Onto Innovation Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 4, 2025

There are 9 speakers on the call.

Operator

Thank you for standing by. Welcome to the Burke and Company Q4 Sales and Earnings Conference Call. At this time, all participants are in a listen only mode until the question and answer session of today's conference. This call is being recorded. If you have any objections, you may disconnect at this time.

Operator

I would now like to turn the call over to Mr. Peter Dannenbaum, Senior Vice President, Investor Relations. Sir, you may begin.

Speaker 1

Thank you, Shirley, and good morning, everyone. Welcome to Merck's Q4 2024 Conference Call. Speaking on today's call will be Rob Davis, Chairman and Chief Executive Officer Caroline Litchfield, Chief Financial Officer and Doctor. Dean Lee, President of Merck Research Labs. Before we get started, I'd like to point out that we have items in our GAAP results such as acquisition related charges, restructuring costs and certain other items that we have excluded from our non GAAP results.

Speaker 1

There is a reconciliation in our press release. I will also remind you that some of the statements that we make today may be considered forward looking statements within the meaning of the Safe Harbor provision of the U. S. Private Securities Litigation Reform Act of 1995. Such statements are made based on the current beliefs of Merck's management and are subject to significant risks and uncertainties.

Speaker 1

If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward looking statements. Our SEC filings, including Item 1A in the 2023 10 ks identify certain risk factors and cautionary statements that could cause the company's actual results to differ materially from those projected in any of our forward looking statements made this morning. Merck undertakes no obligation to publicly update any forward looking statements. During today's call, a slide presentation will accompany our speakers' prepared remarks. These slides, along with the earnings release, today's prepared remarks and our SEC filings are all posted to the Investor Relations section of Merck's website.

Speaker 1

With that, I'd like to turn the call over to Rob.

Speaker 2

Thanks, Peter. Good morning and thank you for joining today's call. 2024 was another year of significant advancement across our company and I'm proud of the continued progress we're making in developing and delivering transformative medicines and vaccines to help save and improve lives around the world. We are impacting patients on a global scale. In fact, in 2024, we reached nearly half a 1000000000 people with our medicines and vaccines, including through donations.

Speaker 2

We remain focused on the pursuit of breakthrough science and innovation as the source of sustainable long term value creation for patients and shareholders. We're continuing to execute on our strategic priorities. We're progressing our pipeline, launching important new products that have significant patient benefit and strong commercial potential, advancing key clinical programs in our robust early and late phase pipeline and augmenting our pipeline through promising business development. Our business remains well positioned, thanks to the dedication of our talented global team and I'm more confident than ever in our ability to advance patient care fueling Merck's long term growth potential. Now turning to our results and outlook.

Speaker 2

We delivered strong growth in 2024, reflecting demand for our innovative portfolio including for KEYTRUDA, which continues to benefit more patients with cancer globally, the successful launch of LYNRAVIER and strong performance of our Animal Health business. We also saw higher demand and achieved strong sales for GARDASIL outside of China. As we close out 2024 and enter 2025, the market dynamics for GARDASIL in China have remained challenging. Like many other companies, we've seen increased pressure on discretionary consumer spending, including across the vaccine space more broadly and demand for GARDASIL has not recovered to the level we had expected. As a result, overall channel inventory remains elevated at above normal levels.

Speaker 2

In light of this and based on further discussions with our commercialization partner, Jirpay, over the past couple of weeks, in particular regarding their most recent financial disclosure and working capital levels, we've made the decision to take a new approach and temporarily pause shipments to China beginning this month and through at least mid year. We believe taking this action now will facilitate a more rapid reduction of inventory and help support the financial position of our important and valued partner. Importantly, we believe China still represents a significant long term opportunity for GARDASIL given the large number of females and now males with our recent approval that are not yet immunized. And we remain both committed and well positioned to maximize this potential for

Speaker 3

the long

Speaker 2

term. Outside of China, demand for GARDASIL remains robust and we expect strong growth this year and well into the future. Our overall business remains very healthy. In fact, irrespective of the performance of GARDASIL in China, we expect the company to deliver strong growth in the second half of this year as well as in both 2026 and 2027. Longer term, our confidence and our ability to successfully navigate the KEYTRUDA LOE period is unchanged, which is based on the strength of our pipeline, the excitement we have for our ongoing and upcoming launches of innovative new products and the commercial opportunity they represent.

Speaker 2

Next, I'd like to turn to our research efforts. We're making remarkable progress across multiple therapeutic areas in our late phase pipeline. In the Q4, we announced FDA acceptance for our filing of presrevimab, our long acting monoclonal antibody to protect infants from RSV disease and positive top line results from 3 programs including for subcutaneous pembolizumab, for zlotrevir in combination with rivarine in the treatment of HIV and for Winrevir from the ZENITH trial. We also executed value enhancing business development that is both science led and portfolio informed. We licensed promising investigational assets including in oncology with the clinical stage anti PD-one VEGF bispecific antibody from lenova and in cardiometabolic with an oral GLP-one receptor agonist candidate from HanSow.

Speaker 2

Merck is anchored today by a robust set of commercial products addressing important medical needs and we're rapidly moving to a future with a much more diversified portfolio. We have amassed an expansive pipeline with tremendous potential to further advance the practice of medicine around the world. You can expect a steady cadence of data readouts in the coming months years leading to potential new launches as we seek to bring much needed innovation to patients. In fact, we have 20 potential new growth drivers, almost all of which have blockbuster opportunity. These include Winrevir and Cabaxiv, our adult pneumococcal conjugate vaccine, which is now launching in the U.

Speaker 2

S. As well as many innovative assets currently in Phase 3 development. Over the past 3 years, we have nearly tripled the number of assets in late phase development across a broad range of therapeutic areas and modalities. Based on the significant progress, we see over $50,000,000,000 of potential revenue opportunity from these programs. We are positioned for long term leadership in oncology as we continue to diversify and deepen our pipeline.

