Merck at Bernstein Conference: Strategic Growth and Innovation

On Thursday, 29 May 2025, Merck & Co. (NYSE:MRK) presented at the Bernstein 41st Annual Strategic Decisions Conference 2025, outlining its strategic priorities and addressing industry challenges. The conference highlighted Merck’s commitment to innovation and efficiency, amidst pressures like tariffs and drug pricing policies. CEO Rob Davis and CSO Dean Lee shared insights on the company’s pipeline and financial strategies, emphasizing both opportunities and potential headwinds.

Key Takeaways

• Merck aims to triple its phase three assets, focusing on innovation for long-term sustainability.
• The company is mitigating tariff risks through strategic manufacturing shifts to the US.
• Merck’s pipeline, including products like Enlicitide, is expected to drive significant future growth.
• The company maintains the lowest SG&A percentage in the industry, supporting efficient operations.
• Merck projects over $50 billion in revenue potential from its pipeline, non-risk adjusted.

Financial Results

Merck highlighted its financial efficiency during the conference:

• SG&A efficiency: Merck boasts the lowest SG&A as a percentage of sales in the industry.
• COGS efficiency: The company is recognized for its efficiency in cost of goods sold.
• Keytruda impact: The upcoming patent loss for Keytruda is expected to create margin pressures.
• New product royalties: While some new products have lower margins due to royalties, others offer high margins.
• R&D investment: Significant portions of gross margin benefits are being reinvested into research and development.
• Revenue target: Merck’s pipeline is projected to generate over $50 billion in revenue.

Operational Updates

Key operational strategies discussed include:

• Keytruda manufacturing: A strategic shift to US-based manufacturing for Keytruda, including inventory management for 2025.
• Contract manufacturing: US contract manufacturing is set to produce drug substances for 2026 and beyond.
• Capital deployment: Merck has invested $12 billion in US manufacturing and R&D facilities from 2018 to 2024, with an additional $9 billion planned through 2028.
• MFN Impact: Strategies are in place to address near-term Most Favored Nation policy concerns.
• Enlicitide: Accelerated development of the oral PCSK9 inhibitor, positioned as a first-in-class treatment.

Future Outlook

Merck’s future strategies focus on:

• Keytruda subcutaneous formulation: Efforts to maximize patient adoption through strategic pricing.
• Winrevir: Potential expansion into pulmonary hypertension related to heart failure, with results expected in 2025-2026.
• Enlicitide: Awaiting biomarker data this year, with plans for an outcomes trial to demonstrate cardiovascular benefits.
• M&A Strategy: Focus on scientific need and value creation, with potential deals ranging from $1 billion to $15 billion.
• Pipeline Projections: Merck anticipates over $5 billion in HIV revenue and significant growth in animal health by the mid-2030s.

Q&A Highlights

Key points from the Q&A session include:

• Tariff Mitigation: Merck is reducing tariff risks by sourcing more production from the US.
• MFN Engagement: Active engagement with the administration to address drug pricing reforms.
• FDA Interactions: No disruptions reported in FDA interactions, with PDUFA dates being met.
• ADC Pipeline: Focus on developing nine antibody-drug conjugates currently in the clinic.

Readers are encouraged to refer to the full transcript for a more detailed account of the conference proceedings.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Courtney Breen, US Biopharma Analyst, Bernstein: Alright. So we might kick off our conversation with Merck today. My name is Courtney Breen. I am the US Biopharma Analyst here at Bernstein. I am very privileged to have Rob Davis and Dean Lee from Merck here with me today.

I’m extra privileged because I get used to get to work at the company. And so this is hopefully going to be a wonderful conversation and hopefully enlightening for lots of investors. We’re gonna start and and let Rob set the tone, set a little bit of this conversation up, and then we’ll spend some time diving through questions that I’ve prepared. Just as a reminder, there is the pigeonhole app. Please do add questions into that so that we can integrate them into the conversation today and make sure that all your questions are are answered, and you walk away feeling like you’ve got a really good understanding of the company.

So with that, Rob, I’ll hand over to you. And take us away.

Rob Davis, CEO, Merck: Great. Well, one, thank you for for having us, and thank you for everyone who’s in the room and those who are listening online. Obviously, it’s an interesting time right now in in the pharmaceutical industry, and I’m sure we’ll have ample opportunity, to to get into that. But what I’d like to focus on for just a minute is kind of the journey we’ve been on at Merck since I took over as CEO going on just almost four years ago, or CEO. Did I say CFO?

Did I get it? Alright. Yeah. I used to be CFO. I forget I forget.

Courtney Breen, US Biopharma Analyst, Bernstein: Or you know what?

Rob Davis, CEO, Merck: Caroline thinks I still try to be CFO at times, but I I try to stay away from that. And then, obviously, Dean came into his role as chief science officer and and Caroline stepping in as as CFO. And at that time, if if I go back to 2021, what we set out to the company was a a simple strategic framework tied to how are we gonna deliver on the purpose of the company anchored in four key priorities? And I won’t get into all the priorities, but I’ll get into the most important priority, which was the priority up to in the upper left, still on the slide we show today, and it’s guided us consistently with focus and intent ever since. And that was we needed to invest in, accelerate, and augment our pipeline because we have both the privilege of having what likely will be the largest pharmaceutical put aside maybe some of the COVID vaccines in history, which has had profound impact on patients with cancer, but it’s created an interesting challenge, which is how do you manage through that?

And so we knew we needed to move with focus and urgency to address that, and we’ve been dedicated to that ever since. And I can say that I’m I’m quite proud of the progress we’ve made. If you look today, we have, nearly tripled the number of phase three assets we have in that time period. We now have over 20 assets, 20 unique assets, almost all of which have blockbuster potential in phase three, so in late development, that we’ll be launching over the next three to five years, two of which, frankly, are already in the midst of launching, WIN Revere and Cat Baxtive that are both off to a strong start. So I feel very good about the late stage pipeline, and and where we are.

