again, just to reiterate what you just commented on our call on Monday is really solely focused on everyone. Building out and helping explain the growth story for Organon. But if you look at where Merck has been over the last few years, everyone. We've been in a situation where we've been blessed with the benefits of what KEYTRUDA has been able to do. That has required to do heavy investments to build out our oncology platform, to invest in the clinical studies for oncology and now more broadly as we look to all of what we have going on in vaccines and even now with zolotsavir in infectious diseases.
To the operator. The challenge has been that in many ways we had to prioritize and we made a decision to deprioritize some of the assets that sit within to the Organon portfolio. We believe those are still very good assets and as you know, particularly in the women's health area, an opportunity for real growth. To the operator. So, I believe through focus, through being able to actually drive their own capital allocation aimed at building those businesses and the focus they'll be able to bring, to the operator.
They will accelerate the growth across not only the women's health business, but excitement around what they have in their biosimilars business. And then there are several areas, if you look, that they'll highlight next week where I think they can get to a point of to the company's financial results. So a lot of it is really about focus and capital allocation in a way that we haven't been able to do. While on our side, to the operator. We believe with the spin, the simplification it brings will allow us to go after a lot of and I've talked about this in the past, in this company given the complexity of our structure that's been built up over time, looking at those areas that to the question and answer session.
Yes. And then
just a follow-up question. Yes. And then
just a follow-up question. Yes. And then just a follow-up question, I would like to turn the call back over to Tom. Thank you. Thank you.
Thank you.
Thank you. Thank you. Our next
question comes from the line of Chris Worley with Citi. Hi, to the next question and answer session. Thank you. Thank you. Thank you.
Our next question comes from the line of John and to drive faster growth that Caroline commented on. So I think both businesses you're going to see grow better as independent businesses than they would as a combined entity and I'm confident in the story for both. And frankly, to the Q1. I'm excited about having a women's health focused business at this time and where we are as a society. I think there's a real opportunity for us to lead there and that's what I'm looking forward to see Organon do.
Thank you, Greg. Next question please.
Thank you, sir. Your next question will come from the line of as Fernandes from Guggenheim. Your line is now live, sir. Go ahead, please.
Thanks. So just wanted to follow-up on the to 20 24, 42 percent operating margin target. Hoping you could just walk us through the pushes and pulls as it relates to the reduced royalty burdens, as well as what's happening with the REMICADE Symphony agreement at that point in time. I know that comes with a very high royalty burden as well. And it was our understanding that there are several sunsets in that period that will bolster margin meaningfully without necessarily coming from top line leverage.
And then separately a question as it relates to the type of business development that's occurring. Just wanted to get a better sense of when you feel we're really going to start to see some of the various to the next question. It's just that the visibility on the pipeline currently to The Street remains, I think, relatively modest. Thanks. Everyone.
Seamus, thank you for the question. Let me first start with the near term. Our company's guidance for this year and we're driving that growth as a result of the strong revenue and mix of revenue in our business as well as continued to the company's financial performance. As we look out over the coming years, we will to the margin improvement as a result of the $1,500,000,000 of productivity we expect to achieve as a result of to the line of Tim and we are well on track towards that with $500,000,000 included in 2021. To the operator.
As we move forward over time, the real strength for operating margin for Merck will primarily come from to the growth opportunities we have with our assets in oncology, in vaccines. In addition, you will see continued investments in our to the operator, but we are confident in achieving the 42%. As you note, we also have to the tailwind of a step down in the royalty rate as it pertains to KEYTRUDA and actually GARDASIL and that will help in the achievement of the 42%, which we are very confident in. As it pertains to the product mix over time, to our company has been diligent and focused in the types of business development we are doing. And Peloton is an ideal to the company's clinical trial.
We have the opportunity to see BELFORTAFENT impact the top line of our company, therefore the bottom line as well as support the patients that we serve. Your final point on RemCADE and SYMPHONY, it's really not a major contributor to that bottom line expansion.
Dean, Rod, anything else to add?
Maybe I'll just start and then I'll turn it over to Dean. As you look at everyone. I do think you're going to see in that 2024 to 2025 timeframe more information. The best example you can look at is what's happened with to Mellaton and most recently we're already seeing the HIF-two alpha move forward in important ways. There's many data coming out from that and we see That is a meaningful opportunity.
And maybe I'll turn it to Dean to give a sense because I do believe you are going to see more information as we did in the timeframe you're
Yes. Thank you for that question. Let me just take it high level and then answer the temporal question that was asked. The sort of opportunities that we look for both in our internal to the Q1 of 2019. We like or highlight assets that give me concentration leverage, foundational drugs where clear monotherapy efficacy to the call center.
It gives me a fulcrum for combinations and specifically in relationship to cancer that allows us to expand, deepen and extend. And we look for these foundational medicines and the recent discussions with Gilead and Pandya just shows that sort of attitude of how we want to sort of proceed where we're taking foundational medicines and to the company. And specific to your question, I would look at the 21 to to the 24 range. There's a whole slew of LYNPARZA, LENVIMA, KEYTRUDA studies that you will see, a lot of it driving to to the management in earlier stages. I think there's at least 20 registrational trials.
I sort of laid out maybe 4 or so that you'll see in the next everyone to the Q2 of 2019. In relationship to the business development, what you will see is in the 2024, 2025 timeframe, to the next question. Thanks, Zolotivir, Xelos, XeGIN, also CTLA-four, LAG-three, TIGIT, all of them will be in striking range to not just see to sort of Phase 2 studies, but potentially interim analysis or even complete analysis
everyone. Thank you, everybody. We're right at to the operator. We appreciate the questions this morning and the discussion and we look forward to any follow ups in the coming days. Thank you all very much.
Thank you, sir. 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