Merck & Co., Inc.

Thank you for standing by. Welcome to the Merck and Company Q3 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. At that time, to ask a question, press star 1 on your phone and record your name at the prompt. This call is being recorded. If you have any objections, you may disconnect at this time. I will now return the call over to Mr. Peter Dannenbaum, Senior Vice President, Investor Relations. Sir, you may begin.

Thank you, Shirley, and good morning, everyone. Welcome to Merck's third quarter 2024 conference call. Speaking on today's call will be Rob Davis, Chairman and Chief Executive Officer, Caroline Litchfield, Chief Financial Officer, and Dr. 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, and that we have excluded these from our non-GAAP results. 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. 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 and the 2023 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. During today's call, a slide presentation will accompany our speaker's 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. With that, I'd like to turn the call over to Rob.

Thanks, Peter. Good morning, and thank you for joining today's call. At Merck, we're confronting some of the world's most challenging unmet medical needs with innovative science and differentiated solutions. And we're delivering on our key strategic priorities. The strong progress we're making across our business increases the confidence I have in our ability to achieve long-term success and create sustainable value for both patients and shareholders. We're launching important new products that solve for unmet medical needs and which have significant commercial potential. We're advancing novel clinical programs across a pipeline of diversified therapeutic areas and modalities. And we're adding to our internal research and development efforts through value creating business development transactions. As a result, Merck is moving toward a future with a much more diversified portfolio. Our phase three pipeline has nearly tripled over the past three plus years to more than 20 unique assets. This will fuel a substantial set of new medicine and vaccine launches over the next five years. In fact, approximately equal to what we've launched over the past 10 years. And we believe the majority have Blockbuster Plus potential. We've improved long-term visibility and are intensely focused on ensuring strong clinical execution across our diversified set of pipeline opportunities and future growth drivers. As always, we remain science-driven and patient-focused as we work to bring these medicines and vaccines to those who need them most. Turning to our third quarter results, commercial execution is a top priority, and we're highly focused on delivering in the near term. The strength of our overall portfolio puts us on track to achieve strong four-year growth. For the quarter, revenues increased 4% or 7% on a constant currency basis. Our results benefited from increased usage of Keytruda globally, contributions from new launches, including WinRever and CabAxiv, and strong growth in our animal health business. I'm pleased with the launch performance of WinRever, which is consistent with our high expectations, and remain confident in the long-term opportunity it represents for patients and for Merck. As anticipated, Results also reflect the decline in Gardasil sales year over year. Notably, however, we achieved strong double-digit growth for Gardasil in almost every major region outside of China. In China, consistent with the expectations we discussed on our prior earnings call, we shipped less to our commercialization partner, Jerfei, and we expect fourth quarter shipments will be at a similar level to the third quarter. Overall, channel inventories of Gardasil have decreased. which is directionally encouraging, while inventory at GERFE remains above historical levels. We are highly focused on this market and are making progress with GERFE to increase promotional resources and patient education efforts. We expect these efforts to translate to increased patient activation and demand, but as we've said, this will take time. Taking a step back, we're proud of the role that Gardasil is playing in helping prevent certain HPV-related cancers. There is a wide range of long-term growth opportunities around the world due to the tremendous remaining need to protect more individuals, with less than 10% of the global eligible population vaccinated and meaningful opportunities to improve vaccination completion rates, gender neutral vaccination rates, mid-adult coverage, and access in low and middle income markets. This includes in China, where there is an attractive long-term opportunity given the significant number of females yet to be immunized and the potential approval for males next year. We're highly focused on using our scale and strong capabilities to drive education and awareness of the benefits of HPV vaccination and to reach and protect more patients globally. As such, we remain confident in our goal of achieving greater than $11 billion of sales by 2030. Turning to our research efforts, we achieved important clinical and business development milestones this quarter. Starting with our clinical advancements in vaccines, we presented positive phase 2B3 results for clozrovimab, our investigational monoclonal antibody for the prevention of RSV in infants. Based on its differentiated profile and robust clinical data, we believe this opportunity is underappreciated. We're moving swiftly to make this important prevention option available in the U.S. during the 25-26 RSV season. In pneumococcal, ACIP voted to expand vaccination recommendations for catvaxiv to include adults ages 50 to 64. We're pleased to bring catvaxiv's effectiveness in protecting against invasive pneumococcal disease to this new cohort of patients, and this recommendation reinforces our confidence in its blockbuster commercial potential. In oncology, it's been 10 years since Katruta's first U.S. approval, and we remain highly focused on advancing standard of care and maintaining durable leadership in oncology. At ESMO, we presented overall survival and long-term follow-up data for Katruta, and data also were shared from our innovative ADCs, underscoring our commitment to building a broad and diverse oncology pipeline. In infectious diseases, we shared Phase II data from our collaboration with Gilead for the combination of once-weekly oral islotravir and lenacapravir for HIV treatment in treatment-experienced adults. This data represents just a portion of our broad HIV development efforts to further advance the field. In immunology, we shared positive Phase II maintenance data for our investigational TL1A candidate, Tuliso Kibart, in ulcerative colitis and Crohn's disease that adds to positive prior clinical results. Both our HIV and immunology programs address patient populations with significant remaining unmet need despite available therapies. Our investments in these therapeutic areas reflect our belief in the opportunity to deliver additional value to patients and fortify our sustainable innovation engine for the long term. Regarding business development, we continue to leverage our scientific expertise to identify promising therapeutic targets that can further broaden and fortify our pipeline. This quarter, we acquired a novel investigational bispecific T-cell engager from Curon with potential applications in both oncology and immunology, complementing our efforts in each of these areas of high unmet need. And we closed the acquisitions of iBio and the Elanco Aqua business. In summary, we remain highly focused on strong commercial and operational execution to enable access to our medicines and vaccines. We're also continuing to make strategic investments in our pipeline that we're confident will lead to important innovations for patients and future growth drivers for our company. I want to again recognize the commitment and efforts of our team across the world. Based on our continued progress, I'm more confident in our longer-term future today than I was a year ago, And I believe that Merck is even better positioned to deliver value to patients, shareholders, and to all of our stakeholders long into the future. With that, I'll turn the call over to Caroline.

