Great. Thank you for joining us for the afternoon session today. We have Team Merck with us. With us, we have Caroline Litchfield, the CFO of the company. We have Dean Li, the Head of R&D, President of Merck Research and everything. Thank you very much for joining us today.
Thank you.
Thank you for having us.
I will turn it over to you, Caroline, to give us the overview of all the great things you are doing at Merck and let's just-
Perfect
dive in.
Thank you all for being here today, and thank you for your interest in and support of Merck. Since we were here a year ago, we have made tremendous progress, and that progress is all anchored towards driving our long-term growth ambition. This time last year, we were talking about 20 or so human health products that had the promise of delivering impact for patients and more than $50 billion in non-risk adjusted revenues by the mid-2030s. At the start of this year, we announced at the JP Morgan conference, we see more than $70 billion of non-risk adjusted revenues from this suite of human health products. The transformation of Merck's portfolio is underway. We have launched several new products. We have seen progress across our clinical book of business, and that is across oncology, cardiometabolic, ophthalmology, immunology, HIV.
On top of that, we continue to augment our pipeline with value, creating scientifically focused business development. That includes the acquisitions in this last year of both Cidara and Terns. We have got an animal health business that continues to exhibit strong growth. We are excited and confident in our future, and we are going to fully invest behind the opportunities we have with our expansive pipeline and our launches to drive growth into the future. We have got many clinical readouts coming, and I am sure we will talk a lot about that. But overall, we are confident in the execution of our strategy, and we are confident in our future. We look forward now to your questions.
Awesome. We are also looking forward to it right now. Last year, we have Eliav here, and I kept asking him what sac-TMT, that you have all these trials going on, what gives you confidence to make such investments? His response was that we appreciate that you have not seen that what we have seen with Kelun data that was generated in China. Now we are seeing some glimpses of that. Talk a little bit about in last one year or so, what we have learned with sac-TMT and what is still underappreciated for the asset at this point.
Yeah. For sac-TMT itself, you could argue it is the third TROP2 ADCs.
Right.
Whenever you are coming in with a third TROP2 ADC, the minute you say it, they are like, "Why are you doing that?
Right.
The concept for us is that we had already seen some data just from preclinical that made us think that this ADC, the linker payload, was going to be a cornerstone and would have a different benefit-risk ratio, especially in combinations. The other sort of thing that was really important is that we have had a close relationship with Kelun, and so we trust them implicitly in relationship to how they conduct their trials in China. The reason why that is important is we almost use it as a reconnaissance force. To figure out where we should play. Our initial focus was when we looked at everyone else's TROP2 ADC, we are actually very surprised how focused they were on breast and lung and how not focused they were in other indications.
Right.
We put in 17, and 13 of them were not in breast and lung. We said in breast and lung, we would be thoughtful and we would strike when the time was right. What you've seen in the last year is that strategy coming out. Our endometrial is likely to be the first TROP2 ADC, and those 13 trials are moving. In lung and breast, those data are coming through. You saw in Kelun, in China data, in phase III data, very compelling data across the PD-1 standard. I think that gives us great confidence in moving our sac-TMT into lung and being more aggressive about it. You'll probably see data about breast cancer that will allow people to do a comparison.
The other sort of thing is we think the data for sac-TMT is substantially differentiated, that not only does it give us an opportunity to be in lung and breast with sac-TMT, but it has us be in a differentiated position to consider things like PD-1/VEGF.
Right. A lot of us are actually seeing sac-TMT as a replacement for KEYTRUDA, but it does seem like it's a targeted chemo, basically. So it could go much further than that. How do you internally see this as an asset, which in terms of just protecting lung cancer versus broadening?
Yeah. Essentially, our initial strategy was not to protect lung and breast-
Right
and to go everywhere else.
Right.
Because we were a little bit surprised that other people hadn't done that. And you've seen, let's say, where the growth of KEYTRUDA and other agents have been outside of lung and breast. It's in women's cancer.
Right.
It's been in those sort of places. We thought that that was ideal. More recently, the eye of Sauron is moving back into lung and breast.
Right.
That's where we're focused on. I think people have asked, "Are you going to try to do the whole KEYNOTE-189 with-
Right
sac-TMT?" The bottom line is we intend to go with sac-TMT in the breadth of PD-L1 indications. One of the things that's available to us is that we believe in many of those indications, we just need to use pembro.
Right.
But in some of those indications, we may have a unique position to drive a PD-1/VEGF.
Right.
We are being very thoughtful in relationship to that. So actually we went outside of lung and breast, and now we are moving back in.
No, it is funny, right? The discussion has moved from why are you running 14 trials to why are you only running 14 trials?
