Merck & Co., Inc. Q2 2003 Earnings Conference Call Insights

Key highlights from Merck & Co., Inc. (MRK) Q2 2023 Earnings Concall

Management Update:

• [00:18:54] MRK said it will continue to prioritize investments in its business and growing pipeline to drive near and long-term growth across its portfolio.

• [00:18:02] The company expects strong YoY growth of Keytruda in 2023, but not quite at the levels experienced in recent quarters as a result of lapping launches and the impact of continued pricing headwinds.

• [00:18:35] MRK said the pace of growth of Gardasil is expected to be higher in 2023 than 2022, but the rate of second-half growth is anticipated to be below the first half, due in part to the timing of shipments to China.

• [00:19:27] MRK expects to execute a modest level of share repurchases this year.

Q&A Highlights:

• [00:31:55] Jeff Meacham with Bank of America asked how important is it for MRK to get more companies to join the IRA suit, and what are the key milestones to watch for this fall. Rob Davis CEO replied that the company believes that the IRA’s negotiation provision is unconstitutional and bad policy, and is taking the case to the fullest extent possible, including the Supreme Court. The case is likely to take several years to resolve.

• [00:34:31] Mohit Bansal at Wells Fargo enquired about the impact of the one-time items mentioned for Gardasil in China and Keytruda in the U.S. on MRK’s revenue. Caroline Litchfield CFO said Keytruda had strong sales growth in 2Q, driven by demand across all indications. However, some of the growth was due to wholesaler buy-in, which is expected to be reversed in 3Q. Despite this, MRK expects strong growth from Keytruda in the future.

• [00:36:27] Louise Chen of Cantor queried about the trial designs for the Phase 3 clinical trial of Prometheus, including the timeline and whether it will be expanded to other indications besides IBD. Dean Li President said MRK is targeting the start of Phase 3 trials for MK-7240 (TL1A) for ulcerative colitis this year. The integration with Prometheus has gone well, and MRK will adjust the plan as more data comes in for other diseases.

• [00:42:29] Akash Tiwari with Jeffrey asked if MRK has any plans to build out its immunology business through M&A, and how does the company view the potential of FcRn inhibitors in this space. Rob Davis CEO said that MRK has a limited presence in immunology, but it is well-positioned to grow in this area through its existing capabilities and recent acquisitions.

• [00:45:01] Chris Shaw at JP Morgan enquired if the expected moderation in Keytruda growth in 2H is due to incremental EU price pressures or a continuation of pressures seen in 1H. Caroline Litchfield CFO replied that MRK expects continued price pressure in Europe for Keytruda, but is confident in the continued growth of the drug due to volume growth and new indications.

• [00:45:29] Chris Shaw with JP Morgan also asked about MRK’s M&A priorities after the acquisition of Prometheus, and should it expect a pause in activity or continued dealmaking. Rob Davis CEO answered that MRK is confident in its internal pipeline and recent business development deals, but will continue to be active in M&A if and when assets that bring important scientific opportunities present themselves.

• [00:48:08] Dana Graybush of Leerink Partners asked how much remaining headroom does MRK see for Keytruda growth in early-stage cancer markets, both in the U.S. and internationally. Rob Davis CEO replied that MRK sees significant headroom for growth in Keytruda in early-stage cancer markets, both in the U.S. and internationally. The company is focused on expanding the use of Keytruda in these markets, and has several promising new indications in the pipeline.

• [00:50:42] Tim Anderson with Wolfe Research asked about the role of the Trop2 biomarker, particularly regarding whether higher expression predicts better response, and does MRK plans to include it as a stratification factor in any upcoming phase 3 trials. Dean Li President said MRK is focused on developing Trop2 as a first-line treatment for metastatic non-small cell lung cancer, but it will need to show a meaningful benefit over Keytruda plus chemo in order to displace the standard of care.

• [00:52:58] Chris Shibutani with Goldman Sachs enquired about MRK’s expectations for the potential label for sotatercept, and what secondary endpoints could be meaningful from a commercial standpoint. Dean Li President replied that the label for sotatercept in the U.S. will follow the Stellar trial results, which include time to clinical worsening and death. This may affect the speed with which international markets adopt sotatercept.