Thank you, Rob. Good morning. As Rob highlighted, we delivered another strong quarter. The fundamentals of our business remain healthy, fueled by robust global demand for our innovative portfolio. This strong performance reinforces the conviction we have in our science-led strategy and in our outlook for continued growth. We remain confident in our ability to consistently deliver strong results in the short term while we make disciplined investments in leading-edge science, which positions us to generate lasting value for patients, customers, and shareholders. Now turning to our third quarter results. Total company revenues were $16.7 billion, an increase of 4%, or 7%, 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%, primarily driven by oncology. Our animal health business also delivered strong performance, with sales growth of 11%. turning to the performance of our key brands. In oncology, sales of Keytruda grew 21% to $7.4 billion. Global growth was driven by increased uptake from earlier stage cancers and continued robust global demand from metastatic indications. In the U.S., Keytruda grew across a broad range of tumor types. In the earlier stage setting, the largest driver was increased use in resectable non-small cell lung cancer. Keytruda's market leadership continues to grow as part of a treatment regimen in the perioperative setting, building on its existing leadership position as adjuvant therapy. In metastatic disease, we saw increased uptake in first-line advanced urothelial cancer based on Keynote A39. Keytruda Plus PADSES continues its leadership in new patient starts, outpacing platinum chemotherapy-based regimens. Outside the U.S., Keytruda growth was driven by increased uptake in earlier-stage cancers, including high-risk early-stage triple-negative breast cancer, as well as continued demand from patients with metastatic disease. Inflation-related price increases, consistent with market practice in Argentina, also contributed to growth. Limpaza Alliance revenue grew 13% driven by increased global demand. Lenvima Alliance revenue declined 4% due to the timing of shipment last year. Relireg sales more than doubled to $139 million driven by increased uptake in certain patients with previously treated advanced renal cell carcinoma in the U.S. In vaccines, Gardasil sales were $2.3 billion, a decrease of 10%, driven by a decline in China. In the U.S., sales benefited from CDC purchasing patterns, as well as price and demand. Outside the U.S., sales increased by double digits in almost every region, driven by robust demand. In New McCockle, VaxNuVance sales increased 13%, to $239 million, driven by ongoing launches in international markets. We are also excited by the recent launch of Capvaxib, which is off to an encouraging start. In cardiovascular, the launch of Winrevere continues to gain momentum, with global sales of $149 million. In the U.S., we have seen steady progress in adding new patients. During the quarter, approximately 1,700 new patients received a prescription, bringing the total number of new patient prescriptions to more than 3,700 since launch. Based on our experience to date, approximately 80% of those patients will receive commercial product. Given this and the approximate one-month timeframe to complete the steps to commence therapy, more than 2,600 new commercial patients have started treatment since launch. We are seeing physicians prescribe WinRever to more of their patients, and new physicians prescribe the product. Through the end of September, nearly 800 physicians have written at least one prescription, with most prescribers coming from either large academic centers or larger private practices. Physicians are continuing to prioritize the sickest patients who have already been receiving multiple PAH therapies. We are also making important progress in enabling access. We have achieved coverage for approximately 60% of lives, nearly doubling the amount from last quarter. Many payers have established coverage policies consistent with the label or stellar study criteria. Outside the U.S., initial feedback from scientific leaders has been positive following the recent EU approval. We are pleased that the first patients in Germany have received a prescription for WinRever. We look forward to securing reimbursement in other European countries, which typically takes 12 months, as well as launching in other international markets. In summary, we are excited with the continued progress of the launch and look forward to positively impacting more patients with pulmonary arterial hypertension. Our animal health business delivered strong growth, with sales increasing 11%. Companion animal sales grew 17%, driven by uptake from new product launches, including the long-acting Brevecto injectable in certain international markets. as well as price. Livestock sales grew 7%, reflecting higher demand for poultry and swine products, the inclusion of sales from the recently acquired Acqua portfolio from Milanko, which closed in mid-July, and price. I will now walk you through the remainder of our P&L, and my comments will be on a non-GAAP basis. Growth margin was 80.5%, an increase of 3.5 percentage points, driven by reduced royalty rates for Keytruda and Gardasil, as well as favorable product mix. Operating expenses increased to $8.5 billion, including $2.2 billion of charges related to the acquisition of iBio and a promising candidate from Curon. Excluding these charges, operating expenses grew 9%, reflecting strategic investments in support of our innovative early and late phase pipeline and key growth drivers. Other income was $193 million, which includes a payment of $170 million from Daiichi Sankyo related to the collaboration for our T-cell engager. Our tax rate of 21.9% includes an unfavorable impact from the iBio and Curon transactions. Taken together, earnings per share were $1.57. Now turning to our 2024 non-GAAP guidance. The continued operational strength of our business has enabled us to narrow our full-year revenue guidance. We now expect revenue to be between 63.6 and $64.1 billion. This guidance range represents strong year-over-year growth of 6% to 7%, including an approximate 3 percentage point negative impact from foreign exchange using mid-October rates. Our growth margin assumption remains approximately 81%. We expect operating expenses to be between $27.8 and $28.3 billion. which now includes the $750 million one-time charge related to the asset acquisition from Curon. As a reminder, our guidance does not assume additional significant potential business development transactions. Other expense is now expected to be approximately $100 million, including the benefit of the $170 million payment from Daiichi. Our full year tax rate is expected to be between 16% and 17%, which includes an unfavorable impact related to the Turon transaction. We assume approximately 2.54 billion shares outstanding. Taken together, we expect EPS of $7.72 to $7.77. This range includes a negative impact from foreign exchange of approximately $0.30 using mid-October rates. Recall, our prior guidance range was $7.94 to $8.04, including the one-time charge of $750 million, or $0.29 per share, related to the asset acquisition from Curon, and the $170 million, or 5 cent per share, benefit from the payment from Daiichi, our prior guidance range would have been $7.70 to $7.80, with a midpoint of $7.75. Therefore, our current guidance midpoint is unchanged. Now turning to capital allocation, where our strategy remains the same. We will prioritize investments in our business to drive near and long-term growth. We will continue to invest in our key growth drivers and expansive pipeline of novel candidates, each of which has significant potential to address important unmet medical needs. We remain committed to our dividend with the goal of continuing to increase it over time. Adding compelling science through business development remains a priority and we are well positioned to pursue additional value enhancing transactions. We will continue to execute a modest level of share repurchase. To conclude, as we finish the year, we are confident in the momentum of our business, underpinned by robust global demand for our innovative medicines and vaccines. Our unwavering dedication to leverage compelling science to save and improve the lives of the patients we serve has put us in a position of financial and operational strength. Our commitment to bring forward important innovation will enable us to deliver value to patients, customers, and shareholders well into the future. With that, I'd now like to turn the call over to Dean.

