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spk13: Good morning. My name is Kylo and I will be your conference operator today. At this time, I would like to welcome everyone to the Merck and Company quarter four sales and earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, seem to press star and then the number one on your telephone keypad. If you withdraw your question, press the pound key. Please limit your questions to just one or two. Thank you. I would now like to turn the call over to Peter Dannenbaum, VP of investor relations. Please go ahead.
spk04: Thank you, Kylo and good morning. Welcome to Merck's fourth quarter 2019 conference call. Today, I'm joined by Ken Frazier, our chairman and chief executive officer, Rob Davis, our chief financial officer, Dr. Roger Perlmutter, president of Merck Research Labs, and Kevin Ali, who will be the chief executive officer of the new company we have announced today. Each will have prepared remarks. In addition, I am also joined by Frank Clyburn, our chief commercial officer, and Mike Nally, our chief marketing officer, who will be available for the Q&A portion of the call. Before I turn the call over to Ken, I'd like to point out a few items. You will see that we have items in our gap results such as acquisition related charges, restructuring costs, and certain other items. You should note that we've excluded these from our non-gap results and provide a reconciliation in our press release. We have also provided a table on press release to help you understand the sales in the quarter for the business units and products. I would like to remind you that some of the statements that we make during today's call 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. 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 2018 10-K, 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. You can see our SEC filings as well as today's earnings release on Merck.com. We've also posted a presentation to the investor section of Merck.com, which includes some of the highlights from our results and announcement. With that, I'd like to turn the floor over to Kevin. Thank you, Peter. We're very pleased to speak with you this morning as we close out what we consider to be an exceptional year for Merck. And we're excited to announce our intention to create two leading growth companies through the spin-off of our Women's Health, Legacy Brands, and Biosimilar Products into a new company. As you can see from our results and our 2020 guidance, Merck had an extraordinary year and is in a position of operational and financial strength driven by strong execution of our strategy and focus on our key growth drivers and innovative pipeline. It is this position of strength, one of that focus, that gives us the confidence to do what we believe will best position us to deliver even greater value to patients and shareholders. Throughout my entire tenure as CEO, we have consistently focused on science as core to our strategy to not only benefit the most patients, but also as a means of creating the most value. As you've seen, Merck's portfolio has evolved from one focused largely on primary care products to one focused on oncology, vaccines, hospital, and animal health. It is this purposeful shift, coupled with greater prioritization and focus on key growth drivers, that has led to the unprecedented growth that we are now experiencing. Going forward, we see even greater opportunities to invest behind our innovative growth drivers. In placing greater focus and prioritization behind these products, we must also think carefully about how to make the best possible use of the 160 products in total. Our responsibility to patients and shareholders has led us to think about how we can maximize the impact of this vast array of human health products. Therefore, after careful consideration over time, we've made the decision to separate into two companies, one a research intensive bio-pharmaceutical leader, the other a new company focused on becoming a leader in women's health with the capability to realize the full potential of a portfolio of trusted and medically important legacy products and a rapidly expanding biosimilar business. By spinning off NUCO as a distinct business, we can better prioritize and support a set of products that no longer fit in Merck's strategic framework, but which remains important to public health and the patients who rely on them, and which, if managed and resourced appropriately, present real opportunities for growth. We're also mindful of the changing industry landscape and believe that evolving our operating model in this way will allow Merck to benefit from an even more intense focus on breakthrough science immunization. As I stated on investor day in June, our mission and rich legacy of inventing to save and improve lives is the foundation of our company. The separation of NUCO will help us in our aspiration to be the premier research intensive bio-pharmaceutical company by allowing us to focus on innovations that prevent and treat diseases. And over the past few years, we have seen how more focus and prioritization leads to more growth, more efficiency, and more value creation. The spin-off will also create significant opportunities for NUCO. As an independent company, NUCO will pursue its strategic intent of becoming a global leader in women's health, an area where the future opportunities are significant. In addition to the growth potential in women's health, NUCO's growth will be fueled by more fully realizing the full potential of a portfolio of trusted legacy brands in pain, dermatology, cardiovascular, and other areas, as well as its rapidly expanding biosimilar business. This new company will have the strategic freedom to pursue additional growth opportunities through life cycle management and targeted acquisitions and partnerships in women's health, dermatology, and other fields. NUCO will be led by a highly experienced leadership team, including Kevin Ali, who has been named Chief Executive Officer. Kevin has a proven track record of leadership at Merck, with deep experience in global pharmaceutical markets and diverse therapeutic areas. In addition, NUCO's board will be shared by Carrie Cox, who has extensive experience in pharmaceutical commercialization, particularly in women's health, as well as broad leadership and board experience, including as former chairman and CEO of Humatite, former chairman of Array Biopharmaceuticals, and as president of global pharmaceuticals at Shering Plow prior to its merger with Merck. We're confident that NUCO will be in experienced and capable hands with this leadership team. Our industry faces emerging challenges such as the rising cost of innovation and increasing pressures around pricing and market access. In this environment, we must maximize our opportunities to act with greater operational agility, efficiency, and productivity. As separate, more focused companies with more optimal resource allocation, both Merck and NUCO will be better positioned to continue to positively impact the lives of patients, improve global public health, and achieve faster growth. As a result, we expect Merck's shareholders to benefit through ownership of two focused companies, each with attractive financial characteristics and growth profiles. In summary, we are seeing the benefit of focusing our organization on its best growth opportunities. As we look out to 2024, we believe the strength of our business is underappreciated. We are more confident than consensus on every key financial metric, including revenue, operating margins, and EPS growth. Our commitment to maintaining and growing the Merck dividend is evidence of the confidence we have in the long-term prospects for our business. Our fundamental operating and financial strengths allow us to take bold steps to stay ahead of the curve by reshaping our operating structure, focusing and streamlining Merck, enabling Merck to become an even stronger, more agile, and faster growing company. I strongly believe that this is the right thing for patients, for public health, and for shareholders. With that, I'll now pass it on to Rob to discuss our results and provide more details on the spinoff. Rob? Thanks, Ken, and good morning, everyone. I'm excited to speak to you this morning about our 2019 results, as well as our decision to spit on a proportion of our human health business, a decision that will enhance the value of both Merck and NewCo. 