And then we’ve seen good progress in our early stage pipeline. We have 50 different programs that are gonna be moving from phase one into phase two, and you’ll have soon line of sight to those as we move forward over the next couple of years. So a lot has been done within the pipeline to invest in it. We’ve put all of our resources behind this. We’ve looked to every opportunity to accelerate it.

We can give examples where we’ve done that. Enlicitide, which is our oral PCSK9, we think will be a first in class, best in class treatment for arteriosclerosis or lipid lowering. We’ve greatly accelerated that program by a few years from where it originally was where we were at a starting you know, basically, a standing start a few years ago. So more to do. I no way believe we’re done, but I look and and feel that if we can do in the next three years what we’ve done in the last three years, we have a real possibility and to achieve what I aspire to do, which is to grow through the KEYTRUDA LOE.

Obviously, that that is a tall hurdle, but we see it in our headlights to maybe be able to do that. As I said, more to do. We need more business development, so the augmenting is going to continue as we’ve done. We’ve deployed over $70,000,000,000 into business development over the last few years and brought in, many meaningful assets, so more activity. But as I sit here today, given the strength of the balance sheet, the strength of our margins, the legacy we have in oncology, the portfolio we can build from, and now as we move into a much broader and diversified portfolio of products, we’re well positioned.

Obviously, a lot in the macro environment, we’re gonna talk about and have to deal with. But, I believe as long as we stay focused on innovation as the core of who we are, that’s the path to long long term sustainability, and I feel very good about what we’re doing to this point.

Courtney Breen, US Biopharma Analyst, Bernstein: Fantastic. Thank you so much. And I think that frames up a lot of the the the Merck story. And for a second, we’re gonna zoom back out and talk about some of these sector sectoral pressures because I think these are kind of of the moment and certainly impacting where all stocks are trading for the entire sector right now. In many ways, we’ve this is a multi headed beast.

We’ve got tariffs. We’ve got MFN. We’ve got Medicaid cuts. We’ve got PBM reform. We’ve got HHS changing strategy and and organizational structure.

How do you rank some of these on a relative risk and size of impact basis? What is it that you focus on when it comes to the noise that we’re all living through?

Rob Davis, CEO, Merck: Yeah. So, you know, I would say, really, from a from the what I see is the big policy questions of the whole list you laid out. Clearly, first would be MFN, the reference pricing, executive orders that came out for most favored nations. We can get into that because I think there’s still a lot of questions around what that’ll be. But as a policy matter, that is obviously significant.

And then the tariffs and how do we think about that and addressing that to make sure we can, onshore and reshor manufacturing, the structural elements of that. I would say on that one, we can go into it in more detail. We’ve made great progress. Actually, we as a company were already moving down a path to move to a strategy where we would do US for US manufacturing, Europe for Europe, Asia for Asia coming out of the pandemic because we recognize the need for more resilience in our pipeline and in supply chain of how we bring our products, to the patients. And so that was the path we were on.

And in fact, coming out of, 2018 with the Tax Cut and Jobs Act, that allowed us to access foreign capital. We did deploy that largely into The United States. We’ve deployed $12,000,000,000 between 2018 and and and 2024, all into manufacturing capital in The United States as well as building new r and d facilities and bill building pilot manufacturing, which is really what you need to do the conversion from clinical into commercial. So a lot of investment in that 12,000,000,000. We’ve just announced a groundbreaking of a billion dollar facility in Wilmington, Delaware to be an all purpose biologics facility, and we feel very good about that.

And we’ve deployed other capital with the intention of having an incremental $9,000,000,000 plus as we look out between now and 2028. So so we’re, I think, well positioned, to be able to, produce in The United States. More to do, but, but I think we’re as positioned there as we can be. And then as you look at kind of everything else, the rest you talked about, FDA changes, all of what’s happened at the CDC and NIH, in the near term, those are obviously important. I would say we are not seeing those have yet, in the short term, the direct impact to us.

I think there’s some long term structural questions that those things could have depending on how they play out to the industry and the whole and the broader ecosystem of how R and D drug development is done. But in the near term, it’s not having much of an impact. And probably the most important thing for us is what we’re seeing with the FDA who is continuing to move on all of our important programs.

Courtney Breen, US Biopharma Analyst, Bernstein: Fantastic. That’s that’s really helpful to understand, and I think you you really hit on MFN and tariffs being critically important. So maybe just to spend a a minute on those, I I think Merck has actually been very transparent in some of the actions that you’ve taken to mitigate the near term tariff risks. And, yeah, I think we heard at the at the quarterly earnings, the the work that you’ve done on Keith Kruder in terms of bringing that inventory here into The US. Was that a hard decision to make?

And can you talk a little bit about kind of is it just KEYTRUDA, or are there other parts of the business that you’ve been able to kind of minimize that potential impact of tariffs?

Rob Davis, CEO, Merck: No. I appreciate the question. No. So as you know, and maybe this gets to a broader approach we’re taking to a lot of what’s happening, right now in the broader environment. You know, I I tend to try to first remind myself and remind the team, well, this feels like a lot, and a lot has come at us.

And it feels like we’ve been living in this for a while. The reality of it is it’s a hundred days. You know, we’ve talked about the fact know, I mentioned earlier I was in a meeting, someone said, can you tell me all the strategic changes you’ve made because of MFN? And I you know, that was a week and a half ago. So, you know, and we’re in a business that operates on ten year plus timelines.

So what I’ve said to the team is what we can control is what’s in front of us, which is executing on the pipeline we have, continuing to make sure we bring forward breakthrough products that if we can commercialize successfully and win in the marketplace, will make a difference for patients and will give us a sustainable profile for the company. So stay focused on that. Where we see no regret moves, let’s make them. I would put your question on on, KEYTRUDA as a no regret move. We already, were had, as I mentioned, started to strategically shift to manufacturing.