Thank you, Caroline. We have continued to execute on our strategy of diversifying in oncology and expanding into new therapeutic areas. while also investing in novel modalities and technologies. The third quarter was marked by several important clinical and regulatory milestones. I will first cover infectious diseases, then oncology, and conclude with updates on the broader portfolio. As Rob noted, last week ACIP voted to update the adult age-based pneumococcal vaccination guidelines and recommend the use of cabaxib our 21-valent pneumococcal conjugate vaccine for individuals 50 years and older. CABACCIP is specifically designed to cover serotypes responsible for the majority of invasive pneumococcal disease and includes serotypes responsible for approximately 84% of cases of IPD in adults 50 and older based on national-level CDC data from 2018 to 2022. Building on our company's proud legacy in infectious diseases, detailed findings from a pivotal Phase 2B-3 clinical trial evaluating clasrobimab, our investigational respiratory syncytial virus preventative monoclonal antibody for the protection of infants entering their first RSV season, were presented at ID Week. Clasrobimab, administered as a single-dose immunization to healthy preterm and full-term infants, regardless of weight, met all trial endpoints with consistent results through both five-month and six-month time points. The incidence of adverse events and serious AEs were comparable between treatment and placebo groups, with no treatment or RSV-related death. As shown in the summary tables in the data press release, clozrobimab immunization is being studied across mild, moderate, and severe RSV disease endpoints. Importantly, clozrobimab significantly reduced the incidence of RSV, the primary endpoint, and hospitalizations associated with RSV infections through five months by more than 84%, the secondary endpoint. It was also observed that clasrobimab reduced RSV lower respiratory infections by more than 90% through five months, the tertiary endpoint. Positive results were also presented from an interim analysis in a separate phase three study evaluating the safety and efficacy of clasrobimab versus palazizumab in infants and children at increased risk for severe RSV disease. If approved, Clasrobimab will be the first and only immunization designed to provide infants with direct, rapid, and durable protection for the full six-month RSV season with the convenience of one dose, regardless of weight or month of birth. Also at ID Week, positive data were presented from the Phase II study of the combination of Islotravir and Lenacapavir. Gilead's HIV-1 capsid inhibitor as a once-weekly oral treatment option for people living with HIV. The 48-week results build on the positive 24-week data previously presented. These findings reinforce the strength of our HIV pipeline as we evaluate multiple promising candidates in preventative and treatment settings. Next, to oncology. Katruda continues to raise the bar in treating earlier stages of disease. In the earlier stage setting, Katruda is the only PD-1 or PD-L1 to date to receive FDA approvals for nine indications and is the only one to demonstrate a significant overall survival benefit in four earlier stage settings, non-small cell lung cancer, renal cell carcinoma, cervical cancer, and triple negative breast cancer. And, as Caroline spoke to, we continue to see strong patient impact. Keytruda-based regimens have demonstrated positive results across 13 pivotal trials in eight tumor types. We look forward to building on the data in the earlier stage setting. We recently announced positive top-line results for the Keynote 689 trial. evaluating Keytruda as a perioperative treatment for patients newly diagnosed with stage 3 or 4A resected locally advanced head and neck squamous cell carcinoma. The trial met its primary endpoint of event-free survival and demonstrated an improvement in major pathological response, a key secondary endpoint. This is the first positive trial to show a statistically significant benefit of neoadjuvant plus adjuvant anti-PD-1 treatment for newly diagnosed patients with resected, locally advanced, head and neck squamous cell carcinoma in 20 years. Results will be submitted to regulatory authorities, and if approved, would mark the 10th indication of a Keytruda-based regimen for the treatment of earlier stage cancer. On the regulatory front, We received FDA approval for Keytruda in combination with pemetrexate and platinum chemotherapy for the first-line treatment of adult patients with unresectable advanced or metastatic malignant pleural mesothelioma based on results from the Keynote 483 study. This brings the number of distinct FDA-approved indications for Keytruda to 41. The