2019 was a year of exceptional growth for our business, with revenues increasing 13% and non-GAAP EPS increasing 21%, excluding the impact of foreign exchange. Our strong performance reflects the continued execution of our science- led strategy, and we expect our business momentum to continue, particularly as we enhance our focus on our key growth drivers through the spinoff. I'll start by highlighting our strong fourth quarter results before providing more details on the transaction and 2020 guidance. Total company revenues were $11.9 billion in the quarter, an increase of 8% -over-year, or 9% excluding the negative impact from foreign currency. Both our human health and animal health divisions contributed to the growth this quarter. The remainder of my comments pertaining to sales will be on an ex-exchange basis. Our human health revenue grew 8%, led by products in oncology and hospital. In oncology, we treated a fourth quarter sales worth $3.1 billion, and for the full year, sales exceeded $11 billion, representing 58% growth versus 2018. In the U.S., growth was driven by strong demand across all indications. Catruda continues to lead across many indications, including lung, bladder, and heavy neck cancers, with strong momentum in adjuvant melanoma and renal cell carcinoma, where we are seeing strong uptake across all patient subgroups. Outside the U.S., Catruda sales in the quarter grew 50%, driven by lung globally, with a key reimbursement for Keynote 189 now secured across all major markets in the EU, and strong uptake in lung following approvals in Japan and China. We are also seeing positive uptake from early launches in both renal cell carcinoma and adjuvant melanoma in the EU, and expect to see strong global growth as these and other new indications continue to roll out. Our results also reflect continued strength for both the bipartisan and LUNVMA, important products from our collaborations with AstraZeneca and ESAI, respectively. Limparsa continues to have strong growth in ovarian cancer and maintains a greater than 60% total patient share in the PARP and HIPAA class in the United States. Growth of LUNVMA benefited from the launch of the endometrial carcinoma indication in combination with Catruda, and continued strong demand first aligned to paticellular carcinoma, where LUNVMA is now the leading treatment agent. Our vaccines business declined this quarter due to the impact from the replenishment of Gardasil to this UDC stockpile in 2018, and our borrowing from the stockpile in the fourth quarter of 2019, which negatively impacted the -over-year comparison of Gardasil revenues by $245 million on a combined basis. Excluding these impacts, Gardasil revenue grew 16% driven by a continued strong underlying global demand. Our hospital business benefited from 24% growth in Brinion, which reached $1 billion in annual sales for the first time this quarter. Growth was largely driven by an increased share in the U.S. reversal market. For the full year, we achieved strong growth of 14% in our human health business, driven by our growth pillars across most geographies. Animal health revenues increased 10% this quarter to $1.1 billion. Growth for the quarter was driven largely by the products acquired in the Antelic acquisition. Now, turning to the rest of our P&L, my comments will be on a non-GAAP basis. Growth margin was .6% in the quarter, a decrease of 240 basis points -over-year, primarily reflecting the impact of unfavorable manufacturing branches and higher inventory write-offs. Operating expenses of $5.2 billion increased 10% -over-year. Administrative and promotional expenses drove higher SG&A costs in the quarter, while clinical development spent and costs associated with our discovery efforts were responsible for the increase in R&D expense. Other income and expense was positively impacted by income from our equity securities portfolio, partially offset by higher net interest expense. Our effective tax rate for the quarter was 16.9%, driven by lower and favorable earnings mix. Taking together, we earned $1.16 per share, an increase of 12% excluding exchange. Now, turning to our announced spin-off. As Ken noted, by further evolving our operating model and separating into two simpler, more focused and agile companies, both will be better positioned to respond to the changing external landscape, improve efficiency and accelerate growth, creating greater value for patients and shareholders than would be achieved as a single company. Spinning off NUCO accelerates Merck's revenue growth by up to one percentage point on a compounded average basis through 2024, but more importantly, it allows Merck to enhance focus on its key growth drivers and robust pipeline. This gives us confidence that Merck will realize even greater incremental revenue growth over time. We will also benefit from more streamlined processes and operations, enabling further operating model efficiencies across the value chain. For context, the products to be spun off into NUCO represent about 15% of Merck's human health revenues based on 2020 forecasts, while consuming a much larger share of our resources. In fact, separating NUCO will reduce Merck's human health manufacturing footprint by about 25%, the number of products by 50%, and the number of SKUs by 60%. As a result of a more optimized operating model, Merck will achieve even higher operating margins over time, creating additional headroom to invest in innovation, which we continue to believe is the key to our long-term growth and value creation, as Ken has referenced. Merck will continue to benefit from broad commercial scale driven by its key growth pillars in oncology, vaccines, hospital, and animal health, as well as our diabetes franchise. Merck will continue to have a strong balance sheet with significant cash flows and financial flexibility, which will allow for investments in innovation and meaningful business development to augment its pipeline and portfolio, while continuing to return capital to shareholders. We expect to complete the transaction in the first half of 2021. Until then, we will remain focused on continuing to successfully execute our strategy and maintaining our strong financial and operational performance. Now, let's move to our outlook for 2020, the year in which we continue to operate as a combined entity. My remaining comments will be on a 90-hour basis. We expect full-year 2020 revenue to be between $48.8 billion and $50.3 billion, which represents 4 to 7% growth versus 2019. This range assumes a negative impact from foreign exchange of less than one percentage point using mid-January rates. Our gross margin will be roughly 75.5%. We expect operating expenses to increase by a low single-digit rate year over year due to higher IRD spending as we remain committed to fully funding the meaningful opportunities in our pipeline. SQ&A expenses will remain tightly managed. We expect other expense of roughly $200 million given by higher net interest expense. We expect our tax rate to be roughly .5% to .5% for the year. We project average diluted shares to be $2.54 billion for 2020. And we expect EPS to be between $5.62 and $5.77, which represents growth of 8% to 11%, including a roughly .5% negative impact from foreign exchange using mid-January rates. Longer term, Merck continues to expect strong revenue growth driven by growing demand for innovative products. When looking out to 2024, we believe our revenue growth potential is underappreciated, even more so as we begin to realize the benefits of this transaction. We continue to expect meaningful operating margin expansion over time. The separation of NewCo enables $1.5 billion in pre-tax operating efficiencies, rateable over three years. While initially Merck's operating margins will decline slightly, we expect to achieve operating margins of greater than 40% in 2024, higher than Merck would have achieved as a combined company. The transaction is expected to result in $8 to $9 billion of proceeds from a special tax-free dividend from NewCo. Merck's capital allocation priorities remain unchanged, and we expect to maintain a very solid financial and credit profile. First and foremost, we will fund our best growth opportunities through investments in R&D, product launches, and capacity expansion, and we believe the spinoff allows us to better focus on these activities. Merck's dividend will be unaffected by this transaction, and we anticipate future dividend increases from the current 2020 dividend of $2.44 per share post-separation, with the goal of achieving a 47 to 50% payout ratio over time. We will continue to have ample capacity for value enhancing business development, and finally, we will continue to repurchase shares as a way to return excess cash to shareholders. Turning now to NewCo's financial profile, the products represented by the NewCo