Merck & Company, Inc. (MRK)

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Merck & Co. (MRK)

Q4 2010 Earnings Call

February 03, 2011 8:00 am ET


Kenneth Frazier - Chief Executive Officer, President, Director and President of Global Human Health

Adam Schechter - President of Global Human Health

Peter Kellogg - Chief Financial Officer and Executive Vice President

Alex Kelly - IR


David Risinger

David Maris - Credit Agricole Securities (USA) Inc.

John Boris - Citigroup Inc

Catherine Arnold - Crédit Suisse AG

Tim Anderson - Bernstein Research

Jami Rubin - Goldman Sachs Group Inc.

Steve Scala - Cowen and Company, LLC

Seamus Fernandez - Leerink Swann LLC

Christopher Schott - JP Morgan Chase & Co

Marc Goodman - UBS Investment Bank

Charles Butler - Barclays Capital



Good day, everyone, and welcome to Merck's Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] At this time, I'd like to turn the conference over to Alex Kelly, Senior Vice President of Investor Relations. Please go ahead.

Alex Kelly

Thank you, Brooke, and good morning, everyone. And welcome to Merck's 2010 Fourth Quarter and Full Year Conference Call. Before I turn the call over to Ken Frazier, I want to point out a couple of things this morning. First, there are a number of items in the GAAP results such as purchase accounting adjustments, merger-related expenses, restructuring costs and other charges and we have excluded those items in our non-GAAP results. You can find our non-GAAP reconciliation tables in our press release and also in our financial supplements, so you'd get a better sense of the underlying performance.

Next we've also provided tables to help you understand the revenue trends. There are three tables in the press release. Table 1 is the GAAP results. Table 2 is a reconciliation of our GAAP P&L to our non-GAAP P&L for the fourth quarter and year-to-date period. Table 3 is a supplemental non-GAAP table, which provides the sales performance for the company, the business units and the products. During the call, we will refer mostly to Tables 2 and 3 so you might want to have those available.

Finally, I'd like to remind you that some of the statements we make during today's call might be considered forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Act of 1995. Such statements are based upon the current beliefs of management and are subject to significant risks and uncertainties. You can see in our SEC filings, including Item 1A and the 2009 10-K 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 we make today. Merck undertakes no obligation to publicly update any forward-looking statement.

And as always, you can see our website for the SEC filings. This morning, I'm joined by Ken Frazier, our President and Chief Executive Officer; by Adam Schechter, our President of Global Human Health; and Peter Kellogg, our Chief Financial Officer. Now I would like to introduce Ken Frazier.

Kenneth Frazier

Thank you, Alex, and good morning, everyone. I'm pleased that the hard work and consistent focus of my colleagues at Merck produced such strong results for the fourth quarter. These results were achieved in the midst of a tough external environment, coupled with ongoing merger integration activities around the world. Merck's resilient performance was a great finish for our first year of combined operations following the merger and provides us with good business momentum going forward.

Before moving on to the results, I want to take this opportunity to thank Dick Clark for his practical and principled leadership as CEO during the past five years. Dick steadily steered this company through a very challenging period, and his legacy is a stronger and better Merck. Under Dick's leadership, Merck brought forth great medical innovations such as JANUVIA, ISENTRESS, GARDASIL, RotaTeq and ZOSTAVAX, broadened its innovative platform by merging with Schering-Plough and produced a strong track record of value creation for Merck's shareholders. I am honored to succeed Dick as CEO, and to have the opportunity along with Merck's senior management team to lead the company into the future.

Now let me turn to our fourth quarter earnings. This morning, we reported a high-quality quarter characterized by strong revenue performance of $12 billion, significant cost reductions and double-digit earnings growth. Driving our revenue performance, SINGULAIR, JANUVIA, JANUMET, REMICADE and ISENTRESS grew a combined 15% on a year-over-year basis. In addition, our Animal Health portfolio grew 7%, and our Consumer Care business grew 8%. Our results clearly demonstrate the benefits of the post-merger Merck. We believe Merck is uniquely positioned to drive customer innovation, to grow our business globally and to create shareholder value over the long term.

Looking back on 2010, I hope you will agree that we accomplished a great deal in bringing together two exceptional companies. As you know, many mergers struggle because they lose sales momentum after the transaction is complete. We did not. We integrated our commercial operations quickly and maintained sales momentum, despite significant resource reductions in the more developed market and the loss of marketing exclusivity for COZAAR/HYZAAR.

We remain focused on delivering our late-stage pipeline and over the course of 2010, we completed the prioritization of our combined R&D portfolio to give Merck one of the industry's best pipelines with more than 20 candidates in late-stage development. As part of that process, we removed 13 projects in Phases II or III. Additionally, we are more sharply focusing our R&D spending on a narrower group of therapeutic areas where we have the greatest likelihood to differentiate Merck.

To also, those areas where we can beat the competition and capitalize on significant future commercial opportunities. We generated four new drug approvals in a year where drug approvals were hard to come by, including DULERA in the U.S. and BRINAVESS, ELONVA, SYCREST in the EU, and we launched DAXAS in the EU. In addition, we filed important New Drug Applications in the fourth quarter, including boceprevir for hepatitis C and once-daily JANUMET XR.

While the recent news regarding the clinical studies of vorapaxar raises questions about the compound and has reduced expectations, we need to wait for the data and see what they tell us. As you know, despite all the advances that had been made, cardiovascular disease remains the world's leading killer. Addressing serious unmet medical needs is what Merck is all about. Boceprevir is a great example of a novel drug candidate from our lab that could meet a significant unmet need in the treatment of hepatitis C, with millions of patients worldwide waiting for new therapies. And that is why we remain committed to pursuing innovative R&D programs.

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