European Commission approved three Keytruda-based regimens, which include in combination with Pfizer's PASIF, a Nectin-4 targeting antibody drug conjugate for the first-line treatment of adult patients with unresectable or metastatic urothelial carcinoma based on the Keynote A39 study, in combination with carboplatinum and paclitaxel for the first-line treatment of primary advanced or recurrent endometrial carcinoma, and in combination with chemoradiotherapy for the treatment of FIGO 2014 stage 3 to 4A locally advanced cervical cancer in adults who have not received prior definitive therapy based on Keynote 868. Katruta was also approved by the Japanese Ministry of Health for three indications. In combination with Pfizer's PADCF, a Nectin-4 targeting antibody drug conjugate for the first-line treatment of adult patients with radically unresectable urothelial carcinoma, based on the Keynote A39 study. For patients with radically unresectable urothelial carcinoma who are not eligible for any platinum-containing chemotherapy, based on Keynote 052, as well as in combination with chemotherapy as neoadjuvant treatment, then continued as monotherapy as an adjuvant therapy for patients with non-small cell lung cancer based on findings from Keynote 671. At the European Society for Medical Oncology Congress, three presentations for CATRUDA were showcased during presidential symposium sessions. These include overall survival data from the Keynote 522 trial in high-risk early stage triple negative breast cancer, overall survival data from the Keynote A18 trial in patients with newly diagnosed high-risk locally advanced cervical cancer, and 10-year follow-up overall survival data from the keynote 006 trial showing the long-term benefit over ipilimumab in patients with advanced melanoma. And finally, in oncology, we continue to advance our increasingly diverse pipeline, including our efforts to evaluate the potential of new combination regimens to improve patient outcomes. Earlier this month, we announced a clinical development collaboration with Exalexis for their investigational tyrosine kinase inhibitor, Xantilidonib, which will be evaluated in combination with Catruda for the treatment of patients with head and neck squamous cell carcinoma and with Wellerig for the treatment of patients with renal cell carcinoma. In collaboration with Daiichi Senkyo, we initiated ID8 Lung O2, a phase three trial evaluating nifinitumab, Durextacan, a B7H3-directed antibody drug conjugate for the treatment of patients with relapsed small-cell lung cancer. We also expanded our agreement to evaluate the combination of IDXD with MK6070, an investigational delta-like Ligand3-targeting T-cell engager. Evidence from clinical studies for each candidate provides strong rationale for evaluating this combination regimen. Next, to our broader portfolio. As Caroline mentioned, we were pleased to receive approval from the European Commission for Winrever, expanding the reach of this treatment option, which we believe has the potential to transform the treatment journey for patients suffering from pulmonary arterial hypertension. In Immunology, 50-Week Efficacy and Safety Data for Thule-Soki Bark Our investigational humanized monoclonal antibody directed to tumor necrosis factor-like cytokine 1A from the Phase II Artemis UC and Apollo CD studies in ulcerative colitis and Crohn's disease were presented at the United European Gastroenterology Week Congress. The results reinforced the potential of Tuliso Key Bark to help patients achieve long-term clinical remissions. The Phase III trials continue to actively enroll patients. Finally, in ophthalmology, soon after completing our acquisition of iBio, we initiated the Phase IIb-3 Brunella trial for MK3000, an investigational tetravalent trispecific antibody that acts as an agonist of the wingless-related integration site signaling pathway being evaluated for the treatment of diabetic macular edema. We are executing on our one pipeline approach, augmenting and complementing our internal programs through business development. Recently, we completed the acquisition of CN201, a novel CD3, CD19 T-cell engager now known as MK1045 from Curon Biopharmaceutical. MK1045 has shown to significantly deplete B-cell levels with potential applications in B-cell malignancies and autoimmune diseases. As with our previous acquisitions, we plan to seamlessly advance clinical development with rigor and speed. In closing, during the quarter, we saw a regular cadence of late-phase pipeline advancements, including regulatory milestones and data readouts. We continue to make progress across therapeutic areas, and I look forward to providing further updates on our programs in 2025. And now, I turn the call back to Peter.