portfolio are expected to achieve 2020 revenue of approximately $6.5 billion, with an operating margin of approximately 45% as part of Merck. As an independent company, NewCo is expected to achieve low single digit revenue growth off of a 2021 base of $6 billion to $6.5 billion, taking into consideration the cost to operate as an independent company. Operating margins for NewCo are expected to be in the mid 30% range and increase over time. And finally, we anticipate EBITDA margins to be in the low to mid 40% range in 2021, and also increase over time. NewCo will have strong cash flows and a balance sheet position to invest in growth opportunities, and expects to pay a meaningful dividend, which will be at least as competitive as any likely peer company, and entirely incremental to Merck's dividend. In total, we expect combined EPS of NewCo and Merck together to initially be nominally lower than what Merck would have achieved without the spinoff. But as a result of the incremental growth that NewCo will achieve standalone, combined with the benefit of the operating efficiencies that Merck will realize, we expect that shareholders owning both companies will realize higher EPS within 12 to 24 months. In summary, we are confident that through the spinoff, both companies will have strong prospects for future success and sustainable possible growth, given the clear benefits each will realize as independently operated entities, including enhanced strategic and operational focus on their key drivers to accelerate growth, improved agility to anticipate and respond to customer needs and evolving market dynamics, simplified operating models with reduced complexity and improved efficiencies, optimized capital structures and resource allocation to pursue their distinct strategic agendas, and improved financial profiles making for unique and compelling investment cases. We are excited by this opportunity to create two patient-focused growth companies and look forward to continuing to deliver significant long-term value to our patients and shareholders. With that, I'd like to turn the call over to Roger. Thanks, Saurav. Looking back on 2019 and in particular on our fourth quarter results, there is much to celebrate. In December, our keynote 057 data were reviewed at an FDA Oncologic Advisory Committee meeting, which was followed three weeks later by FDA approval of Keytruda as monotherapy for the treatment of certain patients with high-risk non-muscle invasive bladder cancer. This represents the 23rd FDA approved indication for Keytruda, broadening still further the benefit that can be expected from the use of Keytruda in the urologic setting. Keytruda also gained three new approvals in the pan during the fourth quarter as combination therapy and the first-line treatment of advanced renal cell carcinoma, based on the keynote 426 study, and for the first-line treatment of metastatic squamous cell carcinoma of the head and neck, either as monotherapy or when combined with chemotherapy based on results of the keynote 048 trial. The keynote 048 data also permitted approval of Keytruda in Europe with a similar indication. Finally, we gained approval of Keytruda in China for the treatment of metastatic squamous cell carcinoma of the lung in combination with chemotherapy based on data obtained in the keynote 407 study. Substantial progress was also made in the registration of Limparsa, our leading parpenetra that we are developing in collaboration with colleagues at AstraZeneca. At the December FDA Oncologic Drugs Advisory Committee, a majority of committee members supported the use of Limparsa as first-line maintenance therapy for patients with germline BRCA mutated metastatic pancreatic cancer, whose disease had not progressed after at least 16 weeks of first-line platin-based chemotherapy, all based on data from the Phase 3 Polo trial, which demonstrated a 47% reduction in the risk of disease progression or death in the Limparsa treatment arm. FDA granted approval for Limparsa in this setting at the end of 2019. I should also note that data from our Polo 1 trial of Limparsa were accepted by the FDA for priority review for the peducinate in the second quarter of this year. In Polo 1, maintenance from Limparsa plus the adenosysamab treatment of women with advanced ovarian cancer that had responded to first-line platin-based chemotherapy plus adenosysamab reduced the risk of disease progression or death by 41%. Additional files supporting the use of Limparsa in the treatment of men with mutation-selected metastatic castrate-resistant prostate cancer, based on the results of the Phase 3 profound study, was also accepted by the FDA for priority review of the pedupidase in the second quarter of 2020. While we were clearly very active in advancing new cancer treatments, during the fourth quarter we also made important progress in other areas. For example, in the management of highly resistant bacterial infections, the Committee for Medicinal Products for Human Use of the European Medicines Agency adopted a positive opinion for recarbrio, our novel combination of imipenem, psilostatin, and rilopactam for the treatment of infections due to aerobic raminative bacteria, which demonstrated resistance to other agents. Recarbrio is also under priority review by the FDA for the treatment of adult patients with hospital-acquired or ventilator-associated bacterial pneumonia caused by susceptible organisms with the pedupidase of June 4. Important progress was also made in cardiovascular medicine with the completion of the Phase 3 Victoria study in which borisiquat, a novel 1-LA cyclase activator being developed in collaboration with College Health Bayer, was found to reduce the compounded risk of heart failure hospitalization or cardiovascular mortality as compared to placebo in patients with worsening heart failure with a reduced ejection fraction who were receiving standard heart failure therapy. Time does not permit me to list the many other regulatory and clinical milestones that we achieved in the fourth quarter. However, I cannot fail to note that ervivo, the first effective vaccine against an Ebola virus, was approved by the FDA and received conditional approval from the EMA for the prevention of disease caused by zymere Ebola virus. We have now provided more than 275,000 doses of this vaccine by experimental use protocols to support the efforts of the World Health Organization and other agencies attempting to halt the spread of Ebola virus disease in the Democratic Republic of the Congo. Approvals have also been obtained in certain African nations including Burundi, Zambia, and the Democratic Republic of the Congo itself which should greatly improve the process whereby individuals at high risk can be immunized. It has taken many years to reach this important moment. My colleagues and I feel privileged to have contributed in this way in the control of an otherwise fatal disease caused by this idea of Ebola virus. Lastly, I wish to comment on the spin-up of the new company that we have announced this morning. I begin with a deep belief in the power of simplification to enhance productivity. My colleagues and I have important objectives over the next few years that will, we hope, improve treatment for malignant disease and heart failure and provide vaccines that reduce suffering from infectious diseases. Simplification of our corporate structure can only sharpen our focus on these critically important programs. I have confidence that we can achieve this increased focus internally while providing the near-term support necessary to implement new code to establish itself as a highly effective separate entity. I'll now turn the call back to Ken. Thank you Roger and before turning the call over to Kevin, I'd like to take a few minutes to share with you some details on his background. Kevin brings a wealth of knowledge to NewCo based on three decades of pharmaceutical and commercial experience at Merck. His experience ranges from leading different regions, including our entire international human health business and the emerging markets region, to leading markets such as Germany and Turkey. Most recently, Kevin has been instrumental in evaluating Merck's options to optimize the entire human health portfolio and in envisioning what success looks like for NewCo while providing invaluable counsel to me and the rest of the senior management team. I'm confident that under Kevin's leadership, NewCo will reach its full potential and drive greater value for patients, shareholders and employees. And with that, I'd like to turn the call over to Kevin. Thanks Ken and good morning. I'm excited to share with you