Right. We want to strike when the time is right and it is to our advantage.
Got it. Completely makes sense. So you have an event at ESMO as well, we will see a lot more data there. How far are we from seeing a PD-1/VEGF plus sac-TMT, those combination trials starting at this point?
I think in the clinical trial side of the government, it becomes very clear to people that we are exploring indications of a PD-1/VEGF with sac-TMT, and that we are clearly exploring PD-1/VEGF with WELIREG.
Right.
I think people can immediately calculate, okay, there's 50+ indications for PD-1s and PD-L1s.
Right.
There's maybe six to seven indications with VEGF. Then of those, the question is, does Merck have a third arm which truly distinguish that they can go in combinations.
Right.
What we've said is those two agents, our sac-TMT and our WELIREG, look different than other people's agents. That's a place where we're wondering, "Hey, can we use it to really amplify what PD-1/VEGF can do?
Got it. Some of that, I think at ASCO you talked about it. In due course you'll give us the full strategy.
Yeah, those trials in the clinical trial, they're posted.
Right. Okay. Got it.
Right.
Helpful. Thank you. Going to the strategy side of things, then looking at all the success that Dean's group has had in last 12- 18 months here, then M&As and all. When you look at the model four or five years down the line, how do you see the patent cliff playing out in your internal model? Because a few years ago Rob had this ambitious goal of growing through the LOE, so how close are you to realize this dream?
Yeah. Our ambition over the last several years has been to diversify within oncology and diversify outside of oncology. As you've just discussed in oncology, we're feeling very good about the progress we're making with a number of great assets. Similarly, outside of oncology, we feel extremely good. As Rob has described, as we look forward to the LOE period of KEYTRUDA, we do not see a cliff-
Right.
in terms of how revenues may evolve. Instead, we see more of a hill with a quick return to strong growth. That's on a risk-adjusted basis. If we were to look at our own numbers on a non-risk-adjusted basis, the path to growing through the KEYTRUDA LOE is something we continue to aspire to and could become a reality. But the reality is, we're not running our business to achieve a certain profile in a single year. What we're doing is we are prosecuting this expansive pipeline in a way to enable us to have sustainable growth into the future. That remains the priority of our company.
Got it. Very helpful. Thank you. Going back to oncology, INT. Success we have seen with melanoma, again, I think phase II, it does look like, I don't know, data will reveal themselves, but with the early success in melanoma, how comfortable should we feel about the other indications you are also pursuing here?
All in all, even though INT is not a conservative program, the way that we've actually prosecuted is reasonably conservative. We have focused INT where KEYTRUDA works and works in early stage.
Right. Okay.
That's where we focused, and then the other place we focused is in a span of tumors that have varying tumor mutation burdens. We've done that. In the situation with melanoma, it's highly sensitive to I-O agents and has a high tumor mutation burden. I think that when people see the data, when it gets presented, hopefully at a meeting this fall, they will study the phase II and ask how close is this to the phase II. Because if you can replicate something close to the phase II, which as a sort of oversimplified way of looking at it, what you have is you almost double the number of people who are cancer free on top of KEYTRUDA.
Right.
And it isn't like KEYTRUDA doesn't do-
Yeah.
Right. It does do something.
Right.
That's pretty good. But the also important sort of thing is, you know from a phase II that if you look year one, year three, year five, those people responded, stay responded.
Right.
When people see the phase III, I think it's not unreasonable to sit there and say how close this is to phase II. They may extrapolate and say, "This probably will look like this in phase in five years, seven years maybe." I think that will be an important point. The stronger that data is, it's no different than when KEYTRUDA and OPDIVO came out. The stronger the data was for OPDIVO and KEYTRUDA in melanoma, the more likely you thought it was going to work in lung.
Yeah.
Which would make it more likely. I think it wouldn't be unreasonable that if you saw something close to phase II versus not seeing something close to phase II-
Right
sitting this. If you saw something close to phase II, your pretest probability, at least in some of these I-O sensitive and higher tumor mutations, I think many people will calculate in their brain that becomes more likely.
Got it. I think you talked about melanoma is probably more immune sensitive, I-O sensitive tumor versus RCC is probably on the other spectrum. In an event that it works in phase II RCC trial, how big an opportunity does it open up for you?
Well, I think what people will do is they'll consider them as bookends.
Right.