Speaker 2

We are excited about cardiometabolic as a future area of growth, including with our oral PCSK9 inhibitor program where we have important Phase 3 readouts this year. In immunology, HIV and ophthalmology, we have opportunities to bring forward 1st in class and or best in class blockbuster medicines. Further, we expect to benefit from promising programs in our infectious disease and vaccines pipeline, strong growth in our Animal Health business and many early phase programs that will enter Phase 2 over the next few years. And we remain well positioned to pursue additional science driven value creating business development. In summary, I have increased confidence in our long term future.

Speaker 2

While the rapid change in the Chinese market for GARDASIL has caused a short term headwind for our company, our overall business is healthy and growing. We remain strongly positioned to successfully navigate the KEYTRUDA LOE period as we continue to deliver on our purpose of saving and improving lives. I want to again recognize the commitment and efforts of our global teams. Together, we remain focused on delivering and sustaining value for patients, shareholders and for all of our stakeholders today and well into the future. With that, I'll turn the call over to Caroline.

Speaker 4

Thank you, Rob. Good morning. As Rob noted, we had another year of strong growth, reflecting continued robust demand for our innovative portfolio and demonstrating the importance of our products to the patients we serve. Growth was driven by oncology, animal health and new product launches, which more than offset the Gardasil headwinds in China. These results demonstrate the strength of our business and give us confidence in our outlook.

Speaker 4

Our commercial and operational execution enables us to deliver value in the short term, while we invest in new innovations and deliver our pipeline for the long term. Now turning to our 4th quarter results. Total company revenues were $15,600,000,000 an increase of 7% or 9% excluding the impact of foreign exchange. The following revenue comments will be on an ex exchange basis. Our human health business sustained its momentum with sales increasing 8%, driven primarily by oncology.

Speaker 4

Our animal health business also delivered strong performance with sales growth of 13%. Turning to the performance of our key brands. In oncology, sales of KEYTRUDA grew 21% to $7,800,000,000 driven by continued robust global demand from metastatic indications and increased uptake from earlier stage cancers. In the U. S, KEYTRUDA grew across all key tumor types.

Speaker 4

In metastatic disease, we saw increased uptake for KEYTRUDA in combination with PADCEF in first line, locally advanced urothelial cancer, supported by the strong results from KEYNOTE-eight thirty nine, as well as KEYTRUDA in combination with chemotherapy in first line endometrial cancer based on the compelling data from KEYNOTE-eight sixty eight. In the earlier stage setting, growth was driven by increased use in resectable non small cell lung cancer as well as triple negative breast cancer. Outside the U. S, growth was driven by increased uptake in earlier stage cancers, including high risk early stage triple negative breast cancer, as well as continued demand in metastatic disease. Inflation related price increases, consistent with market practice in Argentina, also contributed to growth.

Speaker 4

Our broader oncology portfolio achieved strong growth, including Wellireg, with sales more than doubling to $160,000,000 driven by increased uptake in certain patients with previously treated advanced renal cell carcinoma in the U. S. In vaccines, GARDASIL sales were $1,600,000,000 a decrease of 18% due to lower demand in China. In the U. S, sales benefited from price and demand, partially offset by CDC purchasing patterns.

Speaker 4

Outside the U. S. And China, double digit sales growth was driven by higher overall demand, including the catch up cohort in Japan. In pneumococcal, TAVAXID sales were $50,000,000 driven by demand from the retail pharmacy channel. We have made great progress in achieving the commercial milestones necessary to ensure a successful launch and are well positioned to help protect adults from invasive pneumococcal disease.

Speaker 4

VaxNuVance sales decreased 9% as growth from launches in international markets was more than offset by competitive pressures in the U. S. In cardiovascular, we are seeing steady growth from the ongoing launch of WinRiver, which contributed $200,000,000 of sales, predominantly in the U. S, where we saw some impact to prescription volumes due to the holiday season. Approximately 1500 new patients in the U.

Speaker 4

S. Received a prescription, bringing the total number of new patients prescribed to approximately 5,200 since launch. Access remains strong and our experience continues to indicate that approximately 80% of those patients who receive a prescription will receive commercial product. Notably, we continue to see the vast majority of patients remain on treatment. The breadth of physicians and depth at which they prescribe continues to grow.

Speaker 4

We are also seeing an increase in the percentage of prescriptions for patients not on prostacyclin background therapy. Outside the U. S, initial launches are progressing well. In summary, we remain confident in our growth expectations for WinRiver as we look forward to positively impacting more patients with pulmonary arterial hypertension. Our Animal Health business delivered another quarter of strong growth with sales increasing 13%.

Speaker 4

Livestock growth reflects higher demand for poultry, sales from the recently acquired Aqua portfolio from Elanco and price. Companion animal sales growth reflects price. I will now walk you through the remainder of our P and L, and my comments will be on a non GAAP basis. Gross margin was 80.8%, an increase of 3.6 percentage points, driven by reduced royalty rates for KEYTRUDA and GARDASIL, as well as favorable product mix. Operating expenses decreased to $7,400,000,000 Charges of $700,000,000 related to the license agreements with Lenovo and HENSO Pharma this quarter were lower than the charge of $5,500,000,000 a year ago related to the collaboration with Daiichi Sankyo.

Speaker 4

Excluding these charges, operating expenses grew 10%, reflecting strategic investments in support of our robust early and late phase pipeline and key growth drivers. Other expense was $5,000,000 Our tax rate was 16.2 percent. Taken together, earnings per share were $1.72 Now turning to our 2025 non GAAP guidance. We expect revenues to be between $64,100,000,000 $65,600,000,000 representing growth of 2% to 4%, excluding a negative impact from foreign exchange of approximately 2% using mid January rates. For Gardasil in China, our guidance assumes no further shipments at the low end and less than $1,000,000,000 at the high end.

Speaker 4

Excluding sales of Gardasil in China in both 2024 2025 and the negative impact from foreign exchange, total company growth is expected to be 7% to 9%. Our gross margin assumption is approximately 82.5%. Operating expenses are assumed to be between $25,400,000,000 $26,400,000,000 This range includes a $300,000,000 payment related to the license agreement with Lenovo, which will be recognized upon completion of the technology transfer for MK2010. As a reminder, our guidance does not assume additional significant potential business development transactions. Other expense is expected to be between $300,000,000 $400,000,000 We assume a full year tax rate between 16% 17%.