today the creation of our new company, which we believe has a remarkable opportunity to unleash the potential of a leading portfolio of assets in women's health, a rapidly growing biosimilar business and a portfolio of trusted and medically important legacy brands. NewCo revenue was expected to be flatly declining through 2024 within Merck due to limited investment and focus. However, we believe that by allocating the appropriate resources and by focusing management retention, NewCo will achieve sustainable growth and create value outside of 2020 to a base of approximately 6 to 6.5 billion dollars largely due to the loss of exclusivities of Zetia in Japan and Numerang in the U.S. The new company will be well positioned to achieve low single-digit revenue growth off of that base. As no new LOEs loom and we have identified lifecycle management and commercial investment opportunities, some already underway, NewCo will have a strong global scale and geographic diversification and as a standalone entity will be better positioned to capitalize on attractive opportunities across its portfolio. NewCo will pursue global leadership and sustainable growth in women's health through its growing contraceptive and fertility business including Nesplanon, which grew 14% in 2019 and is the leading implantable long-acting reversible contraceptive worldwide with U.S. patent protection through 2027. In fact, we expect Nesplanon to be our first billion dollar women's health product. The growing 40 billion dollar women's health market is highly fragmented with over 400 products and development interests industry-wide. NewCo will be well positioned to capitalize on this attractive market opportunity to become an industry leader through investment both organic growth and business development opportunities and to deliver better and more innovative and holistic care to women. NewCo growth will also be driven by a by a by a by a by a stimulus business in the early stages of a long-term growth opportunity with three products currently on the market through its partnership with Samsung BioEpis. Revenues of the three currently marketed products are expanding rapidly and are and were approximately 250 million dollars in 2019. NewCo is well positioned to benefit from increased biosimilar demand as markets around the world continue to seek health care cost savings through greater biosimilar adoption in a growing market. The women's health and biosimilar businesses will represent a larger proportion of NewCo's revenues over time and are expected to account for more than 50% of sales by 2024. NewCo will also have the opportunity to realize the full potential of its portfolio of globally trusted legacy brands through increased focus and targeted investment. Importantly the infrastructure and cash generation within this broad portfolio provides a scale, geographic reach and capital to support the growth opportunities that the women's health and biosimilar businesses present. In addition to a strong product portfolio, NewCo's global scale and geographic reach will serve as an important competitive advantage. The company will have the capability to potentially commercialize and distribute for other innovative industry players. Finally, NewCo will be a highly profitable with stable and strong cash flows. As a standalone company it will be able to make the capital allocation decisions that best suit its long-term interests including organic and inorganic growth opportunities, paying a meaningful dividend, debt pay down or returning cash to shareholders through share repurchase. In summary, I'm very excited about the future of NewCo and the opportunity work with Carrie Cox. This company will have a distinct opportunity to address the health needs of women around the world and to build off of important growth pillars such as Nexponon, Pane and Dermatology and Biosimilars. As a focused company with dedicated resources, a strong global footprint and talented and experienced employees who embody the shared values of the Merck culture, NewCo will be better positioned to create value for patients and shareholders. With that I'd like to turn the call back over to Peter. Thank you, Kevin. We recognize today's upfront comments ran longer than normal so we're prepared to extend the call beyond 9 a.m. if necessary. So, Carla, will you please line up the queue for Q&A?
spk13: Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Again, to ask your question you will need to press star one on your telephone keypad. Our first question is from Chris Cott from JPMorgan. Please go ahead.
spk03: Great. Thanks very much for the questions. Obviously, a lot of news out today. I said two really both related to the spin. I guess first on this, you mentioned you've been considering a deal like this or some structure for these assets for quite some time. I guess why now in the timing? Is there something that's either happened with the business or the pipeline that made this make particular sense now versus I guess when you've worked at this in the past? And my second question is I just want to make sure I'm understanding the 1.5 billion in operating synergies correctly. Should we think about that as a net reduction in OPEX relative to what the combined company would have spent or is that savings that goes to Romain Co. and should be balanced against some of the stand-up costs that we're referring to with the new Co. Thanks very much.
spk04: Okay, thanks. This is Ken Frazier. Let me start with the why now. The reason why we're doing this now is that our fundamental and financial strength which is being driven by the focus on our best opportunities for growth allows us now to do what's strategically correct for the company in the long term. This is about taking actions today that will assure the long-term growth and viability of Merck as well as allowing the products that no longer fit into our strategic framework to prosper in a new organizational structure. So from our standpoint, this is the right time. A few years ago when we were looking at this, we saw the opportunity but for example the cash flow generation of our legacy products was being employed at that time and standing up our oncology business from which we grew from the ground up and as you know has been extremely successful. That success has been due to our ability to allocate capital to a business that we didn't have before and getting the entire organization focused and aligned around an opportunity that we had around Keytruda and other compounds behind Keytruda. So that is why we can do it now and I said before we are confident about our long-term growth prospects and one of the ways in which we try to manifest that is by saying we will maintain and grow the dividend on the Merck side irrespective of losing these brands. Okay, Rob on the question please. Morning Chris. On your question, so the way you should think about it is that the $1.5 billion of operating efficiencies are incremental cost savings in Merck after the spin-off is completed. The stand-up costs that are required to support the new company are really contemplated if you take the fact that we commented that there's 45% operating margin for the new company within Merck and it goes to 35% roughly mid 30s after the stand-up that 10 percentage point delta is really the stand-up cost. So those are not those are separate independent from the billion and a half of net benefits net synergies that will be enjoyed by Merck going forward and its operating results. Next question please, Paul.
spk13: Next question is from Tim Anderson from Wolf Research. Go ahead please.
spk16: Thank you. A couple of questions on spin and then a science question. On the new company to be spun out will that be doing real R&D and have its own R&D engine? When you talk about sustainable growth I'm just wondering if part of that's going to come from genuine R&D. And then on RemainCo updated views on animal health should we assume that this new split means that the remaining parent Merck company is even more likely than ever to keep animal health in perpetuity. And then last question is on the adjuvant IO opportunity. Roger in my past discussions with you you've been highly confident the PD-1s will work in adjuvant setting. Recently we saw Roche fail in bladder. There's been some timeline slippage. We haven't seen any adjuvant trial timelines pulled forward. No trials stopped at an interim unlike we have with metastatic disease in the PD-1s. So my question to you is are you still highly confident the PD-1s are going to work broadly across tumor types in adjuvant? Thanks Tim. Kevin on the research and development capabilities of NUCO.
