TD Cowen's 45th Annual Healthcare Conference. We're delighted to have with us again this year Merck. Representing the company is Caroline Litchfield, who is Executive Vice President and Chief Financial Officer, and Dr. Dean Li, he is President of Merck Research Laboratories. Thank you so much for making the effort to be with us here today. Lots of topics to talk about. Caroline, we'll start out just with a few opening remarks, and then we'll launch into questions.
Thank you, Steve, and thank you all of you for being here and for your support and interest in Merck. We are in a position of strength in our company, and that's anchored to a robust set of commercial products that are really helping treat patients with significant medical needs, and we are focused on execution to really drive our commercial performance with the products in our hands today, as well as excelling in our new launches. As we look at 2025, we expect growth in our business, and that growth is coming from the strength in oncology, the strength in animal health, as well as our new product launches, and that will more than offset the headwind of Gardasil in China, where we believe we've taken the right step with our new approach and our 2025 guidance that really de-risk expectations.
So as we go to the second half of 2025, we expect strong growth in our business and to sustain that in 2026 and 2027. And as we look a bit longer term, we've made significant progress with our pipeline. Indeed, we have three times the number of late-phase assets in stage three than we had just three and a half years ago. We have the prospects of 20 launches over the coming years, with these products almost all having blockbuster potential. And as we look at the prospects for growth into the longer term, we have a diverse portfolio of products that offer the promise of more than $50 billion in revenues by the mid-2030s. And we're not finished.
Business development remains a top priority for our company, and we will continue to augment our portfolio and our pipeline with scientifically focused, value-creating business development across all stages of development and commercialization and deals of all sizes. So we're more confident today than we were a year ago in our future, in the prospects of advancing human health and animal health, in the prospects of driving growth for our business, and successfully navigating the Keytruda loss of exclusivity period. So with that, look forward to the questions.
Great. So a lot already there to dig into. So in no particular order, let's talk about one of the most important recent commercial launches, that being Winrevair. So we've seen the news on ZENITH and HYPERION. We have STELLAR. We have the CADENCE trial down the road a bit. Can you just map out for us what each of these products do for the growth profile of this product, how much of an inflection they can represent?
So I'll start just from a scientific standpoint. I do think there's going to be a flow of information that'll be very important for patients, for providers, and for many of you. So we will be going in detail in relationship to the ZENITH trial at ACC. I would steer into that data and ask, is this the first PAH trial that has hit heart outcomes? What does heart outcomes mean? I mean, mortality, lung transplantation, hospitalization. And should we hit that, would there be an opportunity for us to begin to add that in a label that really has not ever shown up in PAH? It would also be the first PAH trial that was stopped on just overwhelming efficacy.
Over the course of the years, between the course of the year from March and on, we'll continue to provide updates, publications, others in relationship to what we would call the safety profile. We have already stated that in the label, there's a 4% bleeding risk in the treated and 1% in placebo. And I would look at that data as we provide more and more data and ask, is that 3% gap 3%? Is it larger, or is it actually smaller than 3%? And so I think that data will be really important. And then probably rounding it out, we've stopped the HYPERION trial. It was stopped because the investigators who follow every detail of all the other trials and who were unblinded to the other trials really thought that it was important that they had lost clinical equipoise. So we'll see that data of HYPERION.
HYPERION is like in the STELLAR patient population, but it's bringing sotatercept earlier in that treatment paradigm. And if all the stars align, that data could be as soon as an important cardiovascular meeting in November. And if we don't make that, it'll clearly be an important cardiovascular meeting in March of next year. So those are the catalysts. So there's lots of catalysts and lots of data that will affect how people think about Merck, but probably most important, how patients and providers think about the data.
And so we're really pleased with the launch of Winrevair thus far. We are treating mostly those patients who are sicker. They're on triple background therapy. With all of this data coming and with the experience that people are getting in the real world, we're confident in the prospects to continue to advance care, continue to impact patients, and continue to see strong performance here.