Thank you, Dean. Surely, we're now ready for Q&A. If the analysts today could limit themselves to one question, it would be appreciated so we can get as many analysts on the call as possible. Thank you very much.

Ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone keypad. You may withdraw your question by pressing star 2. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, you may press star 1. And one moment please for our first question. Our first question comes from Chung Nguyen with UBS. Your line is open. You may ask your question.

Thanks for taking my question. Just on Gardasil, given the inventory levels remain elevated, You've noted this declining demand. How should we think about dynamics as we head into 2025, given that increase in promotional activity, but that's balanced by the inventory work down? Will you take time, or do you have any color on when we'll see an inflection to that returning growth? Thank you.

Great. Thanks for the question. Obviously, we're very focused on Gardasil and China, but maybe just to step back for a second, And we continue to be very proud of the contribution that Gardasil is making for patients and people around the world to really address and hopefully eliminate long-term cervical cancer as well as other HPV-related cancers. So that important work will continue. And importantly, as we commented in our prepared remarks, while China did decline, and I'll speak to China in a second, Overall, we saw strong double-digit growth in really nearly every other region around the world, which is showing the progress we're making and which is why we continue to have such confidence in the long-term potential for this. But as it relates to China specifically, and as we think about 2025, I don't want to give specific guidance because obviously we're still working through our 2025 plan, but what I would say is is we do expect to continue to see a decline in shipments into China into 2025. And as we had highlighted before, this is happening a little bit earlier than we originally expected, but we had always expected that over time, as we work through the bolus, we would see the female opportunity decline, and then hopefully seeing growth come with bringing the male opportunity, which we would expect to see with approval, assuming it comes next year. So that's how we see it progressing. So as we think about 2025, we see China really in the $2 to $3 billion range as far as an opportunity for 2025 and for the next several years with the opportunity in males really being the growth driver. And at that level, we would expect for overall Merck that you're going to continue to see based on the portfolio we have solid growth. So I think that's Just important to kind of frame where we're seeing things, but understanding we're focused on this, we're bringing our efforts to drive demand, and we're going to make progress. We are making progress, but it's going to take some time.

Great. Thanks, Trang. Next question, please, Shirley.

Thank you. Our next question comes from Vamil Devan with Guggenheim Securities. Your line is open. You may ask your question.

Hi, good morning. This is Edward on from Guggenheim. Just on wind revere, what are you seeing in terms of safety since it's been rolled out commercially? Any sense of how many patients are on the low dose versus the high dose? And then estimate of what percent of patients need to have their dose reduced or stopped due to the safety issues? Thank you.

Yeah, I'll maybe let Dean start. From the safety issue perspective, we haven't had any profound or important signals at all in relationship to the patients that we've been serving. So that has not been an issue to date in the patients that have gotten wind revere. But more broadly?

Yeah, so just to give you a sense of what we're seeing in the marketplace, as we said in the prepared comments, we are seeing the sickest patients being predominantly about 80% of the patients we have today. So those would be people on triple therapy. And as we're looking at the kits being used, we're still predominantly seeing use of single vials, not double vials, as we're still bringing a lot of people onto therapy. Remember that when a patient starts therapy, they start on a single vial, and then they would transition either to maintaining on single or going to double, depending on their weight over time. So we expect to see, as we saw with Stellar, that you would end up with about two-thirds of patients would be on the single vial and about one-third of patients on the double vial. Right now, it's a little bit more skewed towards single, but we expect it still to get there over time. And importantly, on your broader question, Dean gave one sense about where we see safety. I think the best real-world statement around safety, we're seeing very strong adherence and really seeing less discontinuations than we expected. So the anecdotal information we're getting from the marketplace as far as the real world experience, I would say is said that safety is not an issue.

