Merck’s (MRK) CEO Ken Frazier on Q2 2014 Results – Earnings Call Transcript

Source: Seeking Alpha

Merck & Co., Inc. (NYSE:MRK)

Q2 2014 Earnings Conference Call

July 29, 2014 08:00 AM ET

Executives

Joseph Romanelli – VP of IR

Ken Frazier – Chairman and CEO

Rob Davis – CFO

Adam Schechter – Head of Global Human Health

Roger Perlmutter – Head of Merck Research Labs

Analysts

John Boris – SunTrust Robinson Humphrey

Colin Bristow – Bank of America Merrill Lynch

David Risinger – Morgan Stanley

Jami Rubin – Goldman Sachs

Mark Schoenebaum – ISI Group

Tim Anderson – Sanford Bernstein

Seamus Fernandez – Leerink

Marc Goodman – UBS

Alex Arfaei – BMO Capital Markets

Jeff Holford – Jefferies

Vamil Divan – Credit Suisse

Steve Scala – Cowen

Chris Schott – JPMorgan

Operator

Good day everyone, and welcome to Merck’s Second Quarter 2014 Earnings Conference Call. Today’s call is being recorded. At this time I’d like to turn the call over to Joseph Romanelli, Vice President of Investor Relations. Please go ahead.

Joseph Romanelli – VP of IR

Thank you, Jacky and good morning everyone. We’d also like to say good afternoon and good evening to everyone listening outside the United States. Welcome to Merck’s second quarter 2014 conference call. Before I turn the call over to Ken, I want to point out just a couple of items.

First of all there are a number of items in the GAAP results, such as acquisition-related charges, restructuring costs, and certain other items. You should note that we have excluded those items in our non-GAAP reconciliation tables and you can see them in our press release in table two. This will give you a better sense of our underlying performance.

There are three tables in the press release. The first table provides the GAAP results. Table number two reconciles our GAAP P&L to the non-GAAP results for the first quarter and table three provides the sales performance for the company’s business units and our products both on a reported basis and excluding exchange. During the call we will be referring to table two when we discuss the P&L and table three when we talk about revenue performance.

Finally I would like to remind you that some of the statements 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 based upon Merck’s current beliefs and are subject to significant risks and uncertainties.

If underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements. The company’s SEC filings, including Item 1A in the 2013 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 forward-looking statements made this morning. Merck undertakes no obligation to publicly update any forward-looking statement. Our SEC filings can be found on the website at merck.com and you can also find our earnings release and all the tables there as well.

Now this morning, I’m joined by Ken Frazier, our Chairman and CEO; Rob Davis, our CFO; Adam Schechter, Head of Global Human Health; and Dr. Roger Perlmutter, Head of Merck Research Labs. So with that I like to introduce Ken Frazier. Ken?

Ken Frazier – Chairman and CEO

Thank you, Joe. Good morning everyone, and thank you all for joining the call today. Our performance this quarter reflects our continuing progress towards transforming Merck and building a platform for future growth and innovation. Our underlying portfolio is growing and we are particularly pleased to have reported solid growth in our top five brands. We’ve now delivered a strong first half of the year which we believe positions us well to deliver on our full year non-GAAP EPS guidance. I’m excited that as we move into the second half of the year we’re preparing for a series of promising product launches and data presentation. These represent near and longer term opportunities that will allow Merck to drive value for shareholders and society. They include pembrolizumab our Anti-PD-1 Antibody. New treatment options for hepatitis C; Zontivity for post-MI or PAD patients; Sugammadex for the reversal of neuromuscular blockade; suvorexant for the treatment of insomnia; odanacatib for the treatment of osteoporosis; and V503 or 9-valent HPV vaccine. Importantly each of these candidates underscores Merck’s commitment to translating cutting-edge science into medicines and vaccines that have meaningful differentiated attributes.

Additionally, we represent the kind of innovation that while making a potentially significant difference to patients also can provide strong value to payers, providers and healthcare systems.

This quarter we further sharpened our commercial and R&D focus by continuing to rigorously prioritize our portfolio to ensure that all of our businesses have the potential to be market leaders and create value for shareholders. This approach led us to enter into an agreement with Bayer for the sale of our consumer care business for $14.2 billion and concomitantly to establish a worldwide collaboration with Bayer to develop and market, Adempas, a novel sGC modulator for the treatment of pulmonary arterial hypertension as well as other novel compounds in development.

We also entered into an agreement to acquire Idenix Pharmaceuticals and its promising portfolio of hepatitis C candidates. These candidates will both complement our hepatitis C therapies currently in development and advance our work to develop highly effective once daily oral, pan-genotypic regimen that could benefit millions of patients around the world. We remain on track to complete this acquisition in the third quarter. These transactions are in keeping with our intention to be the premier research intensive bio pharmaceutical company by focusing on our highest potential growth opportunities and augmenting our pipeline with external assets that can create value and continue to provide an industry leading return of capital to our shareholders.

In closing, as I said last quarter this is an exciting time at Merck as we prepare to commercialize the next wave of innovation coming out of our labs. This innovation represents a suite of near and longer term opportunities that will make a meaningful difference to patients, healthcare providers and payers while also creating value for our shareholders. And now I would like to turn the call over to Adam Schechter.

Adam Schechter – Head of Global Human Health

Thank you Ken, good morning everyone. This morning I will provide you with an overview of Global Human Health second quarter results. My commentary will be on a constant currency basis. Overall, sales reached $9.1 billion. Immunology, diabetes and vaccines continue to be areas of growth. However, these areas were offset by the continued impact of loss of exclusivity of several brands, product divestitures that we announced previously and the biannual price declines in Japan.

As we move through 2014, I look forward to speaking with you about our core business and also multiple launches that we are planning for including pembrolizumab, suvorexant and others. I would now like to discuss results from some of our core product areas and I will start with the Januvia franchise. Januvia franchise had sales that reached $1.6 billion and grew 2% in the quarter. Growth was driven by our international markets which represent about half of our total sales.

These markets grew 4% as a result of strong growth in Europe and the emerging markets. In the United States, sales declined 1% but volume growth continues to improve. In fact volume growth was 3% in the latest rolling four week average. We are encouraged by the volume trends that we are seeing. We expect that volume growth will continue in the U.S. over the remainder of 2014 as we defend our market share of nearly of 75% and we work to grow the DPP-4 class. Importantly, we continue to expect global sales growth of the Januvia franchise in 2014.

Moving to Isentress, sales grew 10% driven by solid performance in Europe and emerging markets and some benefits from buying patterns in the U.S. Growth outside of the U.S. remains an important driver for the brand that help offset slight volume declines we are seeing in the U.S. The START Merck study in treatment naive patients provides long term head-to-head data in our label that will help support the continued growth of Isentress.

Next, our immunology business consisting of Remicade and Simponi saw another strong quarter of growth. Sales grew 15% driven by continued strong uptake of Simponi and steady growth of Remicade despite biosimilar entry in some of the smaller EU markets.