Okay. Question about a product that you probably seldom get questions on, but has been a nice surprise, and that is belzutifan. What do you think the peak potential of this product is, and what are the catalysts to get there?
I'll maybe give headlines and then talk about the catalysts. Welireg has had very strong performance in VHL-associated tumors, and we are now advancing into advanced renal cell carcinoma. We have the prospects with a few catalysts that Dean will talk about that, if successful, we believe Welireg is a blockbuster product for us.
Yeah, I mean, I would just emphasize, you know, where the vascular endothelial growth factor pathway has been really impactful is in RCC, in renal cell carcinoma. And we believe that not only the vascular endothelial growth factor, TKIs, but on top of that, adding a hypoxia-inducible factor inhibitor such as Welireg could be really important. And what you see us go is from VHL, and we're walking through RCC, getting it towards front end, and that's what we're doing, third line, second line, first line. We're also clearly combining it with other people's TKIs that we wonder if they could be more effective and whether they could be more tolerable. But belzutifan or Welireg is extremely easy to take, and it appears that it augments the effects of vascular endothelial growth factor, TKI. So we're very excited about it.
You know, amid all the promise that Merck has, obviously, people are kind of fixated on the Keytruda patent expiration. Other companies have provided some visibility on margins through their big LOEs. One, for instance, has said broadly stable. Can you remind us what Merck has said about the margin profile of the company through the Keytruda LOE? And if so, well, what has Merck said? So why don't you remind us of that?
Let me start with where are we today? So we've made significant progress as a company in improving the operating margins, and we've done that really by having now one of the top quartile cost of goods as a percent of revenue, top quartile SG&A as a percent of revenue, and that's enabling us to invest fully behind the expansive pipeline that we have. At the midpoint of our guidance this year, we have an operating margin of roughly 43%. And as we go forward in the coming years, we will invest fully behind our pipeline and our launches while we seek to drive productivity everywhere else in our business. We will also benefit from some further roll-offs of royalties that will enable us to see operating margin expand. As we go through the Keytruda loss of exclusivity period, we do expect there will be a headwind to our margins.
And at this stage, we haven't stated what we think the longer-term operating margin will be, as that will be driven by the mix of business we have at that stage. But we will continue to assess as we get closer to that time what the right talking points are and insights that we give our investors so that you understand the continued operating margin progression for our company.
Okay. By the way, I should have mentioned at the outset, should there be any questions in the audience, just raise your hand and we'll make sure those questions are asked. A business that Merck occasionally gets asked about is animal health, but it's usually within the frame of, are you going to stay in this business? But maybe looking at it on the flip side, there's this view that there's some new product cycle emerging in animal health, specifically maybe in atopic dermatitis. So can you tell us about, say, the next two, three, four exciting drugs coming out of animal health, say, over the next 12 months?
Yeah. We're very excited about our animal health business, a business that is a leader in the production animal space across every species, with opportunity to grow and seek better leadership positions in the companion animal space. We've said that we expect our revenues for our animal health business to more than double by the time we get to 2035. As Steve said, that's really going to be driven by innovation. We have more products coming in the next five years in animal health than we've ever introduced. Some of those examples would be in the companion animal space. We're going to be launching and are launching a long-acting parasiticide, the Bravecto injectable, which will provide coverage for fleas and ticks for a 12-month period. We are going to be launching in the dermatology space our JAK1 inhibitor. This will be a promising product.
We believe it's got very good attributes, very competitive attributes, very safe product, which will be impactful in that space. We also have a range of combination parasiticide products that we think will be impactful. So as we look forward, we expect growth in the companion animal space driven by the products we have, as well as entering new segments. And we do expect continued growth in the production animal space as we have new vaccines across our multiple species that we support, but also through our technology solutions. So we see this as an important part of our business, an important driver of growth for the future.