They'll sit there and say, "Melanoma, okay, RCC is I-O sensitive, but it's a lower tumor mutation." So they'll go everywhere between melanoma and RCC and say, "Okay, non-small cell lung cancer becomes more likely, head and neck becomes more likely." That's how they'll calculate it. They'll sit there and say, "Well, RCC has around the same tumor mutation as MSS CRC, but MSS CRC doesn't have it." So I think what someone will do is they'll look at that bookend and they'll do the KEYTRUDA story over and probably probabilize that bookend. I think that's how people will interpret the data. To be very honest, that's probably how some of us would interpret the data.
Got it. Makes sense. With all that clinical success, you are creating a good problem for your CFO. Obviously, with the success, you have to invest heavily in the R&D as well, which is the right thing to do. This is a question we get from investors a lot, that now that the pipeline is really vibrant and growing, you did some deals as well, what are the puts and takes when we think about the guidance for next year, how should we think about expenses and revenues for next year? I don't want you to give guidance-
Sure.
can you help us understand that?
Of course. We are not giving guidance at this stage, but to give some themes as we look at our business in 2027. 2027 will be another year of investment for our company because we will, as we have noted, invest in this expansive pipeline, and we will invest in our launches so that we are successful in the marketplace. As you look at the P&L, on the top line, we would expect modest growth. We will have increasing contributions coming from our launch products. They will be partially offset by some headwinds we anticipate on products that face generic competition or will face generic competition. Notably, we have BRIDION, we have JANUVIA, and we have Adempas that loses LOE at the end of this year.
KEYTRUDA remains such an important product for our company, for the world, but growth is slowing, as you would expect, given its current phase in its life cycle. We are looking for some pricing pressures in the world, specifically in Germany, where we have seen some policy changes that will impact, I think, growth for KEYTRUDA next year. We expect our Merck Animal Health business to continue to have strong growth. As we look at gross margin, we are expecting some improvement in gross margin as there is the roll-off of a royalty on KEYTRUDA. From an expense perspective, as you rightly note, we are in a fortunate position that in a disciplined way, we will invest fully behind our business.
We would expect our investments to grow at a similar rate as what we have seen in 2026 when you normalize for any of the BD up-fronts or the funding we received for sac-TMT. So we are expecting expense growth of around mid to high single digit. The only other line to call out would be on other income expense. We will see interest expense tick up a little given the debt that we issued during this year for the business development that we have done. But in summary, a year of modest top-line growth, driving expenses to support our pipeline to enable long-term growth for our company.
Very helpful. Thank you very much for that. Now I want to move beyond oncology because you have a lot going on beyond oncology as well. Maybe starting with the I-O asset. You will have data this year in one of the trials. So the question here is, it is a non-inferiority trial versus LUCENTIS . However, do you internally believe that you have potential to demonstrate superiority there? Because the argument is that you are going after the weakest drug there, but it is a little bit refractory setting, so you are going after a different market there. How did you think about the commercial opportunity when you designed the trial and-
Yeah. So we had the fortunate concept is that when we are designing the trial for MK-3000, we also know that we have MK-8748.
Right.
So the two of them together, although we are prosecuting each one independently, makes us think about the field a little bit differently. So all the anti-VEGFs- whether you go from LUCENTIS to EYLEA to VABYSMO, they have all been non-inferior-
Right.
trials. Right?
Right.
What we are hoping is with MK-8748, which is not MK-3000, but it is an anti-VEGF Tie2 agonist, we are hoping that that one will be a best-in-class anti-VEGF. That to us is like going right down in the belly of the beast and saying, "Of all of these molecules, this one will be the best." In relationship to this Wnt agonist, all of the other major medicines have been VEGFs.
Right.
There haven't been another sort of non-
Mechanism.
anti-VEGF.
Yeah.
Ophthalmologists recognize that anti-VEGF is really important, but anywhere between 30%-40% of people don't respond or have stopped responding. What we wanted to do is create an option for them. All of a sudden they have two hands to fight. They have the best anti-VEGF, and they have the first non-VEGF-
Right.
pathway. We believe that in true practice, what will happen is ophthalmologists will begin to mix and match them on their own. For us, it was just really important to have a really clear signal that if it Right? No one's had a new mechanism of action, and we are hoping that MK-3000 remigromig is that first non-VEGF pathway.
Right.
If we can do that and also come up with MK-8748, I think we could really create a situation where ophthalmologists will think about their field for diabetic macular edema and for neovascular AMD, the two of the major places, very differently.
Right.
With both agents in their hands.
Is there a reason to believe Wnt would also work in AMD?
I think you would say that there is a chance that Wnt would be it, and it is more from the anti-VEGF sort of field. In general, things that have worked in neovascular AMD have worked in DME, and DME in neovascular AMD. I think for MK-8748, you would be very on very strong because there is so much precedent.
Right.