We had initially not intended to bring all of the IV production of KEYTRUDA to The US, because of the fact that it’s approaching its LOE, we felt like we’d be better to focus on the new products coming. As the situation unfolded, though, we saw the opportunity to pivot and to be able to know that if we make an adjustment and just look to bring in first contract manufacturing to fill some of the gap and then build the capability at the at the Delaware facility I mentioned, which is a broad based biologics facility. It was easy to bring KEYTRUDA into that for both drug product and drug substance. So that solves the problem longer term. And then the shorter period of time, we we brought inventory in of of finished goods, which are have us positioned to be able to source for 2025.

And importantly, we’ve also continued to both produce drug substance in The United States. We have two contract facilities where we do a small amount of production. Most is done in Europe, but we do have some in The U. S. So we’re going to leverage that drug substance from our U.

S. Contract manufacturing for 2026. And then we’ve already signed up a drug product contract manufacturer, So we’ll be producing both drug product and drug substance in The US beginning in 2026 and then set up for the long term. So that’s an example of a no regret move. There is some cost associated with it.

We will mitigate that cost, as much as we can. But structurally, it fits with what we were trying to do anyway, and it satisfies, the desire to see more production of key products in The US. So that’s one where I felt like it was not a hard decision, and we’ve made the same decision for the rest of our pipeline. So where we can, we will source from The US. And we were already down a path today where the majority of our new products were already intended to be sourced from The US.

And as it relates to IP, for most of our new stuff, frankly, the IP is is largely in The US, so, that’s not an impediment going forward. For Keytruda, the IP is not in The US. There will be a little bit of tax leakage, but, again, that’s something I think we can, continue to mitigate and optimize around.

Courtney Breen, US Biopharma Analyst, Bernstein: Wonderful. That that’s really useful to understand kind of the the steps that you’ve taken and certainly the various trade offs and no regrets move feel like the right thing to do in this uncertain environment. On MFN, because this is the other really big one, this is drug price reductions here in The US. Have you had any direct engagement with the administration since we got the executive order and then a CMS press release last week? There seems to be light on details so far.

Yeah. And so all of us are out there looking and saying, well, do the companies know more than we do, or do they only know as much as we do? Yeah. Do you have any any perspectives you can share on

Rob Davis, CEO, Merck: say largely my my estimation would be we know about the same as what you do. We have had maybe stepping back more broadly, we have had ongoing discussions with the administration, really going back to when they were transitioning into office, including, myself with members of the cabinet, with the with the president himself, and others with members of congress, both the house and the senate, particularly on the Republican side to understand the agenda and what they were trying to do. So we’ve had a a continuing dialogue as as Merck and as the industry, and I would say it’s been very constructive. You know? Clearly, this administration has strong priorities they want to achieve.

But my own experience, and I think the experience that we’ve seen is if you’re working to try to work with them on those priorities, they’re willing to listen, and they’re willing to, take your input. So that has happened. I don’t wanna get into the specifics of what’s happened, you know, with with the the executive order itself and and those discussions. But needless to say, as Merck, we remain willing and and interested in engaging ongoing with the administration on the MFN issue on trying to find a path to meet what we agreed to in principle. And maybe that’s important to say both as Merck and and as the industry.

In principle, we agree that the prices in The United States, need to be addressed. We think the best way to do that as an industry, and I’m and I’m sure it’s a broken record to everyone else who’s been up here, but it’s it’s true, is for every dollar spent on a pharmaceutical, over 50¢ goes to someone in the middle. They have nothing to do with the innovation. They take no risk to the discovery of the drug. They take no risk to the development, no risk to the manufacturing.

They negotiate price, and they distribute. Find anywhere else in the world where the person who is a negotiator and distributor takes 51¢ of every dollar.

Courtney Breen, US Biopharma Analyst, Bernstein: It should take about two or 3%.

Rob Davis, CEO, Merck: Yeah. Yeah. I mean, we we need to address that. That’s the fastest way to bring down prices in The United States. And by the way, that changes the economics of our industry zero Mhmm.

Because we only get the 49¢ today. So my view and the view in the industry is if we do that, we both can preserve the innovation engine we have, which is a world leader. Mhmm. We lead in this. We’re an exporter of this and also address the price issue in The United States.

So that’s half of it. We also, in principle, agree that we have to do something about the fact that there’s an imbalance between what the The US pays for drugs and what the rest of the world plays. We we that’s acknowledged. We think the best way to do that is both through our voices and through which we’re doing, do everything we can to communicate the need to see this addressed. But frankly, it’s gonna need beyond just the industry.

You need government to government action because in most of the countries outside The United States, their their social systems where you’re negotiating with the government, they set the price using health technology assessments.

Courtney Breen, US Biopharma Analyst, Bernstein: Mhmm.

Rob Davis, CEO, Merck: It’s not necessarily a negotiated price. It’s largely a a set price. And and we need help, and we think through trade and tariffs that there are ways for the government to help us. I think you’ve seen that being reflected in even in the executive order itself. There was a reference to having the secretary of commerce do just that.

So we support all of those act those actions. So across that, we’re willing to engage and try to solve those problems. Let’s find the best path to do it that preserves the industry but addresses what we need, which is lowering the prescription costs for patients at the pharmacy counter and getting better balance for the value of the innovation we bring globally.

Courtney Breen, US Biopharma Analyst, Bernstein: And it certainly sounds like the industry is working in a concerted way together to do this. I think we’re hearing very similar messages Yes.

Dean Lee, Chief Science Officer, Merck: Across all of the companies.

Courtney Breen, US Biopharma Analyst, Bernstein: Dean, I think we heard just from Rob that and this is the final broad question before we really get into the into the Merck story. But we heard from Rob that perhaps there hasn’t been any disruption to your interactions with the FDA or other pieces of the agencies so far. But is there anything that you’re looking out for that would stop kind of waving red flags and say, hang on. This is this is getting a little bit close to comfort. We’re gonna need to to start making sure and reinforcing those engagements.