Speaker 4

We assume approximately 2,530,000,000 shares outstanding. Taken together, we expect EPS of $8.88 to $9.03 This range includes approximately $0.09 related to the expected payment to Lenovo and a negative impact from foreign exchange of approximately $0.35 using mid January rates. As you consider your models, there are a few items to keep in mind. In 2025, we are expecting to see the benefit of a more diverse commercial portfolio with continued strength in oncology and animal health, as well as contributions from new product launches. During the first half of the year, we expect roughly flat year over year revenues as the headwind in China is offset by high single digit growth across the rest of our business.

Speaker 4

During the second half, we expect strong year over year growth. Looking at Gardasil longer term, while we believe there continues to be a path to the $11,000,000,000 we feel it is prudent to withdraw this target given uncertain timing of an economic recovery in China. Our growth expectations outside of China for this important vaccine remain unchanged, and we are well positioned to protect more lives and drive strong growth beyond 2025. For KEYTRUDA, U. S.

Speaker 4

Sales benefited from approximately $200,000,000 of wholesaler inventory buy in during the Q4, which we expect to reverse in the Q1. We expect Medicare Part D redesign to have a negative impact to sales of approximately $400,000,000 primarily affecting WinRiver and our portfolio of small molecule oncology products, including Welireg, Lynparza and LENVIMA. At the beginning of 2025, we lowered the list prices of the JANUVIA family of products in the U. S. To more closely align them with net prices.

Speaker 4

The lower list price will reduce the rebate amount Merck pays to Medicaid, and as a result, we expect higher net sales for these products in 2025. Now turning to capital allocation, where our strategy remains unchanged. We will prioritize investments in our business to drive near and long term growth. We will continue to make disciplined investments in our key growth drivers and expansive pipeline. We remain committed to our dividend with the goal of continuing to increase it over time.

Speaker 4

Business development remains a priority, and we are well positioned to pursue additional science driven value enhancing transactions. We recently increased our authorization for share repurchases by $10,000,000,000 to $12,000,000,000 in repurchases by $10,000,000,000 to $12,000,000,000 in total. Given the opportunities to invest in our business and augment our pipeline through business development, we expect to maintain a modest level of share repurchases this year. We remain committed to not having excess cash build on our balance sheet, and the higher authorization provides flexibility to increase share repurchases if appropriate. To conclude, we entered 2025 with confidence in the outlook for our business, driven by global demand for our innovative medicines and vaccines, as well as our exceptional pipeline.

Speaker 4

Our long standing commitment to leverage leading edge science to improve the lives of patients has put us in a position of financial and operational strength. With investment in innovation and our ongoing focus on execution, we are well positioned to deliver value to patients, customers and shareholders now and well into the future. With that, I'd now like to turn the call over to Dean.

Speaker 3

Thank you, Caroline. Good morning. We are making progress in early and late phase programs across multiple therapeutic areas. Today, I will cover major updates since the last earnings call and provide a summary of highlights from 2024. Starting with cardiometabolic disease.

Speaker 3

The Phase 3 ZENITH trial evaluating winrevir in patients with pulmonary arterial hypertension who are at high risk demonstrated a statistically significant reduction in the risk of morbidity or mortality events compared to placebo, both on top of background PAH therapy. Based on the overwhelming efficacy, the trial was stopped so that all participants have the option to receive LENRIVER. Detailed results will be presented at the American College of Cardiology's ACC25 conference in late March. Following a review of the totality of efficacy data from the Win Revere clinical program, including positive results from the ZENITH trial, the external steering committee and Merck unanimously concluded that the Phase III HYPERION study should stop early. We discussed this with the FDA and have notified study investigators.

Speaker 3

Based on the strong clinical benefit Winrevir demonstrated in the STELLAR and ZENITH trials, it was determined that the HIPERION study had lost clinical equipoise. The study will remain blinded and all participants will have the option to receive winrevir as part of the open label long term extension study, CITERIA. We anticipate data will be available later this year and we will present at a future medical congress. This reinforces growing recognition that winrevir, the first and only active in signaling inhibitor for the treatment of PAH, has a potential to change the practice of medicine and be transformational for patients with this progressive and debilitating disease. Winriver has now been approved in more than 35 countries globally.

Speaker 3

Recently, we submitted an application for approval to regulatory authorities in Japan. More broadly, in the cardiometabolic space, in December, we entered a licensing agreement with Hansel Pharma for an investigational preclinical oral small molecule GLP-one receptor agonist, now known as MK-four thousand and eighty two, which will be entering the clinic this year. With our extensive experience in incretin biology, we are well positioned to advance oral small molecule GLP-one agonist containing combinations with next generation agents for weight loss as well as those that target cardiometabolic disease. Next, infectious diseases. The FDA has set a target action date of June 10th for clasroblumab, our prophylactic long acting monoclonal antibody for infants entering their first RSV season when the risk of serious illness is greatest.

Speaker 3

If approved, clasrodomab would be the 1st and only single dose passive immunization for infants irrespective of weight with the potential to protect babies for the full RSV season. Turning to HIV. We announced top line results from the 2 pivotal Phase III trials evaluating the investigational once daily oral combination of daravirine and nazolostrevir in adults with HIV infection that is virologically suppressed on different antiretroviral therapy regimens. Detailed findings from these studies will be presented at an upcoming scientific congress, and we plan to submit the data as part of a package for regulatory approval. Ligelabir, a potentially 1st in class nucleoside reverse transcriptase translocation inhibitor is also being evaluated in multiple late phase clinical trials in combination with other antiretroviral therapies for the treatment of HIV.

Speaker 3

This includes ongoing Phase III trials in combination with Gilead's capsid inhibitor, lenacapavir, as a once weekly oral treatment option. We are also evaluating MK-eight thousand five hundred and twenty seven, another investigational NRTTI candidate, as a potential important once monthly oral option for pre exposure prophylaxis, which we expect to advance to Phase III this year. Next, to vaccines. The National Medical Products Administration of China approved Gardasil to help prevent certain HPV related cancers and diseases in males 9 to 26 years old. In November, at the International Papillomavirus Conference, we presented new clinical and real world data for GARDAS-nine that examined the prevalence of oral HPV infection, the burden of HPV related head and neck cancers, as well as rates of HPV infection in females.