What people would push back is, "Well, that's great. You have a new mechanism of action. Prove it to me".
Right.
The issue is that whenever you have a new mechanism of action, I do think that you have a high standard to convince people, and it behooves us to prove that to people.
Completely makes sense. So with Tie2, the data on OCT and drying the eye, they are pretty strong actually compared to anti-VEGFs as well. How do you envision this playing out? Is that the reason you believe it is probably the best in class? What gives you-
Well, you just see the different VEGFs, and you see VABYSMO, right?
Right.
VABYSMO is essentially non-inferiority, but there's a sense that it dries-
Right.
the eye faster.
Right.
We're hoping that whatever that spot number is, our ambition is to be superior to it.
Right.
That's what that data suggests. It's not how dry it is, it's how fast.
Right.
Right. What the ophthalmologist is, they want to dry you out fast.
Right.
Because it is that wet, dry, wet, dry, that thing, that is what disrupts things.
Right.
It will be how dry we can get them, but also how fast we can get them. When you look at this, the OCT is how they start thinking about it.
Right.
For them, OCT is not just a biomarker, it is how they actually think about treating.
Right.
They actually use that number.
Yeah. They treat based on the basis of-
That is what they treat.
Right. Yeah.
We may talk about heme malignancy. Heme malignancy starts talking about MMR and dMMR.
Yeah.
Is that right?
Yeah.
In some of our trials, people will treat to that number. People are beginning to treat in practice to OCT.
Right.
We think that is an important readout.
Very helpful. Thank you for that. Moving to TL1A, so congrats on the success of ulcerative colitis trial. There are two schools of thought there. One is that TL1A, it doesn't have to be superior, or it doesn't have to be numerically better than IL-23 or anything because it is super clean drug. This has a place, and it's a new mechanism of action, so it should have a place. Then there's the other one because with IL-23, [SKYRIZI] and all these guys are going in combinations and all, so maybe the bar to move into first line will be higher, so it becomes a second line drug or combination will be important. How do you envision the market in the next four or five years?
I would separate the different places, right? In our mind, we're trying to make TL1A a really important node.
Okay.
Other important nodes are TNF and IL-23, and IL-17, and they dominate in different indications.
Right.
We'll have to sort of play this out. I think for GI, which is ulcerative colitis and Crohn's disease, I think people start thinking of drugs like IL-23 as they're highly effective and they're reasonably safe. I think some people start talking about other mechanisms like integrins that some people believe are maybe not as effective as the IL-23s, but they're extremely tolerable so people stay on.
Our ambition for whether we are talking about GI or derm or rheum is that among the biologics, we are the best, if not the best, but we are the safest as well. That in each different indication will be important, and it will also be important because it gives us a degree of flexibility. Because if you have one of the most effective, if not the most effective, and you are extremely safe, should you do a combination strategy, you are in a very good position than if you do not have that profile. So that is the profile we are looking, whether it be GI, whether it be derm, whether it be rheum.
Got it. Very helpful. Another question I have is the asset, which I know that you have expertise in PCSK9, oral PCSK9 here. Amgen, Regeneron, they all try to get into primary care market, and statin is pretty much a primary care market right now. To get into that segment, this is an oral, so primary care should be using it, but how important it is to have an outcome data not only in secondary prevention, but Amgen now has data with the VESALIUS trial in primary prevention as well. You have got a really good label actually there. Talk a little bit about how do you make inroads into that market?
I will have Caroline talk about the commercial push and pull. I will talk scientifically from it.
Right.
Just to be really clear, not all PCSK9s are the same.
Right.
The antibodies, I think, in general, people think of LDL cholesterol lowering of 60%. If you look at the siRNA or other things that affected PCSK9, I think the number is more in the 50%.
Right.
Not all PCSK9s the same. I think the field and the FDA was very clear. They understood that this was designed to do something very similar to the antibody.
Right.
And essentially was designed with the concept of can I do the same thing that a biologic does, but do it in a pill? And what people saw from the biomarker data, which is LDL and ApoB and this, the profile looks surprisingly similar in a biomarker sense to the antibodies. We still need to do the outcome trial, but I think many people in the field sit there and go, "Okay, this was designed to interdict PCSK9 LDL like the antibodies. It gives you a biomarker profile that looks similar." They're going to have to do the outcomes trial, but I think the FDA recognized it, and you saw how they recognized it because they didn't make any comment in terms of not having cardiovascular outcomes in the label.
Right.
What they emphasized is this should be as an add-on in statins, and they reminded everyone that statins has outcomes trial. They also reminded everyone that the monoclonal antibodies, which this was designed to mirror was also in the label.
Right.