Dean Lee, Chief Science Officer, Merck: There’s a lot of statements that are made, and it sometimes can distract people from actually what’s happening on the ground. And so far, when we look at it, I mean, we have important as he’s talking about, these launches are are important for patients, and it’s also important for Merck. But, you know, we have a sub two pembrolizumab, which we think is really important for patients. We have not seen any issues with the PDUFA date that’s been laid out. With clasroblimab, which is an antibody against RSV, which we think is really important for The US health system, We are an engagement in relationship with the FDA.

We have not seen any movement in that PDUFA date. So those are all great examples. We’ve talked about is latravir derabarine, which we think is critically important laying out a new anchor medicine for HIV. That file is is moving appropriately through the FDA. We’ll probably be talking about winravir or cetadricep.

We had really excellent data, and that data, we have indicated to people that we’re very interested in getting the first time a label in PAH where we’re talking about mortality, survival, and this we have conversations. All of that has not gone off track. Mhmm. I think looking forward, what we’ll have to just see is there has been the exit of some relatively senior people. That gives some degree of stability as to what the expectation is.

And we’ll just have to see how much of that expectation because

Courtney Breen, US Biopharma Analyst, Bernstein: this

Dean Lee, Chief Science Officer, Merck: is a you know, we set up trials now in collaboration with the FDA. And then all of a sudden, when you read it out later on, if everything dramatically changed, you’re like, do you know? And we have not seen that, but that would be something that we would keep our eyes out on.

Courtney Breen, US Biopharma Analyst, Bernstein: Absolutely. I I think that makes a lot of sense given the long cycle time for not only the clinical trials, but from discovery all the way through. You touched on a a couple of drugs that I think we’re gonna we’re gonna dive into. But but first, let’s start with Keytruda because I think this is the the big one. In an earlier presentation that I had today, I showed a graph that represented the fact that consensus peak expectations for Keytruda back in 2016 were only $5,000,000,000.

It then shifted over the next ten years up to being $35,000,000,000 in terms of the expectations of where that peak will be by 2028. There is obviously a large patent cliff that comes with a large blockbuster, and you’ve been doing a lot of work to to set out for that with subcutaneous and some of these other opportunities. Dean, can you remind us on the subcutaneous product kind of why this is a clinically relevant kind of opportunity? We we

Dean Lee, Chief Science Officer, Merck: think this is a really important opportunity. One of the things that I think happened in the transition from ’20 to ’21 is Merck really pivoted to get into the curative set setting in the early stage. And we have hopefully 10 approvals shortly. Four of them have OS. This is a place where our growth is, but it’s not just economic growth.

This is where you can cure patients. So we think it’s critically important. We think especially in that patient population, but really in all patient populations, if you can give it sub q and if you could give it sub q in two minutes, that would be really important. No one would like to stand in queue at an infusion center. It is not the most uplifting thing for anyone who’s ever had cancer.

And so we think this is really important and it dramatically changes access in the inner cities and in the rural areas. So we think this is really important and that is moving forward. So it’s an injection. I can do q three weeks or q six weeks, and it’s two minutes. There is nothing out there of any other PD one that is like that where you’re given it in two to three minutes.

We think this is important.

Rob Davis, CEO, Merck: Which much more volume That

Dean Lee, Chief Science Officer, Merck: that’s why it can be given so much. Okay. Thank you. I hate to say this, but the minute you talk about putting things through a port and all of this, and I’m an attending physician, the last person you ever want to to touch a port, a chemo port, is an attending physician. That’s the last person you want touching it.

I can give sub q pembro. Mhmm.

Courtney Breen, US Biopharma Analyst, Bernstein: So there’s a there’s a reduction in the in in the risk

Dean Lee, Chief Science Officer, Merck: In intelligence. Of patients required. Yeah. That that is

Courtney Breen, US Biopharma Analyst, Bernstein: exactly right. And, Rob, I think on the subcu piece, you’ve also alluded to kind of concepts around how you’re gonna price this relative to the IV. Can you talk us through kind of what that might look like at launch relative to where the sub q might be as you go through IRA and then as you go through the patent expiry?

Rob Davis, CEO, Merck: So our strategy and and it gets a little bit to what Dean was laying out that given the unique portfolio that KEYTRUDA has and the number of indications, we now have 41 indications across 18 tumor types plus, two that are tumor agnostic, and and more coming. And as Dean said, in early stage cancer, we have nine currently soon to be ten, four with overall survival. The ability to try to bring value to patients and in turn continue to lead in cancer for us is unique relative, I think, to any drug that’s ever come before because of the size of what it is and the strength of the data and the commitment behind the use of of of Keytruda. And so we very much are focused on getting the maximum number of of patients who are eligible to adopt the subcu form at launch. We believe if you look at the total patient population that is out there, thirty to forty percent will choose to be on subcutaneous either, you know, as the patient both and then working with their their, their provider.

It brings provider benefits where you’re in clinics that are are capacity constrained. It brings quality of life benefits to the patient, and we think that will be so important. And so we’re quite confident in that ability to drive the adoption. But we recognize the one thing that could stand in the way of that is if access is limited because of how we price. And so we’re gonna price for for share.

We’re gonna price to drive the volume, which means we are going to price you know, I don’t wanna get into specifics, but let’s say the the the price we would expect to generally follow the IV price because that’s what’s gonna ensure the maximum adoption over time. And then that would be true as we move into the IRA and potentially as we move into the the the launch of the LOEs as well, always focusing on, first and foremost, maximizing access and adoption and value under the curve because we think that can sustain a tail for the benefit of Merck while bringing in a significant medical benefit for the patients that are counting on it.

