[audio distortion] our next session. Thanks for joining us for this meeting. I'm Tim Anderson, the U.S. Large-Cap Pharma and Biotech Analyst with Bank of America. We have the pleasure of speaking with Merck today. Three folks on stage, Jannie Oosthuizen, did I get it right? Who's President of U.S. Human Health. He's held this role since 2022. He joined Merck in 2014, serving in various roles internationally as well. Most recently, led global marketing for oncology. Prior to Merck, you were at Lilly for a long time, I think 20 years.
Yeah.
We have Dr. Marjorie Green, Senior Vice President, Head of Oncology Clinical Development at Merck. She joined the company in 2023 from Seagen . Of course, we have Peter Dannenbaum, Investor Relations, who many of you will have known. Peter, you joined Merck, w hat year was that now?
2017.
Okay, 2017. We're going to start off with some policy questions, and same questions you've heard me ask many others. I know some of these will be difficult to answer. Lots of headlines on lots of different things, MFN being the most recent topic. How much time is that taking internally from you, let's say?
Yeah, it's taking a fair amount of time. You know, I think right now, it's a question of not just what are you hearing and seeing, but what are you potentially missing, right? I think we definitely do spend a lot of time. We've got a small team set up across the enterprise to really catch as much as possible, start to think about, what are implications, how do we need to think about it, does it become part of long-term planning, right, et c? Just things we need to react to. It does take a lot of time, y eah.
Marjorie, how much time is that taking for you? There's FDA disruption in the mix as well, right? Maybe one of the questions for you is, folks that you've interacted at the agency with, are some of those folks gone? We asked this question to Regeneron yesterday, and they admitted, yeah, some of the long-standing ophthalmology relationships are no longer there.
Yeah, I think we have so many interactions because of our broad portfolio at the FDA, that we've got good relationships through the depth of the different divisions. Yes, some senior people are gone and have moved on, but there's still a lot of continuity across the FDA for the interactions that we're having.
Let's start off with Most-Favored Nation , which obviously broke in full force on Monday. Your thoughts? Super high-level question.
Yeah. At this point, Tim, we probably have more questions than answers, right? It's kind of, in a way, it's a bit of round two, given that the current president wanted to do this in his first term as well. We'll definitely learn more over the next few weeks as CMAs probably start to engage on the topic, and the list of to-dos that they have. You know, there's the obvious questions like, how's this going to work? What's going to be possible to implement under an executive order versus potential legislation? Will it have to go through Congress? What elements will have to go through Congress? All of those are just questions in terms of how this is really going to shape up, and how's it going to feature from an implementation perspective?
You know, is it just a means to get a negotiation with the industry going, right? I think we have a lot of questions in terms of, what is the end goal and what is the real objective? Within that, I think there's some positive things, right? I think we've all struggled with foreign governments, and countries outside the U.S. not paying a fair share for innovation and reflecting the value of what we're bringing to those markets.
It's been difficult to change that price policy from an industry-only standpoint. I think having the U.S. government engage on the topic, hopefully is positive and useful. You know, some acknowledgment of the role that middlemen PBMs are playing in the market, right? H ow much is being absorbed into the pockets of others within the system, i s there a way in which we can clause some of that back and really get it to patients ultimately?
To achieve this equalization in price, at least a couple of companies yesterday did throw out, if it's possible, you know, maybe it's government to government, and maybe that's what you're suggesting as well, i t's certainly hard to see drug companies being able to influence that directly. One question I've been asking companies is, this isn't specific to Merck's book of business, but just your long-standing perception, I don't know, in the last five years of the delta between net U.S. drug prices and let's call it developed Europe prices, y ou see numbers all over the place.
Yeah, a nd it's also a matter of, where are you in the life cycle, right? W e usually start much, much closer. In the U.S., we have an ability to increase price, whether it's inflation increases or some would go beyond that. In the rest of the world, it's pretty much no price increase and more often, continuous price decreases, right? You have a divergence that really gets increasingly bad over time. It's also a question of, you know, how recent was the launch? In the [HTA] markets, right, it's not a negotiation. You know, governments take a very firm position on what they believe is cost-effective or what they're going to pay in this kind of take it or leave it, you know, equation. The deltas could be 2x-10x, right, across the industry.