Speaker 3

This evidence reinforces the importance of gender neutral HPV vaccination with Gardasil in adults up to age 45. More recently, the American Cancer Society's annual report on cancer facts and trends noted an increase in cervical cancer diagnosis rates in females ages 30 to 44. There remains a need to protect more individuals from HBV related cancers. In Europe, the Committee for Medicinal Products for Human Use of the European Medicines Agency recommended the approval of Tabaxa for active immunization for the prevention of invasive disease and pneumonia caused by streptococcus pneumoniae in adults. Moving to oncology.

Speaker 3

Our Phase III trial evaluating the investigational subcutaneous fixed dose combination of pembrolizumab and barahyluronidase alfa in combination with chemotherapy compared to intravenous KEYTRUDA with chemotherapy met its dual primary pharmacokinetic parameter endpoints of non inferiority. If approved, this route of administration would be a meaningful option for patients. We plan to share detailed findings of the study at an upcoming scientific congress. Consistent with our growing and increasingly diverse pipeline of oncology candidates, more than 20 abstracts from studies evaluating treatment options for a range of hematologic malignancies were presented at the American Society of Hematology Annual Meeting. This included early results from the Phase 2 WAVELINE-seven study evaluating zilivertamab vedotin, an investigational antibody drug conjugate targeting ROAR-one in patients with diffuse large B cell lymphoma.

Speaker 3

On the regulatory front, in China, we received 3 approvals for KEYTRUDA based regimens, including a neoadjuvant adjuvant treatment regimen for patients with resectable non small cell lung cancer based on KEYNOTE-six seventy one the treatment of certain types of locally advanced cervical cancer based on KEYNOTE A18 and first line treatment of patients with urothelial carcinoma in combination with Padza based on keynote A39. In addition, Welareg was approved for the treatment of adult patients with VHL associated renal cell carcinoma based on LightSpark004. In Japan, the Ministry of Health, Labor and Welfare approved 2 KEYTRUDA based regimens, including the treatment of advanced cervical cancer based on KEYNOTE A18 and for primary advanced or recurrent endometrial carcinoma based on KEYNOTE 868. In the U. S, the FDA granted breakthrough therapy designation to SAC TMT, our investigational TROPE-two directed antibody drug conjugate for the treatment of certain patients with previously treated advanced non small cell lung cancer.

Speaker 3

Sac TMT is being developed through a collaboration with Chelan Biotech with 10 ongoing Phase III studies across multiple solid tumors. Finally, in December, we completed an exclusive global license agreement with Lenovo Medicines for a novel investigational PD-one VEGF bispecific antibody, now known as MK 2010. We plan to explore the full potential of MK2010 across multiple tumor types in a global patient population. As Rob mentioned, 2024 was marked by significant pipeline progress. Greater than 20 Phase 3 studies were initiated spanning cardiometabolic, immunology, infectious diseases, oncology, ophthalmology and vaccines.

Speaker 3

We received more than 25 regulatory approvals in major regions, including for Winrevir and Cabaxit. At the same time, we successfully executed on our one pipeline strategy by leveraging our clinical expertise and business development capabilities to identify and secure external opportunities where science, medical need and value intersected to expand, complement and diversify the pipeline. Acquisitions of ARPU and iBio as well as an asset from Curon added important new biologic candidates in oncology, ophthalmology and immunology, respectively. License agreements with Hansel and Lenovo secured rights to potentially important candidates for cardiometabolic disease and oncology. Notable milestones to look out for in 2025 include detailed results from the ZENITH trial, from ezlotrevir based regimens in HIV and oncology for subcutaneous pembrolizumab as well as KEYTRUDA in earlier stage head and neck squamous cell carcinoma are all scheduled to be presented at upcoming medical meetings.

Speaker 3

Results from 3 Phase III registration enabling studies evaluating our oral PCSK9 inhibitor candidate, enlicitide, for the treatment of hypercholesterolemia are anticipated and the primary completion date of the Phase 2 cadence study evaluating winrevir in pulmonary hypertension due to left heart disease is scheduled for the fall. I look forward to providing further updates on our pipeline progress. And now I will turn the call back to Peter.

Speaker 1

Thank you, Dean. Shirley, we're now ready for questions. I'd request that analysts limit themselves to one question to get to many questioners as possible. Thank you.

Operator

Thank you. Our first question comes from Umer Raffat with Evercore ISI. Your line is open. You may ask your question.

Speaker 3

Good morning, guys. Thanks for taking my question. And I realize that there's a lot of folks on Gardasil this morning, but allow me to focus on another growth driver, which tracked slightly weaker versus consensus, winter there. And my question really is, as we think about the cadence of growth into 'twenty five, there's been some question marks off of some claims data suggesting maybe the start of the year might have been slightly weaker versus some of the growth expectations. So do you feel reasonably comfortable that WinRVARE can grow about 100% year over year from the Q4 trends into end of 'twenty five?

Speaker 3

Thank you.

Speaker 2

Yes. Umer, thanks for the question and this is Rob. I would just say overall, our confidence in WENREVIR and the potential benefit for patients with PH and in turn, its importance for growth are unchanged. And as we look at what's happening in January, actually we're seeing January returning to the levels we would expect have expected it to be. And so as we look at 2025, we do actually see this as a strong growth contributor and all of the fundamentals we see support that.

Operator

Our next question comes from Terence Flynn with Morgan Stanley.

Speaker 5

I was just wondering if the change in outer year Gardasil sales impacts at all how you're thinking about either the size, the type or the cadence of your M and A and business development strategy here? Does this open the door to maybe larger deals now? Thank you.