Great. Shirley, next question, please.

Thank you. Our next question comes from Louise Chen with Cantor. You may ask your question. Hi, thanks for taking my question.

I wanted to ask you about your outlook for 2025, what the major puts and takes are, and when do you plan to give that guidance? Thank you.

Yeah, I'll turn it over to Carolyn for that.

So Louise, we plan to give our guidance with the fourth quarter earnings as we ordinarily do. But if I give you a sense of the overall pushes and pulls, if I start with 2024, it's been a really strong year for our company. As we've noticed, we expect to deliver 6% to 7% growth while we're investing in and really driving our pipeline and have delivered strong underlying operating margin improvement. As we look to 2025, We expect solid growth for our business. And the key opportunities that we have is the continued impact for Keytruda, especially in earlier stage cancers. But the tumor types we would call out would be early stage non-small cell lung cancer. We've got great opportunity in women's cancers, including early stage triple negative breast, but also endometrial and cervical cancer. And of course, bladder cancer is a real opportunity for growth. We are confident where we are with WelliReg and the opportunities there to continue to see strong performance and impact for patients. And of course, we have the recent and upcoming launches. That includes WinRever, where we have high expectations for growth. It includes catfaxes, where we expect to get a majority share over time. And it also includes the opportunity for the launch of clesrovimab in RSV ahead of the 25-26 season. And as we noted, animal health is a strong contributor to growth, and we expect that to continue into next year. We have a few headwinds. One is the expiration of our agreement with J&J for the immunology products, Remicade and Symphony. And as Rob noted, we do expect sales of Gardasil in China to decline in 2025 compared with 2024. However, all of that said, we're very confident in the opportunity to drive solid growth for our business in 2025 while we invest fully behind our expansive pipeline, invest in the commercial activities to ensure excellence in the marketplace, and expect to deliver operating margin expansion.

Thanks, Louise. Next question, please.

Thank you. And next question comes from Chris Shibutani with Goldman Sachs. Your line is open. You may ask your question.

Thank you very much. The capital allocation opportunity is something that you have been very consistent about providing us updates given some of the push-pulls in the business, in particular vulnerability with Gardasil, I think you have capacity and you have also mentioned interest in certain areas, I would note, with obesity. Can you update us on where you are with your appetite, scale, therapeutic area, anything that would give us insight into your ability to use that as a lever to help perhaps offset some of this uncertainty tied to Gardasil? Thank you.

Yeah, no, Chris, thanks for the question. Obviously, I feel very good about the business development we've done, including some of the transactions that Dean just highlighted in the prepared remarks. And we're going to continue to look to do more. So while we feel good about where we are, and actually as I made a comment in the prepared remarks, we have more phase three assets now than we had. We've more than tripled it from where we were three years ago with more than 20. So we have a lot there, but we need to add more. And we're looking across all therapeutic areas. Our approach remains where it's always been, which is we start with the science and where we see a scientific opportunity that addresses an unmet need and where we think Merck can strategically play. If we see that align with value, we will act. As it relates to obesity, our goal and strategy there continues to be focusing on the second and third generation opportunities in that space. We've talked in the past thinking more of a focus on oral opportunities and those that can be, in combination, focused on outcomes that go beyond just obesity but to actually medical outcomes. So we continue to look, but we're going to be disciplined, and if we don't see something where we think it makes sense from a value perspective and a strategy, we won't move. Beyond that, I would say you should continue to see us look in areas of oncology, immunology, and broader cardiometabolic. All the places where we're playing today are areas where we continue to look for opportunities down the road. From a capacity perspective, just to be clear, we continue to think we have capacity, frankly, to do pretty much anything of any size, but our focus area continues to be mainly in that $1 billion to $15 billion range.

Great. Thanks, Chris. Next question, please.

Thank you. And this question comes from Dana Graybush with LeeRank Partners. Your line is open.

Yeah, can you talk a little bit more about the pneumococcal opportunity? What do you think is the incremental market size from the expansion down to age 50? And is there anything you're looking for in the MMWR language when they publish that recommendation that would drive more or less share to Cabaxi versus the competitors?

Yeah, maybe Dean, do you want to start and we can jump in?

Yeah, I mean, I think it was interesting to watch the ACIP, their balancing how to make the best recommendations. And we should just remember, we have a 21-valent vaccine that gives 85% adult protection. That was very clear. And there is a competitor who has a 20-valent that has a 54% adult protection. And I think that was very clear at the ACIP. And I would just remind myself that previously when they thought about doing the 50 to 64, just with the 20 valent, there was a decision not to proceed. And I really do think the health economic data and the data that we showed for the 21 valent, given it's 85% versus 54% is what drove them to finally move and address a really important need, which is the health equity issues in relationship to a pneumococcal vaccination by lowering it to 50 to 64 and lowering it for everyone. but in terms of the dynamics in the market?