A couple more kind of bigger picture questions, and then we'll zoom into the pipeline. But a concern among investors is the amount of production OUS versus U.S. for companies. And with an eye towards, well, if tariffs really become a big deal throughout the world, then a company that does a lot of domestic manufacturing is in a better position. So what is Merck's complexion of manufacturing OUS versus U.S.?
Yeah. So like many companies, we have a global supply chain and global manufacturing footprint. And that footprint is largely in the United States, in the Americas, in Europe, and in Asia. Our company has invested more than $12 billion since the Tax Cuts and Jobs Act here in the United States in 2018 to date. And we expect to invest a further $8 billion in the coming years. And that investment has been in manufacturing in support of our current products, but more importantly, the pipeline of products that we've got coming. Now, as a global business, we have a slight majority of our revenues that are outside of the U.S. than in the U.S. And similarly, our manufacturing footprint is slightly heavier outside of the U.S. than here in the U.S.
As we all try to understand what tariffs may come, our company is focused on, number one, the investments that we're making in this country to support our pipeline, but also ensure that we have agility to support production for the United States in the appropriate way.
Okay. Maybe we can move to China, and I have a question for each of you. So first of all, Caroline, is China an opportunity or a risk? You know, kind of investors are worried about it, but companies all seem very excited about the promise. And for you, Dean, one company, major company, recently suggested that kind of the best days of acquiring assets in China are over, that the best assets have been picked over, and that the promise just isn't what it used to be. Do you agree with that? Do you not agree with that, and why? So if you can each answer that question.
We'll let you go first, and now.
China still represents an opportunity for our company. And that opportunity is centered around the innovation that we're bringing to the country, the significant population that is looking for innovation and medicines and vaccines that will make a difference in that world. We believe China still represents a growth opportunity once we see this year the rebasing of Gardasil in the market.
Yeah, I would answer, you know, China has really built an excellent scientific infrastructure over the past few decades, and there's going to be really important innovation coming out of China as it's apparent. You know, we have recently, not recently, we have been in China in terms of antibody drug conjugates with Kelun. We have a VEGF/PD-1 also from China. We have a T- cell engager from China, and we got a GLP from China, but I just want to also emphasize there's great innovation throughout. I mean, some of the most prominent mergers and acquisitions we've done have been outside of China as well, as you can tell. Acceleron, when we talk about Winrevair, when we talk about Prometheus and TL1A, and probably, you know, that doesn't get a lot of ink.
You know, I would emphasize our investment in starting up EyeBio, and then once they had the phase 1b type of studies that we were interested, we bought it. So we don't sit there and say it's drying up in China, or it's drying up in Cambridge, or it's drying up in South San Francisco or in London. We think that all of them are vibrant places, and our job is to find the best innovations to move forward where we can add value.
Somewhat related to China, but asking about Gardasil, what is Merck's level of confidence that 2025 will be the trophy year for the franchise on a global basis?
So I'd say the confidence is high. We're proud of the impact that Gardasil has had globally. And with all the success we've had, there's still so many people around the world that can benefit from this vaccine. We have the opportunity for growth in each and every market around the world, and that growth will come from the adolescent segment, it will come from the male segment, increasingly from the mid-adult segment, as well as the low and middle-income markets. So we are remaining focused on protecting as many lives as we can around the world, focused on driving growth, and our expectation of that growth is unchanged around the world, excluding China. And we have the appropriate resources and focus on China so that as the economic conditions improve, we'll be able to optimize our position in China and protect more lives in that market.
Okay. Maybe we can now dig into the pipeline, and let's start out with Keytruda Sub-Q. So Dean, does Merck have all the necessary data to file Keytruda Sub-Q in the U.S., or is more data needed?
It's been filed.
It's been filed. Okay.
We've also filed in the EU.
Okay. How confident are you that Merck can launch this year? It seems awfully quick, so how is that possible?
I think the data will stand for itself, and in all the interactions we have with the FDA, there's nothing that changes our view that approval would happen this year with the potential of launch this year as well.