Speaker 2

Yes. No, thanks for the question. As we look forward and I think we've been pretty consistent, the long term expectations we had of the company, especially as we get into the LOE period, we're never counting on GARDASIL as growth driver, because we always had an expectation that eventually it would start to plateau as we got through all of the cohorts and really we're back to just the birth cohort. So as we look forward, our expectation for what the post LOE period looks like is frankly unchanged from what I previously communicated. That said, as we've also communicated, while I feel increasingly confident about that period, we've always said we do believe we need to do more to continue to augment the pipeline we've built.

Speaker 2

And so we will continue to drive business development and we're looking at business development in a full range, always with science being the leading question. But if we can see value and a tie into our strategy where science intersects, we will be willing to move and it will still be in that $0,000,000,000 to $15,000,000,000 range is our sweet spot, but obviously open to looking at deals. And as we've also said, we're open to commercialized assets as well if they fit the overall profile I laid out of science and value.

Speaker 1

Great. Thanks, Terence. Next question, please.

Operator

Thank you. Our next question comes from Luisa Hector with Berenberg. Your line is open. You may ask your question.

Speaker 4

Hi. Thank you for taking my question. Perhaps on the oral PCSK9, could you just add a bit more color around what you're targeting for cholesterol lowering, whether we might need to see all three trials in house before you issue a press release? And I think you mentioned before potential combinations. Obviously, you have now optionality on the oral GLP.

Speaker 4

So just perhaps some color around where you could go with further development? Thank you.

Speaker 3

I'll take that. Thank you very much for the questions. This is Dean. Yes, we have 3 Phase 3s that are ongoing that should be reading out April, July August of 2025. I would imagine that there is a possibility that given a prominent conference at the end of the year that we would hope to be able to present publicly that data.

Speaker 3

In relationship to what we're trying to achieve with oral PCSK9, I would just look at what the antibodies can do and just say, we want to achieve a very similar profile of the PCSK9 antibodies in an oral molecule, because we believe that there is a great unmet need, 70% of people on statins are not at goal. So we think that this will be an important set of data. And if it reads out positive, we're eager to get this out to the general population just in the United States, but throughout the globe. In terms of combinations, there are a number of combinations that one could do. And I like how you put it, because it ends up being something that's really important as a singular drug, but it also is a platform to add other important cardiometabolic acids onto it or compounds that could give even greater cardiovascular outcomes.

Speaker 3

And so we will probably be providing that data a little bit later after we've cleared the Phase III for the oral PCSK9 inhibitor enlicitide.

Speaker 1

Great. Thanks, Louisa. Next question please.

Operator

Thank you. And this question comes from Mohit Behzel with Wells Fargo. Your line is open. You may ask your question.

Speaker 5

Great. Thank you very much for taking my question. Sorry, I joined a little bit late, but it's the question. Have you commented on how much inventory they say has at this point with Galafil? And would the decision to stop shipment positive shipments for first half would take care of that inventory?

Speaker 5

I'm just trying to get understand the demand situation in China as well. Thank you.

Speaker 2

Yes. Mohit, thanks for the question. We have not commented specifically on how much inventory Jirfe is sitting on. They're a public company, so we need to leave it to them to make comments about that. But I think the important point here is to understand that as we've seen the marketplace, what we intend to do is to accelerate that drawdown.

Speaker 2

So we are planning to ship and by frankly by not shipping February potentially through the mid year and essentially longer depending on how we see the inventory come down. We're going to allow the underlying demand that is still there to absorb the Jirfe inventory and improve Jirfe's financial position and working capital. We think if we can put the inventory situation behind us, we can get to a more normal market dynamic, one where with the underlying demand and the fact that we have the male indication coming, it can come back to growth. So the speed with which we burn that down, we'll have to see. But the other thing I would just highlight for context with this rebasing, Gardasil China now is about 1% of our total earnings.

Speaker 2

So it is becoming of our total revenue. So obviously that's an important thing to understand and that's why we also highlighted that if you look at the way the business is going to progress as we get into the back half of this year and we anniversary the Gardasil China situation, we will be strong growth and for overall Merck as well as as we go into 'twenty six and 'twenty seven. And that's important because obviously at that point anything that happens in China with Gartasil is an upside and that's really why we've decided to now rebase this understanding it's a change from the direction we had taken previously.

Speaker 1

Great. Thanks, Mohit. Next question please.

Operator

Thank you. Our next question comes from Dana Graybosch with Leerink Partners. Your line is open. You may ask your question. Hi.

Operator

Thanks for the question. I want

Speaker 6

to ask another one on VINVAR and the HIPERIAN trial. Can you help us understand what outcomes you may be able to provide from that trial given the enrollment and follow-up? Is it possible to hit on the primary or any of the trends that you think would support use in these less severe patients where I think physicians are more worried about the risk of the toxicity? Thank you.

Speaker 3

Thanks for that question. So, if I could just take a step up and then address your hyperion question directly. So, the aspiration of WinRiver was that it would be a 1st in class mechanism of action of an active in signaling inhibitor. And the molecular design was to address the fundamental human genetic basis. And what we're trying to do is build the evidentiary wall of data that this novel mechanism can change the practice of medicine.

Speaker 3

So for STELLAR, it's already got an FDA and

Speaker 2

a global approval

Speaker 3

and it's clear that it it increases exercise capacity, increases functional class and decreases risk of clinical worsening. ZENITH is very important because it is, I believe, the 1st PAH trial ever to be done on hard outcomes. And I also believe it's the first PAH trial ever stopped early for overwhelming efficacy. And I think in 2025 ACC, people are going to stare at that data and look at lung transplantation, hospitalization and death and look at that and also will also steer into how soon after treatment those benefits are observed. So that leads me now to Hyperion, where Hyperion is actually in a very similar patient population as STELLAR.

Speaker 3

It's the earlier use of WinRevera in that patient population and it was decided to stop early. It remains blinded, but the investigators basically having looked at all of the data really felt that it was not ethical to

Speaker 1

what I

Speaker 3

call treatment. So we will have to see what that data is, because it remains blinded. And hopefully, we will have that data and further updates. But again, the ZENITH updates will be in at APC. There is continuing safety data from the readout of these Phase IIIs and consequent rollover patients into Cetera.