We do have to do the outcomes because we have to prove that.
Right.
I think for many cardiologists and many people, seeing the profile of the LDL and knowing the history of PCSK9s, I think many people will be very comfortable prescribing it, especially if it's extremely accessible. Then from commercial, I'll have you speak about it.
We are very excited about the opportunity we have to bring an oral PCSK9 to really address this epidemic that exists. What we have with LIPFENDRA is we are entering a market that now has guidelines in place after many years where those guidelines did not exist on treating to a target level of LDL. Those guidelines will really help unlock some of the inertia that exists in this marketplace. In the U.S., there are 30 million people who are taking statins who are not at goal. About half of those are secondary prevention, about half are primary.
Right.
We think initially we expect utilization to be more in that secondary group, those who have established ASCVD. We are getting really strong feedback at this stage from those who have seen the data, understand the data, understand the accessibility of this oral product, and see the pricing strategy that we have had as a company. Initial scripts are looking good.
Right.
Our confidence in LIPFENDRA and its ability to be multi-billion dollars in peak revenue is high. We are working hard to break that inertia. We expect to see good uptake ahead of the [SEAFOOT] study.
We did a survey. Primary care doctors really like it, actually. That will be interesting.
Maybe this is too personal. I actually tested the system because I had a non-cardiologist write me a prescription. I got it.
Okay. That's interesting. Awesome. Thank you for that. The last asset on pipeline side I want to talk about is CD388. Now you're running two seasons in Northern Hemisphere, one season in Southern Hemisphere. Just walk us through any change in conviction and confidence in the trial so far, and it does seem like you do see Europe also as a market opportunity as well. Talk a little bit about how your thought process has evolved since you bought CD388.
To be honest, it hasn't really evolved that much.
Okay.
The critical piece of information for me is the way that you give this medicine, it's essentially an antibody drug conjugate. That's the simplest way to explain it, where the drug is an antiviral. The issue that comes up is that you go to your physician and you get three jabs.
Right.
There was a view that was held throughout the field that you really shouldn't launch it with three jabs. You should launch it with two jabs.
Right.
The one-
Because at one time, right?
Right.
You come in, someone gives a leg, and they do your bum or something. They really thought that two was really important. The minute that we do this, that means we have to change three jabs-
Right.
into two jabs. That immediately creates a time of when we can launch.
Right.
The concept for me is, until that time comes, I am going to get as much data as possible, because it is not just that I get a label. Remember, this is not going to be sold at the price of the influenza vaccine that I just got from the drugstore.
Right.
It's going to be more expensive.
Right.
The question that comes up is, we think that this is a really important product for the U.S., but also with MFN, we can't have a tenfold discount in Europe. We need to find patient populations where we can hold that price in a situation where we have robust subpopulations. For example, it's not just immunosuppressed. If someone has cardiovascular risk, is on LIPFENDRA-
Right
should they get it?
Right.
Does that make any-- That's the type of data, because it's one thing for the label, which is really important, but especially outside the U.S., how you deal with the HTA agencies will become really important. The more strain, the more data, the more different subpopulations that we have, whether they're statistically pre-specified or not-
Right.
will be important for those situations.
Got it.
We're not delaying the launch in any way. The minute you decide that you're going to do 3 jabs into 2 jabs, you've created this issue. My concept is, let me play it out all the way to the end and get the maximum amount of patients-
Got it.
in.
Very helpful. There's no Merck discussion without talking about BD. There was a time last year or so, we were waking up every Monday waiting for a press release to hit, Merck bought something. You have been very active, and it shows in pipeline now. Now, where you sit right now, how do you think about, one, the need for BD? Number two, if you do see it, how do you think about what would be the asset? What kind of asset or profile of asset would you be interested in?
We're proud of the BD that we've done thus far. We've brought some great assets into our company that have the opportunity to advance patient care and drive growth for our company into the future. As we look forward, that strategy is unchanged.
Right.
We will continue to look for the best science externally, that when brought into Merck, that will create value, address areas of unmet need, and drive growth for the company. We are not desperate to do any deal, but we will continue to do the right types of deals for our company. What we have talked about in the past, and that is consistent today, is the sweet spot, has been deals that are in the $1 billion-$15 billion range. We have also talked about, as we look at areas of unmet need, that including oncology, including cardiometabolic, but we also see immunology-
Right.
as an opportunity space. BD will remain an area of focus for any cash that we have at our disposal, but science-led to drive patient impact and growth into the future.
Dean, anything to add?
Whatever money she has, I know how to use it.
Thank you very much. On that high note, I really appreciate you joining us today. Thank you very much, and all the best.
Thank you so very much.