spk04: Thanks. Good morning Tim. Yeah NUCO will have a high quality development capability and is really well positioned as a partner of choice for other biopharmaceutical innovators who are looking to realize commercial growth for our global scale and presence in selected international markets to increase patient access. Over time NUCO will build a research capability in selected therapeutic areas starting with women's health as a core pillar of its business development strategy and then we'll move further from there. Tim on your question about animal health I'll start by saying we never say what's going to happen in perpetuity because we regularly review our entire portfolio and make decisions about which parts of that portfolio belong in our portfolio and which ones would be better off. As we look at animal health we believe if you look at its growth if you look at its profitability we continue to believe that we are in effect advantage owners of that business going forward. We also believe that that is an important key growth pillar that actually helps us in the long run. As you know there are ups and downs in the pharmaceutical business and having a business like vaccines, having a business like animal health gives us the long-term stability that actually allows us to confidently pursue our R&D mission. Roger on that. Tim on the question of immunomarticology in the aspen setting I can't speak generally about PD-L1 and PD-1 antagonists but I'd like to talk about Keytruda. First of all of course Keytruda is already effective in the aspen setting as we've shown in melanoma and we also showed the effects in the neoadjuvant setting in breast cancer in the Aspytutri study and as well in the 522 study most recently and that is a combined neoadjuvant aspen study and we'll be seeing the aspen data in not too long the time. And you shouldn't really expect aspen data to be pulled forward because by definition patients who are receiving aspen therapy are patients who have better overall survival over a longer period of time so one expects to see those aspen results roll out with a more defined cadence and I think that's exactly what we'll see and I based on our success in two prior settings I would think Keytruda should be as successful in these settings as well. In general it works better when used earlier. Great next question please Carla.
spk13: Next question is from Steve Kayla of Cohen. Go ahead please.
spk11: Thank you very much. One of the concerns investors have with Merck is the view that its outlook is heavily dependent on Keytruda and formation of new co would seem to increase this risk and concern so Merck appears to not agree that this is a concern and I'm wondering if you can elaborate on why and then second what was the rationale for leaving Genuvia within Merck as opposed to new co? It seems placing Genuvia within new co would have made Merck's outlook appreciably clearer going forward. Thank you very much.
spk04: Well let me start on the Genuvia question. We continue to believe that our diabetes franchise is going to be an important contributor to Merck now and into the future. We're also continuing to do significant research in the whole cardio metabolic area so that's an area of focus for us going forward. In terms of the issue around Keytruda concentration risks we are mindful of that. We think Keytruda revenues as a proportion of total revenues only increase by a small amount because of this. I think the most important thing that I would say about Keytruda is that right now we continue to see the benefits of our focus both in terms of R&D and commercial execution going forward. We see it as driving more growth going forward for the companies but we also see the benefits of our other opportunities in oncology. We have more than Keytruda. We have Lenuma and Lemparga. We also have 20 molecules behind that. We also have our vaccines business, our hospital and specialty business. So we're looking to optimize our entire portfolio and augment our pipeline through business development. That's how we see our future growth. Not so much these brands which as Kevin said left to their own would probably decline more steeply than they are in the new co. Great. Rob anything to add? Yeah Steve just to kind of build on your point about why Genuvia and Merck as opposed to new co. As we looked at it clearly we continue to benefit from the fundamental cash flow and strength that that business gives. While it's not a growing business it's still generating a lot of cash flow that in the near term as we approach LOE will continue to be important for Merck. This is an important brand for us and frankly if you look at the new co. company while the loss of exclusivity to Merck frankly does not affect our ability to deliver growth as we've already commented. Even through the loss of exclusivity in 2023, 2024 we grow in each and every year through that period. So we're able to absorb the loss of exclusivity benefit from the cash now. That type of cliff would be insurmountable to the new co. and then finally and Roger can comment on it in more detail but we continue to do some pretty interesting science in the cardio metabolic area and still exciting opportunities are there and so continue to see from a scientific perspective fit as well. For all of those reasons we felt keeping it within Merck made more sense in living that over to the new co. Great. Next question please Carla.
spk13: Next question is from Andrew Blum of Citi. Go ahead please.
spk10: Thank you. A couple of questions firstly you initiated your is Latreville dual oral combination trials. Is there any possibility within that and being able to differentiate your combination versus BicTazi on the back of lesser weight gain given the absence of an integrase inhibitor and whilst you're waiting for the long-acting trials to complete does that provide any kind of commercial advantage? The second question relates to TGIT. One of your competitors Roche that indicated their opening phase three program. They've already run a -to-head data in combination with that PDL1 and I know that you have a program ongoing and have had for some time. Could you talk to your relative levels of excitement with the molecule and perhaps give us some timelines and when it may be able to enter registration trials? Thank you.
spk04: Roger. Right. Thank you Andrew. First of all with respect to the combination you know the reality is we really have to wait for the data. I think that you know we're very confident in the behavior of Ms. Latreville which we've demonstrated through our reasonably large phase two studies and also with the work that we've done with the dependable person. It's a terrific molecule. It behaves extremely well. How it will behave with this in combination study? You know we have pretty good evidence that indicates to us that it will be a leading combination and especially valuable in treatment. We also know that Latreville either by itself or potentially in combination is a good preventive regimen but we need to see the data from all of those and that's what we'll be getting. And with regard to what I call TGIT but maybe call it TGIT. We do have a program. We have been working on this for some time. We have studies going on where we try to ask the question of whether this molecule in combination with Keytruda behaves better than Keytruda alone and is there any circumstance under which it could be used. You know we recognize that Keytruda is a very impressive compound in a whole variety of different settings so we have to find the right place in which to use it. So we're enthusiastic about it and we're moving forward. Thank you Roger. Next question please Carla.
spk13: Our next question is from Louis Chen of Cantor. Go ahead please.
spk07: Hi thanks for taking my questions. So my first question to you is that you noted in the call that you're more confident than consensus on every metric through 2024. I was wondering if you could elaborate more on what you think the street is missing here and the second question is just on Keytruda in Japan. Curious what kind of impact do you assume for price cuts this year for Keytruda in Japan and is there another potential price cut coming? Thank you.