Okay. Yesterday, I published a simplistic scenario where I looked at all my covered companies and I said, "No, we're going to assume a certain level of price cut across Medicare and Medicaid, and float through the numbers and hear what the earnings impact would be." Immediately, we got feedback, "Oh, you're not taking into account commercial spillover." That is the question I have for you, and you're well qualified to answer that. We've asked this of other companies. The company just before this felt there really would not be commercial spillover if MFN is applied just to government channels. That has been my view too, just because I think Medicaid shows there is precedent for a government channel to get steeply discounted prices. As much as commercial payers would love access to that price, they cannot get it. Why would it be different if MFN was applied to Medicare?
Yeah, and a lot of it depends on the reimbursement mechanism as well. You know, if it's rebates, you know, et c, like said in Medicaid, you can kind of [reinvent] this. Earlier, the conversation was, you know, if you do something in Medicaid, it could bleed into 340B, right, which then becomes a much broader exposure beyond just Medicaid itself. Can you reinvent some of these?
I think on the medical benefit products, Tim, you know, when your product is ASP-based in terms of reimbursement, you know, the ASP does bleed into other segments in the market. I think that's where companies are saying that, you know, you might well see the price in Medicare ultimately impacting your ASP, and that ASP affects your commercial business because the reimbursement is ASP-based. It might take a bit of time, but ultimately the ASP is going to catch up across all your segments.
Okay, l et's move to oncology. There's a lot to cover here, and you're both quite versed in this area from different perspectives. This actually ties into some of this policy stuff, i f you think about it from some of the IRA news yesterday. Keytruda, biggest product, $32 billion this year, at least in our model, nearly 50%, five, zero of total company revenues. It's been doing absolutely fantastic. It's growing 20% per year on average for the last five years.
Q1 was soft, but there was some explanation behind that. If you kind of strip that out, those one-time effects, I think the underlying growth is more like 11%. As we think about this brand going through 2025 into 2026, into 2027, won't that very strong growth trajectory likely continue as you continue to penetrate other indications, roll out in more geographies? Q1, you know, looked like a slow number, but is there really any sort of slowdown ahead?
Yeah, you're right. I mean, Q1, there were some Q4- Q1 channel inventory movements that did bring down the absolute Q1 growth, b ut we still see good growth on Keytruda. We will continue to see it. We continue to see indications coming forward. You know, what we're seeing right now is a lot of our launches from about 12, 18 months ago are starting to mature in terms of market penetration and share , so we do need more catalysts to come in.
You know, more launches this year and beyond will continue to be the catalyst for growth in Keytruda. We will continue to see growth in Keytruda. You know, some of these are smaller indications. It's a big base, right? You know, we need to take that into account, but we will definitely continue to see growth. We also have subcutaneous, which would be another. It's not necessarily a growth driver, but I think it continues to build a positive momentum around the use and hopefully compliance as well.
Will SubQ help actually grow Merck's overall share within that, or will SubQ just most likely switch just from IV?
Yeah, we believe that, you know, based on the broad clinical benefit in this class for products, physicians first make a brand decision in terms of, are they going to use Keytruda? S ubsequently, they will decide, is it going to be IV, is it going to be subcutaneous, right? From that perspective, we do not see SubQ to be a significant share contributor. Having said that, you know, if it does help with broader access for patients and better compliance, we could well see, you know, some volume benefit if you could keep a patient to complete all their cycles, right, that is needed, for instance, in an adjuvant setting.
Yeah, O kay. The question I asked about growth, as you noticed, was up to 2027 or through 2027. You get to 2028, IRA kicks in most likely at the start of the year. There was news on this front yesterday now, that in the proposed regulations, they will treat SubQ, Keytruda, and products like that that combine an active ingredient and an inactive ingredient as just the same as the parent molecule, suggesting that the SubQ would get subjected to IRA negotiation as well in that window. The stock went down on that, and Bristol went down and J&J went down as well. Your views of that?
Yeah.
[audio distortion] a surprise out of the blue, or did you see the writing on the wall?
You know, we did not really speculate in the past. We looked at the previous rule from CMS, which suggested that two active modalities will define a different produc and therefore, you know, the product will not necessarily be negotiated. That was our assumption for subcutaneous not being negotiated with IV. This rule, to your point, might well change that and it could be subject to negotiation. Having said that, you know, our objective with SubQ has always been to bring it in in a way that physicians can use it, patients have broad access.