Courtney Breen, US Biopharma Analyst, Bernstein: Absolutely. And and I think that concept that you just laid out is really important because if your price on your sub q ends up a lot higher in that post patent period, your volume just switches back to the IV setting, which becomes then the a highly competitive space and and much more challenging to defend. So thank you for walking us through that. I think Buenriver is is a particularly exciting opportunity that that kind of mid launch at the moment, we’re seeing kind of real patient impact with this product as well. What drives the growth ahead as you think about kind of moving continuing to move?

And I think if I remember in our models, we we see kind of winter wear being about 10% of your overall revenues by the end of our forecasting period. How do you think about kind of that future and trajectory with RenRevere, and what what dimensions do you push on to achieve it?

Rob Davis, CEO, Merck: Yeah. Maybe I’ll start, and then Dean can add from a clinical perspective. So right now, the launch is going is going very well. We had high expectations coming into this. We’re meeting those expectations.

So I feel like we’re we were aggressive, and and we’re delivering against that. If you look at where we are today, we’re still fairly early. So we’re still primarily focusing on bringing the sickest patients, and those would be triple therapy patients, patients who were on, on therapy, you know, looking at really the the sickest you can see out there. But the ability now increasingly to see other doctors start to move into with people on two drug regimens, they’ve come off the prostacyclines, and and that is starting to move. So the potential of the ramp is still strong for a trended growth.

We’re not expecting an inflection point hockey stick. It’s, we think, steady growth. And what drives it is the experience that the physicians are having. Mhmm. They’re increasing confidence that the safety profile is proving to be quite good.

We continue to have very good results from a safety perspective. We’ve started to publish increasingly the real world evidence around what we’re seeing on the safety profile, including we’re gonna you’re gonna see extended data from Speria, the ZENITH study, STELLAR study, and how we track these these patients longer term. That is all looking good. And then, obviously, as we start to see the readout from, for instance, ZENITH, which was unbelievable, the the results that came with Zenith, and maybe because I know there are some generalists. Pulmonary arterial hypertension is not well known.

It is a devastating disease. It tends to hit women more than men, and it hits them in midlife, so you’re often dealing with child bearing child age bearing women. And and on average, if you’re diagnosed with this, one, it takes a long time to be determined this is what it is, but effectively, you’re suffocating because you cannot get blood pumping enough because you’re you’re getting so much, tension into hypertension, you will, into the lungs and into the heart. Fifty percent roughly will be dead within five years. Mortality is high, And this drug is the first drug through the ZENITH study to show a mortality benefit, all cause mortality benefit, statistically significant benefit through the ZENITH study that was stopped early because of overwhelming efficacy.

And that’s powerful because, obviously, if you’re a patient, even if you’re a patient who is who is on therapy and is and feeling okay and is being steady at the point you’re at, you have to challenge when do you need to be put on to WinRevair because if it brings the mortality benefit, you would assume you’d wanna be on it sooner than later. And if you look at the curves in the study, they separate almost immediately. So it’s very important to understand that, and we expect hopefully, we’ll see. We had to stop the Hyperion study as well, because of the same issue, and it’s it it would be unethical to not give patients winter veer because of the the results we were seeing. And that’s important because that was an earlier population of patients earlier in their disease progression.

And and so it helps reinsure physicians that this is for the less sick patients as well as the sicker patients. So all of this is building the momentum that drives us to believe that this will have steady growth as we move forward, and that’s before we talk about things moving maybe broadly into a pH related heart failure that Dean can speak of. But, Dean, don’t if you maybe if you wanna go there to

Dean Lee, Chief Science Officer, Merck: that or what you can do. I would just emphasize, you know, people are gonna later on ask about BD. We like BD that gives us the access of doing something first, best, and next, whether it be iBio, whether it be Prometheus, or whether it be Acceleron. And with Acceleron, with Windravir, you see it. This is the first time any medicine that isn’t related to vasodilation, which is all the other medicines, but is focused on the basic genetic cause of a disease, this is the first one.

It’s the first active in signaling inhibitor. And I would remind everyone, I don’t know of any other active in signaling inhibitor that is in any clinical trial anywhere in the world. So this is first. It has given best results. This is the first time a trial has been stopped early because of overwhelming efficacy.

This is the first time that people have had hard outcomes, and this is the first time that I know that not only did the trial get started for Xenus, but the steering committee refused to proceed with the other trial. I’ve I’ve never been in that situation, not even with Keytruda. So this is first, best, next. It reformulates the field. One of the things that are next is that we’re going to to experiment and see whether there are certain patients with pulmonary hypertension who don’t have pulmonary arterial hypertension but have pulmonary hypertension due to heart failure.

And we’ll see those results sometime this 2526 to decide whether we go to phase three. And so we’re excited and eager to see those results to figure out whether we can even do more good for even more patients.

Courtney Breen, US Biopharma Analyst, Bernstein: And those results will be quite instructive because the biology is a bit different. Right?

Dean Lee, Chief Science Officer, Merck: It is. The biology is different, and the patient population with heart failure that we’ve taken is the one that, from a physiology standpoint, looks similar to PAH. It’s not a broader heart failure, but it’s a relatively smaller patient population among the heart failure. But it is a patient population in heart failure who have the mortality and the life expectancy and the life morbidity similar to those patients with PAH.

Courtney Breen, US Biopharma Analyst, Bernstein: The unmet need looks similar.

Dean Lee, Chief Science Officer, Merck: The unmet need is tremendous.

Courtney Breen, US Biopharma Analyst, Bernstein: Perhaps just just jumping around because we’re on cardiovascular, and I know in in an earlier meeting that I got to experience it, and you mentioned it before, enicetide is which is your oral PCSK nine is an an exciting readout that’s upcoming this year, and I think it’s one of the key market, key milestones that many investors are are looking at and waiting to see. Can you talk a little bit about what this ramp and opportunity might look like? Let’s assume that that this is positive. We we look at the other PCSK9, and what we’ve seen with them has been a very slow build, and that penetration is very, very low in the market. Cardiovascular generally takes a long time to launch a new product.