spk04: Rob. Yeah Luis this is Rob. Thanks for the question. You know this is really if you look at the comments that Ken made he said we feel confident that the street under appreciates our revenue, our operating margin and our EPS growth as we look forward through time and if you look at it in the components clearly on revenue we continue to believe all of our growth pillars have meaningful growth opportunity and in most cases continue to be underappreciated across quality platform within the vaccines platform given Gardasil and animal health just to name a few. So that story which we've been talking to you about over the last several quarters continues and then as you look beyond that clearly with the spinoff getting up to one percentage point improvement in our growth rate as a result of the spin itself that's even further growth that's not appreciated not to mention the fact that we think through core focus and really directed efforts by our leadership team we can drive even faster growth so that is an important part as well and then as you look at an operating margin today we've indicated that by 2024 or in 2024 we expect operating margins now as a result of what this spend enables which enabling one and a half billion dollars of incremental cost efficiency on top of the already improving natural mix we've been benefiting from in our business we're going to achieve an operating margin of greater than 40 percent in 2024 and if you take that acceleration and operating margin combine it with potentially accelerated EPS when you think about us deploying to eight to nine billion dollars of proceeds from this transaction if you put that to share approaches for instance you even get further acceleration so as you look out to 2024 that's why across those select factors we believe the street under appreciates revenue under appreciates operating margin under appreciates EPS growth and Frank on the Japanese price cuts
spk02: hello is this Frank in Japan we did see or we will be seeing I should say in February of this year a huge sales repricing of 17 and a half percent we've seen significant strong performance based off of our lung cancer indications in Japan and because of the sales projection February we'll see the price reduce 17 and a half percent it's also important to note that we will face another significant reduction in April that significant reduction is going to be within the same range as the first cut in February important to note that will have an impact likely on our Q1 results in Japan but also as we take a step back when you look at the rollout of renal cell carcinoma and our other indications in Japan we do believe despite the price cuts over time we will be able to grow in Japan and then I want to reinforce that if we elevate outside of Japan we still see very significant growth in 2020 and beyond if we continue to roll out many indications globally very strong uptake we're continuing to see in Europe and as Roger mentioned we now have 23 indications in the U.S. so we feel very good about our outlook for Catruda clearly the Japan repricing will have the near term impact in Japan but confident as we go forward. Great thank you Next question please Carla.
spk13: Next one is from Omar Rafat of Evercore. Go ahead please.
spk01: Hi thanks so much for taking my questions and I'd appreciate you bearing with me a little bit on it. I guess let me start with this a simple one which is can you confirm that the standalone EPS goes down by about a dollar that's first. Second if I add up women's health cardiology and diversified that's about six billion dollars which is roughly what you're saying is what's being divested to the Remainco but what but if the goal is to focus on the innovative and pharma in the Remainco I noticed there's a five billion dollar line for your other pharma which is not being included and I'm curious why that is and finally I think it's very interesting that you're not doing a split you're doing a spin very specifically and I also noticed when you talk about the proceeds you're mentioning BizDev before you mentioned share repurchase so it almost seems to me that there might possibly be interest in replacing that lost dollar so my question is are you looking at a company which is more on the pipeline side or is the focus more on a accrued deal which gets to that dollar EPS back immediately. Thank you very much.
spk04: Yeah thanks for the question Umar so as you look at thinking about what is the subtraction if you will away from Merck by pulling out this business and I know the math you're doing to get to roughly the dollar the only thing I would advise you on is I don't think you're giving any credit for the operating efficiencies the billion and a half which we said we will get creatively which so that's 500 million even in 2021 the first year which is I think where your math's coming from and you're not giving any credit to what we're doing with eight to nine billion dollars of cash proceeds but if you deploy that to share purchase in reality that dollar you're quoting then it goes down to 60 to you know 60 70 cents in the range so thinking of in terms of percentage you're closer to 15 percent and we believe the answer is probably closer to 10 percent. Umar asks as well what's included in NewCo. Yeah so if you look at the other line the other pharma line picks up a lot of our hospital and specialty products picks up products like Zirbaxa which is still early in its launch but a product which we are very excited about so as we looked at the portfolio you know those products that are sitting in the hospital specialty space are ones that we continue to believe long-term create value for us and we want it to maintain and then there's other to be launched revenue numbers sitting in there or that are smaller in there as well so it really is a profile products different than what we put into the NewCo and are very aligned with the core growth drivers that we've already identified. And then I think Umar's last question was capital allocation priorities combined with a question about
spk16: what our interest in BD might be so let's start with Rob and then turn it over to Ken.
spk04: So if you look at the capital allocation priorities they really remain unchanged. First and foremost we're going to ensure we appropriately fund research and development we're going to fund the opportunity to launch new products and we're going to fund the capacity expansion that we have underway to ensure we have the capacity to meet what is very strong demand across all of our growth doors in vaccines oncology and animal health. We will remain committed to the dividend you know we've talked about that you heard today very importantly we are not lowering the dividend as a result of the spin-out of NewCo we're going to hold our dividend at $2.44 which it is in 2020 and then grow it off of that base with the goals you get to 47 to 50 percent as a payout ratio so you're actually going to see a maintained dividend growing over time and then you have the benefit of the incremental dividend that NewCo is going to have so all in all you should have overall more dividend if you hold those stocks than you do today. And then finally as we've always said our goal to use is to use excess cash both first and foremost for value creating business development to the extent though we can't find those or we don't find ones that bring us a combination of strategy and value we will return excess cash to shareholders moving forward and specifically as you look at the $8 to $9 billion of special dividend we're going to receive from NewCo as a result of this transaction as we said in the comments it will be deployed either to business development or to share repurchase it will not be used for debt pay down that's why I believe it will be a creative over time. I think you also asked about spin versus split we chose spin because we thought that was the quickest path in a tax efficient way of doing this for our shareholders as it relates to business development I'll just say as we've always said it's an important priority and first and foremost we are always looking for the best science and innovation that will drive long-term growth and value for shareholders so we're still very much focused on those deals that augment our pipeline and you saw last year we did a number of deals about 80 transactions spanning licensing technology deals and labor collaborations we'll continue to look for those opportunities to augment our pipeline with the best science. Great next question please.
spk13: Next one is Jeff Meacham of Bank of America go ahead please.
spk15: Morning everyone thanks for the question just have a few. Rob on the spin I get the operating margin benefit to Merck longer term but did I hear you're right that out margins could be lower this year in post-spin initially and then with freed up capital does the spin affect what you guys have previously discussed on the moderation of R&D investments you know looking to 2021 2022 and then Frank real quick you talked about the growth strategy in China for IO at this point with the NRDL decision in first line long I know you guys just got approval in this indication in November thank you.