We were always going to price subcutaneous in a way, to really maximize accessibility and reimbursement for SubQ use, so that we can get the level of adoption that we think is needed in the market. What I'm saying is that effectively, a negotiation of SubQ will not really change the financials for subcutaneous moving forward. We would have liked to have more discretion on how we price, and have our own flexibility on what we do from a pricing perspective. This might be , you know, more of a given in terms of how we need to do it, but financially, it's not going to be much of a difference to us.
Okay. The next event past that implementation of IRA is LOE, which I believe starts in December 2028, so at the very tail end of the year, so functionally from 2029 onwards. How do you manage that as an organization? As I mentioned at the outset, this is a product that's 50 % of revenues, high- margin, high-priced product. When we look at benchmarks for erosion of drugs like this, both U.S. and Europe, that are injectable cancer drugs, we've got several of those. It looks like it's been running 30%, 35%, 40% per year erosion. That's a big loss. What is the organization going to do? That's what's weighing on the stock, as you know and that is fully in focus.
That's right. You know, and you've heard Rob speak about this, our CEO speak about this quite often, right? I mean, that has been a big focus in terms of how we continue to develop our pipeline. That's been a big focus in terms of how we've executed on business development. That's what we continue to do, right? I mean, if you look at our phase III pipeline now, the assets in phase III has almost tripled from 2021 until now. In the last, you know, three to four years, we've seen a threefold increase in our phase III assets. You know, and if you take our phase III pipeline by the mid-2030s on a non-risk-adjusted basis, that is close to $50 billion in revenue that would come from this, right?
With $25 billion from oncology, about $15 billion in cardiometabolic, $5 billion in immunology and $5 billion in HIV, right? We really have strength in our pipeline sitting in phase III already, that's going to start to come through. In this phase of LOE, you know, what I would say is that, we've never seen, you know, any product go LOE post an IRA, right? There are going to be different price points even for biosimilars to contend with. We will have to see if the old analogs hold in terms of erosion. Having said that, it is obviously a big step down in terms of IRA negotiation and then additional volume loss. You know, we continue to focus on what we're launching today.
The contribution that Winrevair is making, the contribution that CAPVAXIVE is making is already significant. I think how we execute on our launches in the short, medium- term is going to be critical in terms of starting to offset and getting beyond the LOE for Keytruda. As Rob has said, you know, that cliff is now more of a hill. It's still a hill we need to climb, and we're going to do more , you know, to get through that LOE fast and get back to growth. I think the whole company is focused on solving for that LOE around Keytruda.
Yeah. Rob has described it, as you mentioned, a hill, not a cliff. That is in fact, what our model shows. I go back in my model frequently and I figure out, are we making a math mistake? I t's not a cliff. It actually looks like a hill. There's the perception that it's a cliff.
Right, yeah.
That's the difficult thing to change. Okay, I mentioned LOE starts December of 2028. There's an asterisk there, possibly. You guys have a lot of patents on Keytruda. This is a subject that you guys do not proactively bring up, but there's certainly plenty of precedent for biosimilars to get delayed. We saw it with Humira. We've seen it with STELARA. Sanofi talks about it possibly helping with Dupixent. We saw Regeneron take, you know, companies to court on Eylea. Why won't this be something that possibly pushes out the entry of biosimilars?
Yeah. I mean, and Peter can comment on that as well, f or now, for planning purposes, we assume the compound patent in 2028 as the date when biosimilars will come in. You know, there are two patents that probably could be extended through 2029. I think it's May and November that is related to, you know, some of the original patents that were filed and where the patent office took some time. There were some delays, so it could be a benefit from that timing aspect, that it extended beyond the 2028 date into 2029. We could see some of that. For our planning purposes, we assume that biosimilars will enter around the expiry of the compound patent.
Yeah. Just to be clear on that. Our 10-K back in March disclosed two additional patents that the patent office granted us. One was manufacturing. One was a formulation process patent that extended into, I think it's May and November of 2029. They will likely be challenged, so they may or may not hold up. Our expectation and our planning is all under the assumption that biosimilars enter in December of 2028.
Yeah, o kay. I neglected to ask one question I wanted to on the AubQ Keytruda, which is really in the ex-U.S. markets. You guys have given guidance for the rate of conversion in the U.S., but how should we think about the conversion from IV to subQ in international markets?
Yeah, I mean, we see it pretty much in that same range. You know, we talked about 30%-40%. You know, some markets could probably be a little bit lower, some higher. T he 30-40% is really around, you know, where we see the indications of Keytruda in terms of monotherapy Keytruda, which obviously could easily be a place where you would use subQ a nd that could be in metastatic disease.
