Merck & Co. Inc. conducts its first quarter earnings conference call, with the CEO, CFO, and President of Research Labs addressing participants. The call covers GAAP vs. non-GAAP results, forward-looking statements, and risks associated with the company's financial projections.

The company has made significant progress in the year's beginning, with increased contributions from new medicines and vaccines and ongoing pipeline advancement. Key focuses include addressing global health challenges, enhancing US manufacturing, and managing potential tariff impacts, while maintaining full-year revenue and EPS guidance. Recent research efforts highlight promising data for treating pulmonary arterial hypertension and HIV, reinforcing the company's position for long-term leadership in oncology and HIV treatments.

The company has significantly expanded its late phase pipeline through internal advancements and strategic business developments, focusing on areas with unmet needs such as oncology, cardiometabolic, ophthalmology, and immunology. With numerous promising potential new growth drivers expected to hit the market, the pipeline includes scientifically advanced modalities and molecules with foundational multi-nation potential. The commitment to early research and development ensures a robust slate of upcoming data readouts, presentations, filings, and approvals, positioning the company to navigate through the Corona Loe period and continue delivering breakthrough therapies and value creation.

The company's first quarter results met expectations, with total revenues impacted by declines in specific markets but driven by strong global demand for innovative products, particularly in oncology and animal health. Notable growth was seen in Keytruda sales, despite challenges in China, and the animal health sector showed robust growth across all species.

The company reported an increase in gross margin due to favorable product mix and a decrease in operating expenses. Guidance for full year revenue, gross margin, operating expenses, other expense, tax rate, and EPS were provided, with adjustments for foreign exchange impacts and one-time charges. The company highlighted growth drivers including a robust pipeline and key products, while also noting moderating sales for certain products post-catch-up vaccination programs. Capital allocation priorities include investments for growth, dividends, and share repurchases, with a focus on maximizing potential opportunities and business development.

The first quarter saw significant progress in clinical and regulatory milestones, particularly in cardiometabolic disease. WRVR, the only active signaling inhibitor for pulmonary arterial hypertension, demonstrated a 76% risk reduction in major outcomes in the Phase III Zenith trial. Results were published in the New England Journal of Medicine, highlighting WRVR's potential to alter the disease trajectory for PAH patients. The Phase II Hyperion study was stopped early due to loss of clinical equipoise, with data expected later this year.

The update covers ongoing clinical studies, including the long-term extension study Soteria, the Phase II Light Ray study for an auto-injector option, and the completion of recruitment for the Phase II KIN study on pulmonary hypertension. The company has secured exclusive rights to HRS5, an investigational small molecule for treating elevated levels of LP(a), and is planning a global clinical development program for cardiometabolic diseases. Recent regulatory approvals include cavasin for the prevention of invasive disease and pneumonia caused by Streptococcus pneumonia in adults in Europe, and Garda So II for preventing certain HBV-related cancers and diseases in males aged 16 to 26 in China. Detailed results from Phase II trials evaluating a once-daily oral fixed-dose combination for HIV were presented, showing non-inferiority to comparator antiretroviral therapies. In oncology, a pivotal Phase II trial evaluating a subcutaneous fixed-dose combination of pembrolizumab and verri hyriidae alpha with chemotherapy met its dual primary endpoints, demonstrating non-inferior pharmacokinetics and consistent efficacy and safety. The FDA granted priority review for intruda as part of a peri-operative treatment regimen for patients with locally advanced head and neck squamous cell carcinoma. The company received the first conditional European Commission approval for Well AEG for treating adults with von Hippo lindo disease. Near-term milestones include upcoming PDUFA dates for oncology and RSV, anticipated results from Phase II studies in the cardiometabolic space, and filings for HIV treatments.

The company has been rebalancing its supply chain strategy since the Tax Cut and Jobs Act, aiming to have regional manufacturing for regional demand. It plans to spend billions of dollars to optimize its supply chain, including repositioning manufacturing, bringing on external manufacturing, and building internal manufacturing for long-term stability. Inventory management is also highlighted as a key tactic to mitigate short-term impacts of potential sector-specific tariffs.

An investor expresses concerns about the impact of Keytruda's patent expiry on the company's future, noting the stock's low valuation. The company highlights its confidence in the long-term outlook due to a strong pipeline of new products with blockbuster potential, but does not plan to provide specific line-by-line guidance currently.

The FDA is maintaining its schedule for programs with imminent PDUFA dates, including active dialogues on potential label changes and near-term filings, despite uncertainty regarding the impact of personnel transitions.

The speaker discusses the company's ongoing focus on business development despite macroeconomic volatility, noting the challenge of aligning sellers' expectations with market realities. They express confidence in progressing with deals and address the issue of price differentials between the U.S. and other markets for innovative medicines, advocating for PBM reform, fair value from foreign governments, and collaboration with the administration to protect U.S. innovation and access.

The discussion highlights Merck's confidence in Gardasil's current dosing regimen and efficacy, addressing potential changes in CDC recommendations. Merck also outlines its manufacturing strategies to mitigate long-term tariff impacts, emphasizing preparedness for Keytruda and new products through inventory management and securing US-based manufacturing capabilities.

An inquiry discusses the potential for increased US CapEx pending tax reform and explores whether recent PD 1 VEGF data suggests accelerating resources for LM 2909's development.

The company anticipates surpassing script billion in investments over the next few years, driven by firm decisions and the return of manufacturing. Tax environment considerations won't deter investment plans. Significant emphasis is placed on the potential of PD 1 VEGF in demonstrating OS benefits, with the company holding a competitive edge due to clinical expertise and extensive data. The impact of potential competitors is expected to be minimal, particularly post the Loe of Keytruda, with efforts focused on converting patients to earlier stage settings. The long-term outlook for the company is positive, with substantial opportunities seen despite minimal risks.

Growth in Gardasil sales globally has slowed, notably due to the end of a successful catch-up cohort program in Japan. China is expected to contribute a headwind to sales this year.

The company will reassess at the year's midpoint whether to ship more product to China, with current dynamics suggesting unlikely further shipments. This scenario is factored into the guidance. Strong double-digit growth is expected outside China, with a focus on maximizing opportunities globally and protecting lives from HPV-related cancers.

The potential adjustment of the HPV vaccination recommendation from ages 11 to 12 to ages 9 to 12, expected to be voted on in June, is viewed as a positive development. This change is important because it could lead to higher completion rates of the vaccination schedule, especially starting at age 9, and it aligns with a time when there are fewer other vaccinations, making it easier for families to prioritize. While the adjustment is significant, it's already approved for the younger age cohort, and vaccinations are occurring; the official recommendation will reinforce this practice.

The discussion revolves around inquiries concerning the potential impact of tariffs on a company's operations and the location of intellectual property for a specific product. The speaker addresses concerns about inventory management, manufacturing repositioning, and the unwillingness to disclose the IP location due to proprietary reasons, emphasizing preparedness for various scenarios.

The discussion highlights the strategic acquisition of assets from China, emphasizing the cost-effectiveness and innovative potential of these moves. Despite initial perceptions, the company underscores its commitment to being a front-runner in innovative drug development, referencing specific acquisitions and pipeline molecules that showcase their ambition to lead in markets such as wet AMD and diabetic macular edema, as well as in the development of first-to-market and most effective PCSK9 inhibitors.

The speaker emphasizes a balanced portfolio strategy, highlighting successes and the pursuit of being best in class in various strategies. They stress considering the entire portfolio beyond recent deals, indicating a focus on growth and addressing unmet needs in therapeutic areas like obesity. The approach involves exploring a full spectrum of opportunities to position the company for future waves of innovation and leadership.