spk04: Thanks for the question so on your your question about operating margin if you look at what NUCO is within Merck today it's about 45% so it's obviously higher than the Merck's operating margin so it will be initially nominally dilutive when we pull it out in the first year but importantly because of the fact we are getting the operating efficiencies starting even in the first year of 500 million dollars and then growing with an additional 500 million year two another 500 million year three so cumulative to delete in a half that offsets a lot of that dilution and so net when you look at it it's only about one percentage point of solutions or off margin in the first year and then very quickly you're going to see our operating margins continue to grow and by the time we get to over 40 percent by 20 in 2024 we will be at a rate higher than we would have achieved as a operating efficiency and so and then that was the first question the second one was what's happening with I think R&D as we look at going forward so you know we have never been capital constrained in what we're doing R&D what's driving the inflection point we've talked about which is the slowdown of growth in R&D in 2021 as a percentage sales are still going to grow it's just going to grow slower than sales in 2021 that inflection point is driven more by where we see the clinical programs at this time if we find opportunities to invest and I'm confident given the productivity of we've seen from the labs this this far that they very well might do that we will obviously increase our investment as those opportunities present themselves but as of right now our expectation is that inflection point continues to happen in 2021.
spk02: Jeff in your question on China I personally want to make sure that we do mention that our primary focus is on ensuring the safety of our employees families and supporting the people of China I think that's on all of our minds and also the continuity of supply of our human health medicines and vaccines and products and we're going to have to see how China evolves will likely see some impact in Q1 too early to quantify as far as your specific question on IO our overall strategy as we've discussed in particular as we roll out in the self-pay market we still feel very confident on our position we are still the only IO therapy that's approved in non-small cell lung cancer we got approval for DNO-407 in the swim cell carcinoma population and we feel as though we have a very significant opportunity in the self-pay market and we've also adjusted our patient assistance programs in China to increase the affordability for patients that we're trying to provide access to as we move forward so we feel confident going forward in our growth prospects for in China.
spk04: Great next
spk02: question please Carla.
spk13: Next one is Seamus Fernandez of Guggenheim your question please.
spk14: Thanks for the question so maybe just a follow-up on one of Seamus' questions the concentration of the business, Merck's business to Petruta going forward can you just talk a little bit about the competitive pressure points that could emerge going forward we talked a little bit about China but there also are potential Chinese assets that could be introduced into the U.S. following successful lung cancer clinical program just trying to get a better sense of the growth opportunity for Petruta and where you see potential pressure points and if you could also comment on some of the administration's efforts around international pricing again a potential risk point for Petruta that would be helpful and then just as a follow-up on for Roger. Roger how quickly you know the company emphasized a lot of vaccines opportunities for the business you know going forward but most of them were phase one how quickly could we see some of those programs advancing and potentially coming to market and maybe you could just tell us which one or two you're most excited to see in the near term thanks.
spk04: Great thanks so first Frank kind of the performance and now look for Petruta.
spk02: Yeah so on Petruta as far as if we look back at 2019 we're one very pleased that our growth of 58 percent excluding exchange in almost four billion dollars and eclipse in 11 billion dollars in sales we feel very well positioned as we've been saying with regards to Petruta not only with regards to our significant penetration non-small cell lung cancer within the U.S. but also of a significant impact that we're having for patients with renal cell carcinoma adjuvant melanoma our head and neck as you heard Roger mention a recent approval non-muscle invasive bladder cancer so the breadth of our indications and the strength of our data gives us a lot of confidence to continue to grow in particular not only in the U.S. but -U.S. and as especially as we roll out our broader indications and non-small cell lung cancer and we're now reimbursed in Europe in all markets for lung which I see as an important aspect of our growth in 2020. The other thing I would add in the concentration piece too I think we tried to highlight that it's not just about Petruta it's Limparsa it's Limpima it's our pipeline and oncology that we've discussed we also feel very good about our vaccine performance this year Gardasil this year grew 21 percent as well as our hospital and specialty products we continue to see good growth with Brion so from a concentration perspective we feel very confident on the portfolio not only Petruta but the breadth of opportunities that we have going forward. Right. John on pricing.
spk04: Okay so on the ICDOT question specifically we understand the administration's concern that certain countries don't pay their fair share of the cost of vaccination and we do keep continuing to make the point that incorporating additional price controls is not the solution to the problem we continue to work with the administration the congress and other stakeholders to provide a perspective I think patient groups are also providing very strong perspectives on these issues as it relates to that but if you take a step back and think about what we announced today the reason why we're taking these kinds of proactive steps now is because we want to make sure that we position the company for long-term growth and viability in the future environment that's about being much more focused on innovation and it's about driving efficiency within our operating model so this is about staying ahead of the curve rather than waiting until something happens in the pricing environment that we have to react to. Right and Roger on vaccines. Right so Shane thanks for the question on vaccines I mean first of all as you recognize we have an enormously large program in new cocculant vaccines with the V1 4 program having 15 phase 3 studies that are rolling out over the next 18-24 months. We're going to see a lot of those studies coming this year in fact and so you'll be hearing a lot of data from those those studies which will often that may permit filing so that's a very near-term opportunity. We have a lot of enthusiasm about our dengue virus vaccine that vaccine incidentally is that we are collaborating with colleagues at Bhutan where they have a registration enabling study ongoing and that study will deliver results at some point so that's that's pretty exciting as well in addition of course we have our CMV vaccine we have a lot of interesting things going on respiratory syncytial virus and those programs are actually fairly advanced so things are moving along quite well I can't fail to mention the fact that the demand for Gardasil 9 remains enormous and that we have invested a huge amount of capital together with our manufacturing colleagues and building the additional capabilities to meet that demand and that will be rolling out in not too long a time and it will be very important for the coming. Great we have several more questioners in queue we're going to have a hard stop at 9 15 but we're going to keep going. Next question please.
spk13: Next one is from Diana Graybosch of SVB Lyrin. Go ahead please.
spk06: Hi thanks for the question two of them first on UCO what do you see as the long-term relationship between UCO and Merck and then the next question for Roger as you reflect on all the internal and immuno-oncology data that came out in 2019 what novel mechanisms are you most excited about to add on top of Petrutas to provide further benefit for patients?
spk04: Well in terms of a long-term relationship that's to be decided as both companies look to their future and decide how they want to make sure that they optimize their best opportunities so I can't say anything other than what we've announced today in terms of the products that going over but you know obviously what I would say about new COVID makes me excited is I think they will have many of the same standards and values that Merck has going forward. Great Roger. Yeah thanks for the question Dana. You know the in many respects the things we're most concerned about you can tell by looking at the things that we're investing in. You know you can see that quite remarkably the Lindema in as it's been demonstrated in the endometrial cancer registration combination Petrutas most recently but we've also seen really spectacular data in renal cell carcinoma we presented those phase two data and we have ongoing phase three data demonstrate that protein tyrosine kinase inhibitors with special characteristics can combine very effectively with Petruta and we also have data which we presented in combination with Limparsa that are very impressive then we have this very large set of new molecules which some which we've referred to already that include antibodies directed against other potential like 3Tigit and a whole bunch of other things and there really are quite provocative data available now already in those settings we're hopeful that will begin to tease out how best to use those things in combination so lots of exciting things going on. Great next question please.