Will that be true for this particular product? And and kind of what is it about this product that might mean that we need

Dean Lee, Chief Science Officer, Merck: to put it on front the commercial ramp up, but I’m very excited about this. I am a cardiologist. I did internship residency when statins came out. Mhmm. And I was an attending when the first PCSK nine antibodies came out.

And those first antibodies came out at 15,000 a year, which just so that you know, as a cardiologist, we used to snicker and say, you’re charging the same as what we’d charge for percutaneous coronary intervention. Are you right. What what people want is they want easy access to the lowering of their LDL cholesterol. They we wanna democratize the PCSK9 pathway because that is the most potent way to lower LDL cholesterol. So we have a we have a medicine that we dream that this medicine can be given in the morning, no different than your statin, your aspirin, your antihypertensive in the morning.

You don’t go to the hospital to get a shot. You don’t do anything like that. And it will lower your LDL 60% just like the antibodies because what this medicine is is we have the technology to take an antibody and reshape it using a different technology, the cyclic peptide, and make a biologic in a pill. So we’re excited about this for the broader implications. And the concept that we want is not just to lower by LDL by 60%, and that’s the biomarker data that will come out this year.

But our aspiration is not just to be first and best in terms of that. But we intend to have an outcomes trial that will read out two to three years later that has an outcomes of a reduction, not a fifteen percent cardiovascular outcomes, which is what all the antibodies for PCSK9 have achieved, we intend to achieve twenty percent. And so that’s very exciting because, you know, seventy percent of individuals, especially in The United States where cardiovascular is still the number one, do not have their LDL in the right place. But commercially?

Rob Davis, CEO, Merck: Yeah. I mean, the the commercial opportunity, obviously, we we think is significant. And I think some important points being hit on seventy percent of patients despite being on a statin don’t reach goal. Mhmm. Cardiovascular disease is continues to be the number one killer, eighty five percent of which is related to people having problems with arteriosclerosis or hardening of the arteries and blockages.

So there still is a huge unmet need. And if we can bring a drug that is oral, that you can you can take, and importantly, price it competitively, because we I would say something we brought and where we focused our capabilities is in two two places. Obviously, this is using macrocyclic peptide technology for the discovery and development, which, as Dean said, is is new and it’s important, and this is one of the most complex areas that has been used with the oral PCSK9. But frankly, others have that capability. But what we think is unique is we have invested equally in our manufacturing and CMC capabilities so that we can produce macrocyclics at low cost.

Courtney Breen, US Biopharma Analyst, Bernstein: Mhmm.

Rob Davis, CEO, Merck: And the biggest one of the biggest barriers for macrocyclics have been they’re very expensive to make because they’re highly complex to produce. We’ve been able to drastically reduce the number of steps it takes in the manufacturing process through, know how that is unique to us, and that will allow us to be very competitive in how we price, which we think is that that’s the democratization that Dean’s speaking to both in The United States and around the world. Because if you’re going if we come out in a lower price and drive for volume to address the need of the world, we think that’s been one of the biggest barriers to why you’re not seeing adoption that we can overcome given the clinical benefit that he’s talked about. It’s important to note that when we launch, we’ll be launching with the biomarker data, which we’ll see the readouts of those phase three studies, three of them, this year, later this year. But as we look at that, because of the fact that this is a biologic in a pill that follows the key structural elements of the of the the monoclonals that are out there, we think that our ability to get a favorable label consistent with the biologics will be there no different than what happened with inclisiran.

Mhmm. And then, obviously, we will follow on with the outcome study in the next couple years, as Dean said. So we expect this to have a strong launch from the beginning, and then to carry it through with the outcomes data. We’ll be probably two years ahead of of any competitor, and and our expectation is we’ll be having outcomes data as you start to see competitors come in. But then I think what Dean should comment on is it’s what’s next because we’re not stopping with, the mono just it as a single agent and once you speak about the combination.

Dean Lee, Chief Science Officer, Merck: So there become obvious combinations that you would combine. You would think about a statin. You would think of other nonstatin LDL cholesterol lowering medicines. But probably really exciting to us is there is a cohort of patients whose LDL is high and have a high LP little a. The way that I treated those patients right now is I lower their LDL to zero.

And there could be evidence in the next year that lowering LP little a will also be important. So naturally, you sit there and you go, the perfect medicine for this patient population could potentially be a PCSK9 LP little a combination. Mhmm. And so as I talked about having PCSK9 with eight you know, towards twenty percent cardiovascular outcomes reduction in the high LP, we could vision we could dream of having a pill for that patient population. Were were driving their cardiovascular risk down by thirty percent.

I mean, those numbers are the numbers I like here. Mhmm. Twenty, thirty percent reduction in cardiovascular outcome.

Courtney Breen, US Biopharma Analyst, Bernstein: And you can certainly hear your passion as cardiologists coming through as you talk about this topic. Perhaps jumping to combinations and and kind of the rest of the pipeline, c l one a, I think, is an interesting one. This is your an immunology product that you have in the pipeline that is in phase three right now for your I b d the IBD space. I think in many ways, hear from some of the other companies kind of we’re only gonna bring forward r t l one a in a combination. How do you think about kind of the path forward?

And perhaps is this a place for for m and a for Merck going forward to find partner molecules to the t l one a?

Dean Lee, Chief Science Officer, Merck: So just so that we step back, the type of market or biology that t l one a would play in is the new place, for example, Humira and SKYRIZI and STELARA. So there’s TNF as an important node. IL 23 as an important node. What we’re hoping to be is, again, I hate to be a bad recording, first, best, next. We intend to be the first t o one a, and we believe we will be the best t o one a.

And that t o one a node will be as important, if not more important, than I o 23 and TNF. So we are advancing with speed in inflammatory bowel disease, and we will be opening it up in other diseases over this year. The minute you can be first and best there, you immediately go next. Mhmm. And the next is you would begin to combine with the other major nodes such as IL 23 or TNF or others.