Yeah.
Okay. What our KOLs say when we talk about Sub-Q, whether it be Keytruda or some other PD-1, PD-L1, is that most of their patients are also getting an infusion at the time that they get their Keytruda, so there's no benefit to giving the drug Sub-Q. So how does Merck support this view that, you know, the conversion is going to be rapid and deep, 30%-40%, I think the company said? How do you get there in light of the?
So I'll have Caroline answer the market map, and then I'll make comments about the patient infusion centers and patients who don't want to go to infusion centers as well.
Okay.
As we look at our Keytruda use today, we have people who take Keytruda as monotherapy, people who are taking Keytruda in combination with another oral agent, and people who are taking Keytruda with an IV agent such as chemotherapy. The current use in the United States: more than 50% of the patients are using Keytruda either in monotherapy or in combination with another oral agent. That's both across people being treated for early-stage disease and people being treated for metastatic disease. We also have 25% of the revenues coming from patients in the earliest stage setting. That is growing fast, and it will continue to grow based on the pipeline of indications we have coming. Our expectations for the subcutaneous launch of pembrolizumab is that adoption will vary.
It will vary based on the cancer type, vary based on what the other treatment may be with Keytruda, and it will vary based on practice setting. And so as we assess that, we expect more adoption where the patient is using it as monotherapy or in combination with an oral agent, less adoption where it's in combination with an IV. And when we put that whole market map together, our expectations are 30%-40% adoption, and we expect that adoption to be in an 18-24-month window.
Yeah, I would just add maybe just a couple of things. The first is when Caroline talks about that earlier stage, I need to make sure that everyone understands how dynamic that space is. We're not talking about increasing the amount of sub Q in a place where there's not going to be any more readouts in earlier stage. We just recently announced a PDUFA date in relationship to resectable head and neck. And we have multiple readouts where we think that will be growing indications. The other point that I would just emphasize is that, you know, the field isn't static in relationship to what Keytruda will do either in the metastatic or in the earlier stage, whether it be ADCs that are every two months, two weeks, or every three weeks, all of this sort of thing, they're all going to be done in some sense with Keytruda.
Being able to give Keytruda so that you don't even think about what the sequence of the other agent is will be important. The other sort of thing is that there are small molecules that are moving forward. Just as an example, if someone could get a KRAS G12C that could combine with Pembro in the KEYNOTE-189 patient population, you would essentially be telling that patient population, which is 13%-15% of non-small cell lung cancer, you never need chemotherapy. If you never need chemotherapy, why are you in an infusion center? If you also have a Pembro that's Sub-Q and an oral pill, you essentially create a situation where someone who used to have to go to an infusion center never needs to. We think there's multiple opportunities, and it's not a static view. More data is coming.
Okay. Questions from the audience? Yes.
Given the reason most of us benefit from your latest thoughts around clesrovimab and if you could potentially comment on this upcoming season without an ACIP.
Okay, so the question has to do with the recent postponement of the ACIP. Go ahead.
Yeah. And so I think that has created some uncertainty. The way that we have operated is the ACIP is going to still happen and that there probably needs to be some time for the administration to rethink who the attendance is in relationship to that, but we'll have to see. It does create some degree of uncertainty because they did that. Having said it, what I would just emphasize is that some of the, I shouldn't say noise, but some of the controversy that has come up in relationship to vaccination has largely been in the pediatric patient population and with active immunization, especially with adjuvants, but, you know, as you saw recently, as much as that has been a controversy, the HHS and the secretary has realized that measles in Texas is not a great thing, and so they've actually said something very supportive in terms of vaccination.
We'll see. The final thing I would just say is this is clesrovimab. It's a monoclonal antibody. And if there's going to be something that's in the pediatric population that I would think is relatively non-controversial, it would be a monoclonal antibody, especially when the president himself, when he was struck with COVID, took a monoclonal antibody for COVID virus.
That's on that.
Okay.