So in terms of the commercial opportunity we have, given the strength of the data that Dean has just shared, we feel very confident in our opportunity. And to remind in terms of the number of patients in the United States, there's around 120 million people over the age of 50. 60 million of those are in the 50 to 64 age group, which now, given the ACIP recommendation, provides a tremendous opportunity for us to activate that patient cohort to go and get this vaccine, as well as the group that sit above the age of 65, given the strength of our data. So we are ready, we have supply, and we're looking forward to ensuring that we can protect as many people as possible.

Great. Thanks, Dana. Next question, please, Shirley.

Thank you. Our next question comes from Chris Schad with JP Morgan. You may ask your question.

Great. Thanks very much. Just another one on Gardasil. Rob, I believe you said kind of a $2 billion to $3 billion per year opportunity for China over the next few years. Just a couple of quick ones there. First, what does that compare to where China is going to shake out for Merck this year? And is that $2 billion to $3 billion number what was reflected in the $11 billion longer-term target? Thanks so much.

Yeah, so to give you just a sense of where we are, and we don't normally give product-level guidance or specifics on a quarterly basis, but given the importance and focus on Gardasil, just to give you a sense of where we were with China Gardasil in the third quarter, it's about approximately $500 million in the third quarter. And as we said, we would expect to ship about the same amount into the fourth quarter. So you should expect that the fourth quarter itself would also be in that $500 million range. And so that kind of gives you a sense of where we are. So as you look forward to 2025, obviously, as we think in 2025 and over the next several years, if you're running in that $2 to $3 billion range, that's why we made the comment that with that and given the other opportunities we see around the world, we remain confident in our ability to get to the $11 billion by 2030. So we are contemplating that $2 to $3 billion over the next several years in China as the contribution that it would make to get us to where we need, understanding also that long term, we do expect to be able to have the potential for growth driven by the mail opportunity in China and then obviously continuing to drive more broadly around the rest of the world.

Great. Thanks, Chris. Next question, please.

Thank you. And this question comes from Terrence Flynn with Morgan Stanley. You may ask your question.

Great. Thanks so much. Maybe just one question and one clarification. Just on the Gardasil side, Rob, that's the $2 to $3 billion includes the males or it does not include the males? Sorry, it was a little unclear based on the last response. And then Obviously, next-gen IO remains a big focus for both Merck and the industry. I know, Dean, you talked a lot about some of the efforts Merck has made on this front. We'd just be curious to get your perspective on the PD-1, PD-L1 VEGF by specifics. Obviously, there's some data emerging out of China there. Just, you know, any thoughts on that data and where that might fit from a competitive landscape perspective or if that's a target Merck has considered at all. Thank you.

Yeah, so I'll take the first part of that question, Terrence. So the answer is yes, the $2 to $3 billion over the next several years does include male, but we have the opportunity, as you look longer term, to drive growth with that opportunity. That was really the point we were trying to make.

In relation to your question in relationship to the vascular endothelial growth factor pathway, it is an important axis. There's been a lot of data in that. It's not just the most recent data. You know, Merck has made a substantial investment in that pathway. Our collaborations with ACI and Exalexis is along that pathway. It's PD-1, in this case with the VEGF RTK inhibitors. Other companies have taken their PD-L1 and added to, for example, Avastin. And I would just emphasize our interest in HIF-2-alpha is also related to vascular endothelial growth factor. In relationship to the specific question about Summit, that deep expertise that has developed in that VEGF. I think it's really important for all of us to watch carefully, and we are watching carefully, the ability to turn PFS into OS. The other issue is that in China, the health system is a little bit different as to how they treat individuals, but also the patients here are also different in terms of their responsiveness to VEGF. I would also emphasize that The experiment that was done in China is an experiment that we would be unable to do, for example, in the United States. We would not be able to compare a new combo against Keytruda monotherapy in the PD-L1 1 through 49% PD-L1. That's something we would not be able to do because in that situation, the comparator is not monotherapy, but it's 189, Keynote 189. But broadly speaking, combos will be important. Combos to deepen it, to go earlier stage will be important. I think vascular endothelial growth factor pathways are important. INT will be important. RAS will be important. ADCs will be important. And all of those readouts will come some before 2028, some around 2028, and some will happen after 2028. Great. Thanks, Terrence. Next question, please, Shirley.

Thank you. Our next question comes from Carter Gold with Barclays, your line is open.

Good morning. Thanks for taking the question. I appreciate all the Gardasil color. Maybe on Wynne-Rivera, can you comment on the impact of stocking in the quarter? And I'm trying to also kind of square, Rob, some of your comments around sort of, you know, the efforts to work through those sickest patients, kind of maybe help, you know, frame for us kind of how far you're along sort of that initial bolus of patients, those later line patients within the stellar label. Thank you.