You can achieve that by doing combinations that you’re talking about, but you could potentially also achieve that by by making, for example, bispecific antibodies. Mhmm. And you would also immediately start asking yourself if you can make enlicitide and a PCSK nine antibody in a pill, could you do the same thing here as well? So it’s a creation where we do BD where we can have the we can have the hope of being first, best, and it opens up a pipeline of next. Mhmm.

Rob Davis, CEO, Merck: And so we have internal agents already Yeah. To do for the combination as well as continuing to look Fantastic. External as well.

Courtney Breen, US Biopharma Analyst, Bernstein: On m and a specifically and and more more generally, I know you guys have done a lot of deals recently in China, and it seems like you’ve probably got a pretty good team on the ground that are kinda making sure you’ve got a deep view in there. Can you can you talk a little bit about what are the parameters that that kind of feel like a good deal for Merck to consider at this point in time compared to over the last few years?

Rob Davis, CEO, Merck: Yeah. Well, the overall the parameters we’ve brought really haven’t changed fundamentally. We continue to be driven first and foremost by the science Mhmm. And and always asking the question, is there a scientific need that solves an unmet need for a patient that fits within our portfolio, and then does it align with value or not? And if we find that where there’s there’s new science that addresses unmet needs, strategically it fits, and we add value, that’s tends to be where we move.

And we’ve been very strategic in thinking about our portfolio to diversify. You know, if you go back a few years ago, we were we were the Keytruda company. Today, we are a broad based oncology company, and increasingly, we’re gonna be a cardiometabolic company, an an immunology company, an ophthalmology company, a vaccines company. So we’ve been very thoughtful in leveraging our position to grow out, and and we’ve done that both internally and through business development. The sweet spot of where we’ve been looking has been that 1 to $15,000,000,000 range with a willingness to go higher, but always if it meets the scientific parameter I just laid out.

Mhmm. We’re not gonna do the deal just to do the deal. It’s gotta be brings great science that brings sustainable value for us long term. We’ve moved in phase one, phase two. We’ve done stuff in phase three, and we’re open to doing things that are commercialized.

So all of that is areas we continue to be interested in. If you look at what we’ve done recently in China, those deals were because we saw opportunities to leverage capabilities in the first, best, next that Dean just walked through. And in many of these cases, they’re giving us the opportunity to go to the next, what’s the combination drug. And what we find is high quality science, good assets, and we go for those wherever they are. If the science is there, if the clinicals have high quality, and we we feel confident in that, after diligence, we’re comfortable with intellectual property.

And in the case of China, that we can bring the assets out of China and then do the studies for, you know, the ongoing further work commercialization for the rest of the world outside of China. So that’s important as we think about the Chinese assets. But, I’ve been asked in other settings, are you more leaning towards China than everywhere else? The answer is no. It just happens to be that, you know, the recency bias, the last couple of deals have been that.

Courtney Breen, US Biopharma Analyst, Bernstein: There’s a random nature to them.

Rob Davis, CEO, Merck: But it’s it’s just because that’s happened to be how it played out, not because we’ve changed our focus, and we’re looking globally for for further opportunity.

Courtney Breen, US Biopharma Analyst, Bernstein: We have got very far into this conversation without talking about ADCs and kind of your pipeline. I know we’re gonna have a lot of tons and a lot of airtime on oncology over the weekend and over the next few days at ASCO, and I look forward to seeing the team there. Although there was an announcement this morning with patratumumab, diruxepam, your HER three ADC, Can you just, as a headline, let us know, is there read across to the rest of the ADCs in terms of either safety or and or efficacy that we should be aware of? And we can definitely focus on the rest of oncology while we’re at ASCO over the weekend.

Dean Lee, Chief Science Officer, Merck: Yeah. So I would just emphasize that for us, and you’ll see at ASCO, I mean, we have nine antibody drug conjugates in the clinic. Five of them are pretty deep in the clinic. The first one that everyone focuses on is FACT TMT, which is TROP two ADC. It’s in 14 clinical trials.

In phase three. I’m sorry. 14 phase three clinical trials. Nine of them, if you look at them, it’s in a tumor indication that we will be first. Mhmm.

And the other five, it’s a place that we think we can be differentiated. So that’s with Keelan, and they have been a great partner. With Daiichi Sankyo, there’s three of them. The most the the most important indication for each three of them is the HER three ADC that you spoke about, and our key interest is in breast cancer. Mhmm.

That’s where we focus that HER three ADCs. So there was an announcement in relationship to lung, but that HER three ADC, that’s where we’re focused on. B seven h three, we think that we can change we think we can bring to small cell lung cancer what we did to non small cell lung cancer with keynote one eighty nine. And we would guide to thank you as advancing a b seven h three in small cell lung cancer. But instead of using a p d one, we’re using a T cell engager, which is d m l three T cell engager, and that’s advancing very fast.

And with Gai Chi Sankyo, we also have, moving forward is c d h six in ovarian. There’s many others. And then I think one of the ones that I think some people have lost track of is the ROR1 ADC, which we’re now moving quickly through heme malignancy. So those are just five. We think that the antibody drug conjugates are really important.

We’re the company that combined pembro with chemo. We are the company who should combine a p d one with next gen chemo, which is antibody drug conjugates, and we intend to continue to do that.

Courtney Breen, US Biopharma Analyst, Bernstein: Fantastic. Super helpful to to understand that context. I think we’ll get into a lot more detail over the next few days. I wanna make sure that we hit a couple of questions in here, and one connects to another question that I wanted to ask, which was about margin and kind of where margin goes for Merck because I think there’s a lot of leverage that comes from Keytruda, and you’ve got some other drugs that are growing like Winrevir that have royalties associated with them too. And then the question that came through on the on the message board was referencing the contract manufacturing that you just spoke to, Rob, earlier for Keytruda.