spk13: Next with this from David Rissinger
spk05: of Morgan Stanley go ahead please. David are you on line?
spk12: Sorry
spk05: yes can you hear me now?
spk12: Yes. Great so I have a few questions first could you provide an update on where Gardasil manufacturing supply stands and the Gardasil revenue growth prospects in 2020 and then Roger could you discuss potential proof of concept results for Merck's early to mid-stage pipeline to watch in 2020 and in addition could you provide a framework for the timeline for the second pneumococcal vaccine that Merck is developing for infants which would be added to V114 to offer broader coverage longer term. Thank you.
spk16: Great I think the first question is on Gardasil supply and outlook so
spk02: Frank. Yes so with regards to Gardasil we do continue to see very strong demand around the world currently our supply is not able to meet that demand as we mentioned we saw growth of 21 percent this year the growth we do believe will continue in 2020 will be slightly tempered from the rates you've seen in 2019 and 2018 and we're focused with our manufacturing colleagues to do everything we can with contract manufacturers in the near term to try to help our supply and then ultimately in 2023 as we've been mentioning we'll be bringing on two new bulk manufacturing facilities that will really allow us to ramp our supply up to meet the strong demand that we're seeing globally.
spk04: Great Roger on David on the early to mid-stage pipeline well you know we've already discussed a lot of programs in oncology in combination with TTRUDA but we have a lot of other areas as well that are moving forward of course building on the results of the -A-WAT in heart failure the phase three data which will be presented in the health in the near future which are quite interesting we actually have a lot of other interesting things going on in insoluble vinylate cyclase activators so that's an important area for us and something that we expect to see quite a lot of data on and we're going to be seeing a lot of data on of course our vaccine programs that I mentioned just a few minutes ago so there will be a lot of data coming forward in 2020 and speaking of vaccines you mentioned the additional vaccine program I think you were referring to V1.7 in the pediatric context which is not an add-on but a separate an independent vaccine all by itself and that program which we've just given a name to will be moving forward shortly I re-emphasize that the V1.14 program is very far advanced with lots of phase three data coming forward this year and next year and will be a leading program in both the adult and pediatric settings ultimately V1.16 and V1.17 will provide further coverage so more to discuss there. Great next question please.
spk13: Next one is from Terrence Lin of Golden Insects. Go ahead please.
spk09: Hi good morning thanks for taking the questions. Just maybe a couple on the spin as well does this change at all how you approach M&A and business development from a timing perspective just wondering if we shouldn't expect any sizable bolt-ons until after the spin is completed and then are there any tax rate implications that we need to consider and then any update on the path forward for ketruda and adjuvant breast cancer regarding discussions with FDA and then when can we expect your phase three frontline data and metastatic triple negative breast and is that important in terms of the conversations with the regulators? Thank you.
spk04: Okay I think we'll start with Ken on the timing of BD and our strategy around that. I expect to see no change in our approach to BD from a timing or strategy standpoint as a result of the spin. We still see the need to augment our pipeline going forward. We see opportunities and we're going to be very focused on that. Yeah and I would add to that point and then I'll address the tax question. You know as I said in the prepared remarks but it's worth emphasizing we will have ample capital to do anything we want to do so this also in no way constrains us from a capital perspective but with regards to the tax rate generally speaking you should not see any meaningful change to our tax rate as a result of this with respect to neoadjuvant breast cancer triple negative breast cancer of course the 522 data we presented at ESMO the effective neoadjuvants in that setting in terms of pathologic complete response very clear and we also had very provocative event pre-survival data that we discussed. There's more data that will be coming forward in that and we are we continue to have conversations with regulatory agencies about that study and you're right as we have an ongoing phase three study in triple negative breast cancer 3.5 that could yield data in principle that would have an impact on thinking with regard to the adjuvant neoadjuvant study but of course we have to wait to see the data so that should be coming forward sometime relatively soon as well. It's event driven of course like I don't know exactly. Great we're going to squeeze in one last question please Carla.
spk13: Last one is Mara Gouldstein from Yazoo. Go ahead please.
spk00: Great thanks very much just a quick question on a NUCO spin-off and the targets around achieving an R&D organization and how should we think about that from a metric perspective and then just quickly on China I know we've covered it but you know Merck has spoken to China as a component of growth strategy on a go-forward basis and understanding that Katrina has been a part of that but Merck has other portfolio of products in China so I'm wondering how much of NUCO's business is responsible for the growth in that region and how RemainCo will be able to advance its growth initiative you know in the absence of NRDL listing which didn't occur as expected.
spk04: So the first question I believe was on R&D metrics around NUCO. Robert,
spk16: Kevin I don't think we have much to add there at this point.
spk04: Clearly I would just say that as we think about the 35% operating margin growing over time that contemplates investments in research and development in the business and so you know it is fully covered there is an assumption that they will be doing R&D moving forward and we feel like it's been adequately covered in the way we resource the investments in the business and I don't know if you agree with what you said earlier. I think just to recap what we said earlier that over time we'll build more of the research and development capabilities as we start to do meaningful business development and start the opportunities to start to do development. Great and the second question China growth. China growth yeah. Just take it on. This
spk02: is Ryan with China as we discussed we're very pleased with the growth this year of 58% and our growth to your point is very broad basis it's intruders, Gardasil, it's Limparsa, it's Lendema, it's our innovative portfolio has done very well. Genuvia is on the NRDL. Zepetor was recently placed on the NRDL so we see our growth going forward in China and we see significant opportunities. Obviously as I mentioned we're all thinking about the coronavirus we'll have to see how that unfolds but nothing has changed in the mid to long term without our opportunities in China.
spk04: Great thank you all for joining us today. As I said in our third quarter call we're confident but we're not complacent and the separation is evidence of just that. We're convinced that the decision is the right one for the business and we believe that now is the right time to capitalize on our position of strength to cure an even stronger feature for Merck. As a more focused research intensive biopharmaceutical company we'll be better positioned to carry out our mission of inventing to save and improve lives and drive lasting value for the patients and shareholders we exist to serve. Thank you very much. Thank
spk15: you all.
spk13: Thank you. This concludes today's conference call. Thank you all for attending. You may now disconnect.
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