Thank you. Can you discuss, can you review for the room your oral PCSK9, the status of development, timing for approval, and how you're going to position it in the marketplace? Because yours seems to be the one picking up momentum. And there's a whole lot of another class that has tried to compete in lowering LDL, the PCSK9 inhibitor. A lot of them have failed, but there's one little company out there claiming 35% additional reduction on top of statins, and they're comparing themselves to the oral PCSK9. Can you compare and contrast?
A number of questions relating to the oral PCSK9 that Merck is developing.
Yeah. So I want to be careful that I don't say anything that sort of casts aspersions to some other company and their drug and their drug development. I will simply say, if you look back in history, if PCSK9 was identified before HMG-CoA, I would tell you that PCSK9 would rule the world and the statins wouldn't have a chance. Having said that, the bottom line is this. The bottom line is that PCSK9 as a pathway is probably the most potent LDL cholesterol-lowering mechanism there is. The antibodies have proved that. And not only that, it's not just the most effective way to lower LDL cholesterol. There's clear proof that that class and that biochemical interaction of the antibodies can lead to an outcome's benefit. Why is that important?
Our drug is really, when people ask me, what am I expecting, our drug is designed to be exactly, exactly like the antibody in its mechanism of action. It doesn't just hit PCSK9. It hits PCSK9 exactly where the antibodies are. So when you saw our previous data, and we will have more data, and I'll explain that, you know, that data looks indistinguishable from the antibody, and we hope that in phase three, that continues to be the case. You will have a series of readouts that come up, and just like when you went over Winrevair, we are hoping that we have three biomarker data in relationship to LDL cholesterol reading out this year. If everything comes out right, we're not going to bleed that information trial by trial.
We would love to be in a position where a major cardiovascular meeting in November would be a place that we would provide all that information. If we can't get it done there, it likely would be a major cardiovascular meeting in March. But that would be to lower LDL cholesterol. We believe that the label, if everything looks right, would be very permissive for us to do what we want to do, which is democratize PCSK9, a pill that is at a cost of goods that is extremely advantageous so that we can undo what has happened in the PCSK9 class, which is the most underused class when you have 70% of the, in America, 70% of the people are not at their LDL level. So we think it's a huge opportunity.
Not only will we have that readout, but subsequently in the years following it, we will also have outcomes on top of that LDL cholesterol readout. So we're very eager to share that, and we're very enthusiastic about what this could do. When we're talking about a PCSK9 sort of thing, we're not talking 20%, 30%. We're talking 60%, 55%. And I think cardiologists and even internists understand that.
In place of statins, combination with statins, chemotherapy, what are we looking at?
All of the above. Absolutely all of the above.
Compare PCSK9 to CETP?
One's 55%-60% reduction of LDL. I'll just leave it at that.
We do have a cardiology panel tomorrow afternoon where that will be discussed. So let's move on to another product. So what is the current refiling plan for patritumab deruxtecan, and when should we expect the full phase III data?
Yeah. So you're talking about the HER3 ADC that we have in combination with, in collaboration with Daiichi Sankyo. It is in lung cancer. I should just emphasize that probably one of the larger sort of indications that we're very interested in is in breast cancer, and we have begun to, those phase 3s will be reading out. So our focus with that is broad. It's not just in lung cancer, but there has been a CRL based on manufacturing. We're working with the FDA and Daiichi Sankyo, who is responsible for that manufacturing. And I don't want to get ahead of what they're going to say, but there is nothing wrong with the data. The CRL that was provided was due to manufacturing. And that, you know, in due course, that will become something public that we would collaborate with Daiichi Sankyo.
Having said it, what I would just emphasize just generally in ADCs, we have the TROP2 ADCs moving in 12 indications, and many of the PCD or primary completion dates are in 2027, 2028, and when I give you a primary completion date, that's final analysis. Oftentimes in these trials, there's interim analysis. We also have Daiichi Sankyo and us in relationship to small cell lung cancer, where we're advancing very fast, and also with Daiichi Sankyo and us in CDH6 with initial focus on ovarian.