It could be in early stage, especially in the adjuvant phase. It could be in combination with orals, right, where there's no other product being infused. Marjorie made the point earlier today, you know, even in the metastatic setting, you know, it could still save the practice's time to have a two-minute injection of the subQ, and still give the patient the other infusion, right? I think there's potential for a lot of efficiency in terms of how practices are running their business too. We kind of see the conversion or the adoption at similar rates.
Okay. I want to shift to a different oncology topic, and Marjorie, you'll probably be the one that answers this. PD-1, VEGF, bispecific. That is a category suddenly on the map in a big way, and viewed as a concern for Merck as possible competition to Keytruda because there is a head-to-head trial or one or more going on at the moment by Akeso and Summit. Everyone's waiting with bated breath to see these next data updates on that approach. There is that product. Ivonescimab is in the lead. There are others behind it.
You guys, in fact, picked up a molecule in this space as well. What I've seen Merck do sometimes in the past, I feel like, is take out insurance policies. CTLA-4 is a good example where I felt that the company was always kind of denigrating CTLA-4, yet it had one in development, possibly as a hedge. Is that what this is for you guys, or is this something that you fundamentally believe in as an approach? If it's the latter, then it's a potential concern because others are ahead of you.
There's a lot to unwrap in that question. I think from a scientific standpoint, there are reasons to believe that in the bispecific. If you think about it, preclinically, what you're doing is, we know that VEGF is immunosuppressant, and you can get T regulatory cells that get upregulated in the presence of VEGF. You can see problems with the tumor microenvironment. There are dendritic cell effects of VEGF. This is why anti-PD-1 or PD-L1 and VEGFs have been studied so broadly, including the studies that we've done at Merck.
By combining these into a bispecific, there are potential advantages of the VEGF being able to do more to the immunosuppressant activity, as well as providing local anti-VEGF activity against blood vessels and improving the tissue microenvironment with less of the systemic issues of a free-range VEGF drug, and also potentially enhancing the PD-1 or PD-L1, depending on the bispecific in what you do. Preclinically, it's very interesting biology. Our portfolio is composed of multiple drugs that have single-agent activity that are combinable. We want to be able to follow science and go, okay, we know that Keytruda's foundational PD-1 therapy, PD-L1s are foundational, Keytruda in particular in multiple tumor types. We have drugs that can go across multiple tumor types.
If there is something that scientifically makes sense, we want to be able to combine with our assets, to be able to buy the greatest benefits for patients. It gives us optionality in our portfolio, and how we develop our drugs. If it turns out that these drugs are fulfilling the promise of some of the initial PFS data that has been seen out of China, we have shown that we can come from what we perceive as behind a development plan multiple times, definitely with Keytruda.
Also, if you look at our SAC TMT portfolio, we came third to market. There are two that are on the market, but we have a very robust development plan, and are differentiated through how we develop our drugs. I think we're in a really good position because of the molecule we've picked, our understanding of the biology of PD-1 therapy in VEGFs and really can make a difference. If this does work preclinically, it does. The initial data is very encouraging, that both Akeso Summit and BioNTech have generated. We're in a really good position.
The big question of course is, is this very nice-looking PFS benefit going to translate into a survival benefit? If you just look at the history of anti-VEGFs in lung cancer, it's a mixed bag on that front. You have some trials that have shown a survival benefit, others that have not. [Dean] has flagged this before as a big question mark. Do you want to put forth a guess? Are we going to see a survival benefit translate? Do you think it's high risk that it does not? Do you think it's likely that it does? How are you thinking about it?
This is different I think from what we've seen with both Avastin, as well as the VEGF TKIs, because of that fundamental structure and biology and the preclinical benefits. I think it's an open question. I'm not really a gambler per se, even though we are in Las Vegas. Thinking about what you're seeing is, when you look at all of the data generated to date, the efficacy that's being produced is more robust than historically was seen with previous generations of drugs, which does give you some hope. I think there was a big reaction to the Harmony 2, that the label data that got snuck in, that 39% information fraction. I think that analysts who do wonderful modeling had predicted the hazard ratio for us to be somewhere between 0.7 and 0.8, and that's where it was.