Should we expect to hit the margin for Keytruda with that contract manufacturing and those new contracts. So just can you talk a little bit about the pushes and pulls on margin and how that might evolve over the next ten

Rob Davis, CEO, Merck: or so? Obviously, we’ve we’ve been very focused on trying to drive for the strongest margin possible over the last several years. And frankly, part of why we did that was, to make sure that we always were in a position, depending on what would happen in The US pricing environment, to be able to absorb pricing hits and be able to always fund innovation because we continue to believe the best path forward for our company long term is to focus on the science and focus on innovation. Who we are, we can putting the macro environment aside, people will always want a cure for the next disease if they face it, and we wanna be there to deliver that for them. And there’ll be value for that.

So that’s very important. What’s driving our margin is, as you said, obviously, product mix. We’ve also done very, I think, good cost management. We have highest percentage of if you look at from a R and D so I should maybe flip it there. I’m gonna go the wrong direction.

But SG and A, as a percent of sales, we’re the lowest or probably near the lowest in the industry. So we’re the most efficient in SG and A. We’re also the most efficient in cost of goods sold. The contract manufacturing is not gonna have a major impact on that. It’s in the mix of what we do, so that that should not worry anyone.

As we look forward, with the mix change as KEYTRUDA comes off patent, clearly, that will create a margin headwind. But how much of a headwind will depend on the rest of our product mix. And I would say some of the products we’re bringing, the new products, do have royalties, so they have you know, their margins are a little bit lower, but some have very high margins because of the way that their those contracts were signed up. For just so for example, if you look at the Daiichi Sankyo agreement, the profit sharing that happens there all flows through basically revenue as net revenue. So the gross margin of all of what we do for the Daiichi products, same thing for Moderna, is a %.

Mhmm. Because now they’re below the gross margin line, you have the r and d expenses and everything else. So, you know, obviously, those are very good margin products. Now that’s because the costs are buried into the net revenue. It’s the way you book alliance revenue in a partnership.

And then we have others that would be, wholly owned assets without royalties and then some with. So there’s a pretty good mix. And how that all plays out, I think we’re gonna have to see over time. And then clearly, in the short term, we’re gonna invest behind the r and d we need to be able to deliver the growth of the pipeline we see. A lot of the the margin benefit we’ve seen thrown flowing through gross margin, we’ve been just redirecting into r and d spend.

Dean Lee, Chief Science Officer, Merck: Mhmm.

Rob Davis, CEO, Merck: And that is that gives us obviously flexibility longer term to think about that as well. So I think, you know, the margin will face the headwind, but how it plays out, we’ll have to see based on the way the portfolio grows. I’m most focused on delivering top line growth, which I think if I do that with the product portfolio we have, I’m confident you’re going to see earnings growth as well.

Courtney Breen, US Biopharma Analyst, Bernstein: Fantastic. And maybe just to end, I know we’ve got about a minute left. The $50,000,000,000 of that top line contribution that you’ve spoken to in the past from the pipeline that you have, there’s a question that came through with kind of what are the error bars that sit around that 50,000,000,000? What are the I’m sorry. The error bars.

Rob Davis, CEO, Merck: How much rain? Oh. Oh. Oh. Okay.

Well, so that that $50,000,000,000 plus, just to give context to what it represents, and this is obviously before we take into account what happens with most favored nations and

Courtney Breen, US Biopharma Analyst, Bernstein: everything else

Rob Davis, CEO, Merck: just so that the people understand that this was but the $50,000,000,000 plus is the revenue potential nonrisk adjusted that we see coming from oncology, which we think has greater than $25,000,000,000 in potential coming from the vast suite of assets that Dean walked through plus others. It’s it’s coming from our cardiometabolic business anchored with, the oral PCSK9 as well as as well as, Winrevir and and then ethinopecdeutide, which is our GLP one glucagon coaginous. That’s greater that’s approximately $15,000,000,000. We have greater than $5,000,000,000 from immunology and the t l one a platform that Dean talked about earlier, greater than $5,000,000,000 in HIV coming from multiple assets we have there that we didn’t even get to touch upon that we’re excited about. We have what am I missing, Caroline?

Ophthalmology, which we think is a multibillion dollar opportunity based on the WNT agonist, a first in class, best in class deal, very similar. Dean calls it the, you know, the wind revere, if you will, of ophthalmology, which, we we hope to deliver on. So all of that. And then beyond that, we have the benefits of what’s coming from vaccines, from business development. And then our early phase pipeline, we have over 50 programs moving into phase two.

Some of those, because they’re in spaces like oncology, could be delivering in the same time window of the mid twenty thirties. Those haven’t been included. And animal health, that’s gonna more than double, over that period. I need to look to my team because we have so much. It’s hard to keep it all in your head.

The error bar around that, that you should assume is we’re saying that’s the if everything hits. But I think there’s a misunderstanding. The people view it as it’s toggled on or off. Take oncology. Just use that, the 25,000,000,000.

That’s across the nine ADCs where we have 55, phase three studies underway with the between the ADCs, the tissue targeting agents we have, the the the precision molecules we have, the INT therapy in combination with Moderna across you know? So if you look across all of those, the the T cell engagers, bispecifics, it is a broad suite of assets that each have multiple indications. So the way you can achieve the 25,000,000,000 is through a whole host of different measures. So our error bar there, we feel, is pretty tight because it’s spread across so many assets. It’s not one asset.

It’s many assets. Yeah. I think almost that’s the trouble of our story where we’re misunderstood. We have so much. It’s hard to get your arms around it.

But what you should hear from us and from me, our confidence in that pipeline is incredibly high.

Courtney Breen, US Biopharma Analyst, Bernstein: K. Thank you so much. I think that’s a great place to end. I really appreciate your today. Thank you, Dean.

Thank you, Dean.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.