Maybe we can move to HIV. So is Merck's oral Q month PrEP or Q week treatment the bigger value driver to the $5 billion in 2035 that Merck has as an aspiration?
So I'll let her tell you about money, and I'll tell you about the science. How's that?
Perfect.
So for us, the most important thing is if you look at the Q day, there's a three-drug treatment. That's what Biktarvy is. And the anchor medicine is an integrase. You had another person, another company come up, Dovato, that made it a two-drug regimen. And that two-drug regimen has done well, and that two-drug regimen also has an anchor as an integrase. We are coming in shortly with doravirine/islatravir , which is a two-dose regimen that's Q day. The critical component parts of this is that in our randomized control trial, we compared directly to Biktarvy. So in CROI, which is.
Next week.
Next week, I would stare at that data and say, is this the first randomized control trial in a switch studies in a large randomized control trial where someone compared a two-dose, a two-drug regimen versus a three-drug regimen? And by the way, is this the first demonstration that when you do combinations, you do not need an integrase as an anchor? So I just want to emphasize the Q day data that's coming out next week. The next question is, if you look at that, then all of a sudden for the Q seven days treatment, you have the option of combining Islatravir with many different mechanisms because essentially what we are trying to define is the anchor medicine no longer has to be an integrase. The anchor medicine can be Islatravir.
It gives us every opportunity to combine where we're combining with our partners, Gilead, but we're also partnering with other medicines. That's the treatment market, and that is a known market that's the vast majority. We think there's an enormous opportunity there. Me personally, when people look at the PrEP market, they sort of cap where the PrEP market. I can just tell you the people that I know who are professionals that I know who are at risk. I don't know that we've totally understood what an oral Q month, 12 pills, three pills a quarter could do to change the PrEP market. I wonder when she tells you the commercial sort of landscape, whether we fully understand what a Q month PrEP could do that's oral, that needs no needle, no medicalization, no going into the hospital.
So we believe the commercial opportunity is greater than $5 billion by the mid-2030s for our HIV portfolio. Clearly, the treatment market is the larger market today. There's 40 million people living with HIV, and that number's growing each and every day and year. So with the number of different product offerings that we have, we look forward to helping the people living with HIV and the one in five that switch treatment in the United States each and every year. In addition, the PrEP market is a smaller market today, $3 billion, but estimates that that will grow to $9 billion over the coming years. And we want to play an important part in that given the opportunity for a once-a-month pill to help prevent HIV. So we're excited about this opportunity and more to come next week at CROI and beyond.
We're out of time, but please allow me to ask one last question. So you have a 10-year plan. You have a vision of where Merck will be in a decade that's far more granular and crystallized than we have. What is the thing that you believe we will be most surprised by when we get to that point? And if you each can answer from the R&D side and from the P&L side or company side.
So I believe that the pipeline we have in our company is one of the broadest and strongest that we've had in many years. The opportunity we have is to significantly advance both human health and animal health and drive significant growth for our business. So I think the surprise will be our company's pivot to be a much broader company driving significant top line and bottom line benefit from the financials.
I will say from a scientific standpoint, I'll just reference the HIV. We think that we have a new anchor medicine that changes how you think about combinations. MK-0616 , we think we have a new anchor medicine in relationship to LDL cholesterol lowering that you can buy multiple. So I think where people will be surprised is these lead assets are not just lead assets by themselves. They are a pipeline and a product that leads to not just expanded indications, but expanded molecules. The same thing is with TL1A. You hit with TL1A, it becomes very obvious what the next product will be. You hit with EyeBio with the first Wnt/Norrin pathway, and it becomes very simple to think about what the next product.
So the concept that many of the programs that we're focusing on is more than that program, but it is a pipeline and a product I think will become apparent to people during that timeframe.
Great. Thank you so much. It's been a great discussion.
Thank you, Steve.