Speaker 3

And the long term safety experience that we've had is very is well within the label. And I'll just remind everyone, the label says 4% in the treated and 1% in placebo. So it's maybe a 3%. We're well within those margins. And so that data, as we get more and more information, will become more public this year as our investigators put together presentations and publications.

Speaker 3

So our aspiration of changing the practice of medicine for PH has growing support. I know no other active insulin inhibitor in clinical development and also we're clearly exploring outside of PH other forms of pulmonary hypertension.

Speaker 1

Thank you, Dana. Next question please, Shirley.

Operator

Thank you. Our next question comes from Geoff Meacham with Citi. Your line is open. You may ask your question.

Speaker 1

Thanks for taking the question. Sorry to continue to harp on Gardasil. But just I guess given the situation in China, you guys are less willing to predict the timing of recovery. But I guess the question Rob is, is there an inventory threshold that you need to see start shipping again? I wasn't sure what the what kind of the tipping point would be for that.

Speaker 1

And maybe more broadly just given the political climate towards vaccines overall, maybe just talk about where this TA falls in your BD or internal R and D priorities, if that's changed at all? Thank you very much.

Speaker 2

Yes. And Joe, thanks for the comments. So on China, in particular, there's not a I don't want to commit to a specific inventory level. Obviously, we need to see it come down meaningfully from where it is. And I think by taking this action to stop shipments, given the demand that's there, we're going to see that happen.

Speaker 2

We just have to let it work itself through because the economy there still is soft. And that has led to the fact that we are seeing consumer demand continue to be weak. And so as that situation resolves, I think that will determine the speed with which all of this happens. But I think it's important to just reemphasize going forward by rebasing this now out, this is upside. This is not a core to our growth story going forward.

Speaker 2

And so that is also what we want to make sure people understand. I recognize it's a big change and we want to do and we will do everything. We are very committed and positioned well to drive growth in China. But to me at this point that will be upside for the company. And beyond that the breadth of what we have will drive the growth in oncology and animal health and with our new launches.

Speaker 2

To the vaccines business more broadly, we continue to believe in vaccines as an important area. Obviously, we have Cabaxiv, which is launching as we speak. We have plas robumab, a monoclonal antibody for RSV that we hope to get approval and see come before the RSV season this year. And then we have other programs in development including dengue is probably one of the most significant other ones. So we continue to focus there.

Speaker 2

I wouldn't say that vaccines is a big focus of our BD strategy, primarily because we just haven't seen that many opportunities in the space. But we are continuing to be committed to driving the R and D we're doing in this space going forward and continue to believe there's opportunity for it.

Operator

Our next question comes from Chris Schott with JPMorgan.

Speaker 5

Just another one on Gardasil. Specific to the long term guidance, I totally understand the near term dynamics need to reduce inventory. But the removal of the $11,000,000,000 target, how much of this is conservatism just given the dynamics of China versus this being a more permanent reset of your view on the Chinese market? I'm trying to get my hands around that. And then as part of that answer, maybe just talk about Gardasil ex China.

Speaker 5

Has there been any change in your longer term views on the global opportunity ex China for the product?

Speaker 2

Yes. Thanks for the question, Chris. So as you look at China, as Caroline said in the prepared remarks, we continue to believe there's a path to the $11,000,000,000 But Phil, it's prudent really to withdraw the target right now because it is uncertain both the timing of the recovery in China and the extent. That being said, if you look at the underlying dynamics that had always caused us to believe in the growth in China, they're still there. We still have the 100,000,000 plus women, 120,000,000 women who have yet to be vaccinated in the Tier 1 to 5 cities.

Speaker 2

We have the male indication where we were the only company with that indication and we're launching that as we speak. And obviously, that is a population about the same size as females, about 200,000,000 if you look into the total potential once we're in that marketplace. So the opportunity is there. We have the near term dynamics of the inventory and the near term dynamics of the economy we need to adjust. That is why I think it's prudent to just say until we see that because China was a meaningful part of the $11,000,000,000 that's why we made the decision to say let's pull back on the $11,000,000,000 As we look at every other market around the world, for the rest of the world, our view remains unchanged.

Speaker 2

And as Caroline pointed out, if you exclude Gartner Seal China, we had strong double digit growth this year again in the rest of the world. And as we look forward, if you exclude China, we have strong growth coming in Gartner Seal every year, year on year. So nothing has changed in our long term view. We need to get the China situation figured out. We need to lap this market dynamic and figure out what the actual growth and opportunity is in China.

Speaker 2

And until we do that, I just want to remove this from the dialogue because by continuing to always come back to this, I feel like we miss what is so much else we have in the strength of our pipeline and in the growing breadth of our business that is really the fundamentals of our growth long term. It has been and will continue to be and I want to get people focused there because that's where we're focused. Thanks, Chris. Next question, please.

Operator

Thank you. Our next question comes from Tim Anderson with Bank of America. You may ask your question.

Speaker 7

Thank you. A couple of questions on KEYTRUDA. So I don't think Gardasil would have impacted the stock as much as it has over the last 6 months had it not been for these underlying concerns about KEYTRUDA going into the IRA in 'twenty eight, going off patent at the end of 'twenty eight. So my first question is, when can we expect Merck will be in a position to talk about longer term forward looking guidance like a lot of other companies that address this period? At the moment, you're saying you can successfully navigate period, there's no quantification.

Speaker 7

And I would argue that the latter is needed. And then second question is near term KEYTRUDA, investors worried about 2 competitor readouts in 'twenty five that take on KEYTRUDA head to head versus ASTRO's EVANSAR trial with the RAKTRUDA 2. The second is the SUMMIT data with the PD-one VEGF. It would be great to get any perspective from Dean on these two readouts, what's a realistic worst case scenario?

Speaker 5

Thank you.

Speaker 2

Yes, Tim, thanks for the question. And as you pointed out, I recognize the focus is on what's going to happen post the LOE. And we've tried to give direction. I think if you go back to what we said at JPMorgan, we were pretty clear in what we see. And that is if you look at the combination of the business development and the advances in our pipeline across oncology, and this is excluding anything to do with KEYTRUDA.