There was a huge negative reaction, so I think it's too early to tell. We don't know what the curves look like. Are they going to come together? Some of the worry in the past with VEGF inhibitors has been the toxicity associated with it. Is that contributing to the OS? Again, because of these structures and the way that these are dosed, you may not have that same issue. I think it's an open question still.
One of the things that strikes me about this is, you know, who's leading the charge here? It is Akeso and Summit. It is BioNTech. You guys have a compound. Where are the other majors in this space? We do not see a lot of other big established oncology players with compounds in this class yet, which begs that question. Is this more of just an insurance policy for you guys, or do you really believe it?
I want to be able to maximize benefit to patients with our portfolio. This gives us the option to do that.
Okay. Let's shift to another possible threat to Keytruda, which comes up, which is the AVANZAR trial from AstraZeneca. Head-to-head with their Trop-2 versus Keytruda frontline [lung]. That data comes out maybe around the end of the year. Should we be nervous about that?
I look at, w e have a Trop-2 ADC that we're developing, I think in a different way than both Gilead and AstraZeneca. Daiichi have been developing their drugs. I'm very confident in our ability to find clinical value for patients, and therefore for the healthcare systems, payers, and company with our development strategy. There's still unmet need in the frontline non-small cell lung cancer space. As an oncologist, I want to do better. I think we all want to do better. I look at this as an opportunity. Antibody drug conjugates do have a cytotoxic payload. They're not sort of kind and gentle medications necessarily. When you add platinum-based therapy on top of it, there is the potential to have compromise in your dosing and your ability to stay on regimens.
I think that our frontline strategy, both combining with Pembrolizumab and using the knowledge we have from our extensive Pembrolizumab studies, and how we've designed our studies and designed our inclusion criteria helps us. In addition, we have a maintenance strategy approach, which really is designed to keep that benefit going long-term for patients to get additional responses for those people who have stable disease. I think that we're in a really good position. I look at this as a great time for patients ultimately, because of the innovation that's happening with antibody drug conjugates.
Great, o kay. Let's move to a couple of other disease areas in the remaining time, which is not a lot. Just vaccines, GARDASIL, of course has been a focus product because of the slowdown in China. I know you're responsible for the U.S. market at the moment, but you have some perspective probably on what the latest is in China. The guidance has been, you know, expected to be slow going forward in China for the time being. Is that still the current thinking?
Yeah. I mean, we assume no further shipments into China for the remainder of this year, right? I think we've de-risked the GARDASIL number. It's less than 1% of our total revenue now sitting in GARDASIL. What I would say to them is, outside of China, as we saw in the first quarter, I mean, we still had like 16% growth of GARDASIL . In the rest of the world, including the U.S., we grew GARDASIL 10% in the first quarter. That makes it rest of the world outside of China, greater than 16% of growth. There still is a lot of opportunity, right? I mean, you know, we've been, I would say, saved lives for the last 10 years, you know, with HPV vaccination. We're still sitting at only about 10%-15% of patients being covered with this vaccine.
There still is a tremendous opportunity. W e obviously continue to work, you know, whether it's in low middle-income countries, whether it's the adult segment in Europe, whether it's in the U.S. still completing, you know, the series, as well as further penetration beyond the 75%-80% that we see today. There's still a lot of opportunity for GARDASIL.
ACIP in the U.S. is going to be discussing the idea of only giving one shot of GARDASIL. There is data out there, I think it was a WHO study recently that showed that you get pretty much the same efficacy with one shot versus giving two or three, which is the current standard and that's current label in the U.S. If that were to happen, I mean, is the competitive response just to double the price of GARDASIL?
We're going to take a measured approach, right? We will see where ACIP land. There's been about 10 different scenarios being discussed by the working group. You know, the recommendation could be gender-specific. It could be different across different age cohorts. It could be shared clinical decision-making at the end of the day. You know, we have a bit of a different view in terms of the data set being used. You know, and the FDA, I think has a different view as well.
The evidence being put forward for ACIP is not evidence that FDA would, for instance, accept to change the label, right? I think there are some big question marks in terms of the bar that is required to make this change. This is a vaccine that works exceptionally well, but there are real differences between males, females, between, you know, ovarian versus cervical, versus head and neck cancers. You know, we continue to engage on this, and we'll see where this lands.
I have about 10 really important questions, but we're out of time. We're going to call it there. I want to thank you, Jannie and Marjorie, and Peter for presenting at our conference this year.
Thank you very much. Thank you.
Thank you all.