So Carter, in the quarter, over 80% of the revenue is to support demand. And so a very small level of inventory build. And we'd expect inventory dollars to build over time, given the growth that we expect in the product. In terms of the patients that are being prescribed the product, as Rob noted, a large portion, it's actually about 80% of the patients, are on background triple therapy or in combination with the prostacycline. So we're making really good progress in that segment. At the same time, a large number of the physicians have prescribed Winrevere now to patients that are not on a prostacycline background therapy, which gives us confidence for the ability to move to the patients who are more dual therapy over time. And we remain confident in the opportunity in line with our high expectations here to benefit patients and to drive significant commercial benefit for our company.

Thanks, Carter. Next question, please, Shirley.

Thank you.

And this question comes from Uma Rafat with Evercore ISI. You may ask your question.

Hi, guys. Thanks for taking my question. I wanted to focus on Gardasil just a little more. That was very helpful commentary, Rob. You mentioned $500 million in sales in 3Q and 4Q to China. which obviously is 2 billion run rates. My question is, was that shipping to demand? Because if so, what that means is inventory sitting at your face is still something that would need to be worked down in 2025, as well as possible 9-valent generic entry, sorry, 9-valent local competition entry in 2025 as well. How do you factor those two dynamics into thinking about the 2025 number of 2 to 3 billion China? Thank you.

Yeah, so if you look at what's happening in the overall marketplace, and just to give you a sense, from an inventory perspective, maybe starting there, if you look at overall inventory levels in China, they did come down. And that's taking into account, and this is for Gardasil, Gardasil at Jerfay, which frankly remains high and grew slightly. But that was more than offset by reductions in the CDCs and the points of vaccination. So that's a good sign that we're seeing overall inventories coming down, which also would point to the fact that As we're looking at demand, which we're seeing stabilize, we think we're at a position now where as we're starting to talk about what we're shipping, our expectation is we are shipping below demand. So we have been working very constructively with GERFA to think about this, both as what we're doing this year, as frankly, as well as we're continuing to have constructive dialogue around 2025. would be to balance the need to get product into the marketplace to meet the demand, at the same time allowing for Jerfay to bring down their inventories over time. So we're very thoughtful in how we're thinking about it, and we've done that taking into account our expectations of both the female competitive launch that could come next year, but also the opportunity that a male approval early next year could allow us to have. So although those factors are in, as we think about that $2 to $3 billion number.

Great. Thanks, Umar. Perhaps two more questions.

Thank you. Our next question comes from Steve Scala with TD Cowan. Let me ask your question.

Thank you very much. I mean, all things considered, is it still possible to see global Gardasil growth in 2025? And Rob, you noted at the start that recovery in China will take time. But it sounds like you have good visibility now because you're giving this two to three billion dollar guidance for Gardasil in China. So I'm unclear what it is that we're waiting for. Thank you.

Well, what we're talking about taking time is basically to work down the inventory and to then build demand over time so that we can continue to drive that market. What we're giving you is kind of what we see as the baseline of China, our hope is is that we'll do better, and we're going to put the work in to do better and to continue to drive long-term. I think that what I'm trying to make sure everyone hears is this isn't going to be solved next quarter. It's going to take us through probably 2025, but we're thoughtful in how we're doing it. We're working with JIRFE in a constructive manner to do it. So those are the elements that are going to take time because we need to build the demand. We know the opportunity is there with 120 million females still out there to go after, and with potentially 200 million males with the male opportunity. We have to activate that demand to make sure we can drive that business. So that's really what we're focusing on. As far as it relates to Gardasil for 2025, you know, I don't think we really want to get into giving product line guidance right now. We were very specific to China because of the concerns that were there, and I wanted to make sure you know that we see followed overall growth for Merck because that's important to have context. But beyond that, we normally wouldn't be giving guidance at this point in time.

Great. Thanks, Steve. Last question, please, Shirley.

Thank you. And that comes from Mohit Pinzel with Wells Fargo. You may ask your question.

Great. Thank you very much for taking my question. My question is regarding V940 in lung cancer. I see that you have started Phase III trials. Could you please help us understand what kind of data you have seen in earlier stages, which makes you move into phase three. I don't think we have seen a lot of data from our side here. Thank you.

Yeah, so this is Dean. I would just emphasize, and I was trying to sort of lay the foundation during the prepared remarks. I would just recognize that in earlier stage, we have nine approvals and four with OS. That basis allows us to drive curative setting combos in a way that is that is advantageous for the patient and also often uniquely an ability for us. And the specific study that you're, I think, referring to is the announcement with our partners Moderna of going in lung cancer. Specifically, that one is built around Keynote 671, which has an OS benefit and is approved. But the interesting thing is in the sort of neoadjuvant or perioperative followed by surgery, there becomes a situation where we can discern who has a pathological complete response and who doesn't have a pathological complete response. And that patient population that does not have a pathological complete response, there is the need and our ability to provide other combinations in that space And that is where we're driving the INT in that situation in lung cancer.

Great. Thanks, Mohit. And thank you all for your good questions today. And as always, we're available for follow-ups. Please reach out when you want. Take care. Thank you very much.