Speaker 2

So these are small molecules, the individualized neoantigen therapy and our ADC portfolio combined with ophthalmology with what we see in HIV with cardiometabolic as you can see the whole list there. We have $50,000,000,000 plus of what we see as potential. So that's why we continue to talk about a hill versus a cliff and that my confidence in that growth trajectory we showed is still there. We have not decided if and when we will give long term guidance. That's always a 2 edged sword.

Speaker 2

And I think we need to be thoughtful about that. But I also recognize as we move through time, we need to continue to give proof points like what we're seeing with Capaxib, like what we're seeing with WinRever and like what we are confident you're going to see as enlicitide and the data for that start to flow through and other products we have been coming down the pipe. Those proof points are what are going to bring confidence over time. But I hear you on the guidance and we will reflect on that, but we do not have a plan right now to do that.

Speaker 3

Yes. This is Dean. I'll just answer. In relationship to the Daiichi Sankyo Trope 2 ADC that you referenced, we're very comfortable about our TROP-two program. As you might know in our Phase 3 clinical trials, we have 10 ongoing.

Speaker 3

And so we're very eager to have those moving forward and we're confident in them. In relationship to the VEGF PD-one that you spoke about, I mean, I would just say combinations of PD-one and VEGF independently have been extensively studied by us in combination with Eisai and by other companies as well. And there is a general sense that there are many examples of improved progression free survival that don't have a pattern of consistently hitting translate ability to OS. And I think important work by others suggests that maybe there's increased PFS for PD-one or PD L1, VEGF. And that needs to demonstrate OS.

Speaker 3

But the way that we look at that is that Merck is uniquely positioned to explore this and an advantaged company that could really figure out whether VJF PD-one is going to give you OS benefit. And if it does, we have the infrastructure based on 41 indications in 18 tumor types, 9 in earlier stage and 4 with OS to really rapidly bring this innovation should it lead to OS to many patients and many cancers.

Operator

And this question comes from Akash Dwari with Jefferies.

Speaker 3

And just kind of building on the last one. Your team recently updated your new product guidance for oncology from $20,000,000,000 to $25,000,000,000 despite the recent failures we've seen from both TIGIT and LAG-three. What are the ballpark components of that $25,000,000,000 figure, particularly for the TROPE-two and the Daiichi ADCs? And Dean, where do you think your TROPE-two strategy differs versus ASTRA with datto? Are there any particular biomarker populations where you feel like Merck will win out for both first and second line lung?

Speaker 3

Thank you.

Speaker 2

Hey, Akash. Thanks for the question. So as you look at what makes up the $25,000,000,000 to be clear, the IO, IO combinations were never part

Speaker 3

of

Speaker 2

that. So those were always supplemental to that. The $25,000,000,000 was made up of the antibody drug conjugate programs we have both from Calhoun and from Daiichi Sankyo, as well as a suite of small molecule deals we did mostly in targeted molecular approaches to cancer. This would be the, if you will, the LSD-one, the CYP-eleven day-one, all of those suite of programs we had, the INT, which is the individualized neoantigen therapy and which is the partnership we have with Moderna. That made up the numbers.

Speaker 2

What changed that allowed us to increase our confidence is two things. 1, we added the T cell engager from Harpoon, which we're very excited about, both as a standalone and potentially in combination as we look at small cell lung cancer. And most importantly, the TROPE-two program we have is we think going to be even more successful than we originally thought as we continue to see the data readout there. So we feel very good about that $25,000,000,000 plus number. And then separate from that, just to be it's important, we still are also very confident in our subcu KEYTRUDA, which as we pointed out at JPMorgan, we will be you'll see the data readouts, it will be filed this year and hopefully potentially even launched yet this year.

Speaker 2

So that is something we continue to also be very confident about. That is not in that 25 +1000000000. So that's important. We will be much greater than that in oncology when you look at the totality of what we will have.

Speaker 3

Yes. So I'll just answer as quickly as I possibly can. One of the things I would just be a little bit cautious is when everyone speaks about TROP-two or HER2 ADC that all the molecules are the same. The molecules are quite different. We've already seen that with Kadcyla and in HER2 and the same thing can be true when you look at ADCs given the same sort of target.

Speaker 3

So we're very confident of our Sac TMT in the design. But also early on, one of the things that we've always said is, it's important to hit the right target population. Chemo plus pembro has a broad impact. And every trial that we do, we ask ourselves what patient population would a Sac TMT or any ADC will be distinguished from that baseline. In relationship to the other Daiichi Sankyo ones, patritamab, we're very interested in relationship to breast.

Speaker 3

The B7 we're very interested in small cell lung cancer. CDH6, we're very interested in ovarian. And we're very interested in mixing and matching some of them with T cell engagers. I do just want to make a call out just in relationship to the design of the chelin as well as the Daiichi Sankyo. That's really, I think, important molecules that we think, if we hit the right patient population and combine them with the right IO strategy, whether it be T cell engagers or PD-1s, that we will have differentiated profiles for patients.

Speaker 1

Thank you, Akash. Next question, please.

Operator

Thank you. Our next question comes from Chung Wuin with UBS. Your line is open. You may ask your question.

Speaker 8

Hi, guys. Thanks for the question. I just wanted to ask on the tariff news we saw emerge over the weekend. So can you perhaps talk about your manufacturing footprint from China, Mexico and Canada? And there were also some discussions on the from the administration on transfer pricing.

Speaker 8

So your IP for KEYTRUDA is based out of Ireland. How much of an impact could that have on if transfer pricing is also targeted?

Speaker 4

Thank you for the question, Trung. Our company, like many other companies, has a manufacturing footprint that really enables global supply. We have very low levels of manufacturing happening in China, in Mexico and Canada. So we'd expect a very immaterial different tariffs that are being proposed by the U. S.

Speaker 4

Government, but remain confident in our supply chain and our ability to supply our medicines and vaccines around the world.

Speaker 5

Great.

Speaker 1

Thank you, Trung. Next question please.

Operator

Thank you. Our next question comes from Vamal Divan with Guggenheim. Your line is open. You may ask your question.

Speaker 3

Thanks for taking my question. Maybe just going back to WINDRAVIR. Obviously, it's a positive news on the Venus and Hyperion. Just curious if it's changed in any way your expectations for cadence. I think that's maybe underappreciated event later this year and obviously a different indication.

Speaker 3

But just I guess Dean curious if there's any read throughs we should be making from the success you're having there? And then tied to that, if you can just comment if there's any inventory fluctuation I think has impacted the sales number the 1st couple of quarters. I just want to understand if it impacted RINOVIR this past quarter? Yes. So I'll just take the WENROVIR question in relationship to the different patient population.

Speaker 3

So patients who have pulmonary hypertension can have pulmonary hypertension because they have PAH. And what I would say is my confidence of winrevir as to potentially reshaping the standard of care and the treatment paradigm for PAH is very high, especially since this molecule is designed at the genetic cause of the disease. We are looking at broader implications of that because there are other ways that you can get pulmonary hypertension besides PH And we are very eager to see what it does in relationship to heart failure population. And so we'll have to see those results. The preclinical data suggests that that's an important experiment for us to do and we're eager to push that forward and we're excited to see the results.

Speaker 4

And in terms of inventory for Wind River, we have not seen anything unusual. Inventory levels were normal as we exited the year. And in the quarter, we did include an adjustment for the value of the inventory in the channel given the Medicare Part D redesign.

Speaker 1

Great. Thanks, Vamil. Next question, please.

Speaker 3

Thank you.

Operator

Our next question comes from Courtney Breen with Bernstein. You may ask your question.

Speaker 4

Hi, there. This is Courtney. Thanks for taking my Thank you for taking my call.

Operator

Apologies, I was just coming

Speaker 4

off mute. I just wanted to clarify 2 things. The first was just kind of coming back to Gardasil, and I know there's been a lot of conversation around that. Can you please kind of provide specificity as to whether there's any risk of write off as we think about the inventory that's sitting in the channel at Cherfei and the age of that inventory? And then the second question around Part D redesign.

Speaker 4

I know you just mentioned that specifically about Winter River and kind of the channel dynamics there. But as you're thinking about 2025 and some of the guidance that peer companies are beginning to give and we're seeing some different ranges and different interpretations, can you just give us some context as to what you've baked in, in terms of volume relative to price when we think about the $400,000,000 guidance? Thank you, Courtney. In terms of Gardasil inventory, we are, as Rob said, forging shipments to enable Chafe to utilize that inventory in the market and that's inventory that our partner owns. So the risk for write off of inventory from Merck is extremely low.

Speaker 4

In terms of Part D redesign, what you have are the 2 dynamics. The first is the price impact. And as noted in our prepared remarks, that predominantly impacts WinRiver as well as our oral oncology agents. That we think will be partially offset with some volume benefit as patients stay on therapy. But the majority of the €400,000,000 that we noted is really the price impact.

Speaker 1

Great. Thanks, Courtney. We have time for one final question, please. Shirley, thank you.

Operator

Thank you. And our last question comes from James Hinn with Deutsche Bank. Your line is open. You may ask your question.

Speaker 5

Hey, good morning, guys. Can you hear me?

Speaker 4

Yes.

Speaker 1

Yes.

Speaker 5

Awesome. Sorry about that. Just making sure technical to move in. Don't mean to belabor the part of this whole topic, but there is an upcoming February 2025 ACIP meeting and the agenda suggests there's follow-up on last October's dosing questions. Can you level set us on the expectations for this February session?

Speaker 5

And relative to the long term guidance, did the U. S. Market play any role in that change to guidance or guidance being withdrawn? Thank you.

Speaker 2

Yeah. Maybe I'll take the second part of the question and Dean can take the first part. No change. So as we said earlier, if you exclude China, our expectations for the rest of the world, which would include the U. S.

Speaker 2

Are unchanged. So there's no change in our long term belief in GARDASIL from that regard. As it relates to the ACIP and the dosing question, we're going to have to wait and see where it is. We continue to believe that the strength of the clinical data supports the 2 and 3 dose regimen we have today. It's a very high bar.

Speaker 2

And I'll let Dean comment maybe on something the FDA and other perspectives. But I think we need to see where this goes. But we continue to feel very strongly that the dosing is appropriate and do not necessarily see that as a risk in the U. S. But I'll let Dean comment.

Speaker 3

Yeah. So the way that I would look at it ACIP is CDC, the label is FDA. Scheduling dose is the FDA. And I would just say that the dosing schedule of Gardasil has been rigorously vetted by the FDA. And as you've seen, as we've gone from 3 doses to 2 doses, the evidentiary proof that is required by the FDA to change scheduling is high.

Speaker 3

I should also emphasize that we have been in discussions with the FDA in relationship to how do we create and reach a randomized controlled trial that could change schedules for GARDASIL, GARDASIL 9 in men and in women. And the FDA, as you might imagine, has a very high bar for that proof. Now, I would surmise that the remarkable history of efficacy and safety influences the FDA's high standards and rigorous standards for anyone to want to change the late Oclare. I can't speak to what will happen, but I might suspect, especially now, that the deep attention and expertise of the FDA on dosing and scheduling might be important to the CDC as they decide on this question of creating a schedule that is outside of the label from the FDA.

Speaker 1

Great. Thanks, Dean. Thanks, James. Rob, a couple of comments to close the call?

Speaker 2

Yes. Well, thank you all for your time on the call. Just maybe to end the call, I just want to reinforce our confidence in the long term. I recognize the Garda situation in China is a change. I think it's the right decision we're making now to put this behind us to resolve this inventory situation and move forward.

Speaker 2

But putting that's a short term event, putting it in context of the long term of this company. As we said, we see strong growth in the second half of the year leading into 2026 into 2027. And importantly, as we look to the period beyond, the strength of the pipeline, the diversity of the pipeline, the progress of the pipeline is profound. And I really believe that once we fully understand all of that, and I recognize it's going to take proof points in time, you'll understand why we have the confidence we do in the long term. And we are committed to demonstrating that and most importantly to continue to advance that pipeline for the patients we serve.

Speaker 2

So with that, I'll close the call. Thank you.

Operator

Thank you. This does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.

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Onto Innovation Q4 2024
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