Merck & Company, Inc. (MRK)

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Merck & Co. (MRK)

Q1 2011 Earnings Call

April 29, 2011 8:00 am ET


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

Adam Schechter - Executive Vice President and President of Global Human Health

Peter Kellogg - Chief Financial Officer and Executive Vice President

Alex Kelly - IR


David Risinger - Morgan Stanley

John Boris - Citigroup Inc

Tim Anderson - Sanford C. Bernstein & Co., Inc.

Jami Rubin - Goldman Sachs Group Inc.

Steve Scala - Cowen and Company, LLC

Seamus Fernandez - Leerink Swann LLC

Michael Tong - Wells Fargo Securities, LLC

Christopher Schott - JP Morgan Chase & Co

Gregory Gilbert - BofA Merrill Lynch

Marc Goodman - UBS Investment Bank

Charles Butler - Barclays Capital



Good morning. My name is Arnika, and I will be your conference operator today. At this time, I would like to welcome everyone to the Merck First Quarter 2011 Earnings Conference Call. [Operator Instructions] Mr. Kelly, you may begin your conference.

Alex Kelly

Thank you, Arnika, and good morning everyone, and welcome to Merck's 2011 First Quarter Conference Call. Before I turn the call over to Ken, I wanted to point out a couple of things. First of all, I really want to thank Joe Romanelli for his contributions to the Investor Relations team over the last 4.5 years. He's been a great asset to our team, and I really thank him for this time with us. Some of you may know that this is Joe's last day in the Investor Relations team, as he begins the next chapter of his career at Merck, where he'll be working as the Executive Director of Global Human Health Operations, supporting Adam Schechter in his leadership team. So, Joe, good luck in your new role.

Second, as usual, there are a number of items that I need to remind you of before we begin. First, if you look at our GAAP results, there are some items such as purchase accounting adjustments, merger-related expenses, restructuring costs and other charges such as the arbitration settlement. We've excluded those items from our non-GAAP results so that you can get a better sense of the underlying performance.

Next, we've also provided tables to help you understand the trends in the business. There are 3 tables in the press release. Table 1 is the GAAP results. Table 2 reconciles our GAAP P&L to non-GAAP P&L for the second quarter -- excuse me, for the first quarter and year-to-date period. Table 3 is a supplement to our non-GAAP results, which provides the sales performance for the company, the business units and products. During the call today, we'll be referring to Table 2 and Table 3.

Finally, I'd like to remind you that some of the statements we make today might be considered forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs of Merck's management and are subject to significant risks and uncertainties.

Our SEC filings, including Item 1A and the 2010 10-K identify certain risk factors and cautionary statements that could cause our actual results to differ from any forward-looking statements we make today. And we undertake no obligation to publicly update our forward-looking statements that we make. The company's SEC filings are available on the company's website at

Now I'd like to announce our speakers this morning. Ken Frazier, our President and Chief Executive Officer; Adam Schechter, our President of Global Human Health; and Peter Kellogg, our Chief Financial Officer.

Now I'd like to introduce Ken Frazier.

Kenneth Frazier

Thank you, Alex, and thank you, Joe, for your contributions. Good morning, everyone. We are pleased to report strong results for the first quarter of 2011. Our performance underscores that we are successfully delivering on our stated intent to grow both the top line and the bottom line. This is really an execution story. We are executing on our plans and we believe we're off to a good start this year.

The quarter was characterized by growing revenues and double-digit EPS growth. Our performance was largely driven by double-digit growth of key products such as JANUVIA, JANUMET, SINGULAIR, REMICADE, ISENTRESS and NASONEX, combined with deliberate cost control measures across all areas as we continue our work to create a more effective and efficient operating model within Merck.

In addition to the significant contributions of our Human Health portfolio this quarter, our Animal and Consumer Health businesses grew 7% and 6%, respectively. We are pleased with the assets we have in Animal Health and Merck Consumer Care and believe they complement our Human Health business. We remain focused on executing our growth strategy, which includes these businesses.

Just a year ago, we were facing a significant patent cliff for our $3.6 billion COZAAR/HYZAAR franchise. Clearly, patent expirations are a fact of life in our industry, and going forward, we believe a company's ability to consistently grow through patent expiries will be an important differentiator and measure of success. I am pleased to say that over the past year, we grew earnings while at the same time, overcoming the loss of exclusivity for our COZAAR/HYZAAR franchise and performing as we did under the integration.

Overall, this underscores the strength of our Human Health, Animal Health and Consumer businesses and the benefits of this mix of businesses. Looking at the quarter's results, it is clear that our business momentum is building as we enter the accelerate phase of our growth strategy, and we continue to demonstrate the ongoing value of the merger. We made progress in our robust late-stage pipeline and are leveraging the benefits of our expanded portfolio. Indeed, the steps we are taking are paying off and enable us to increase the midpoint of our 2011 guidance range despite the $0.08 to $0.09 second-half impact of the J&J arbitration resolution.

We know that given the long lead time nature of this industry, in many ways, we are still reaping the benefits of actions and decisions that were taken as long as a decade ago. Therefore, we are taking decisions now that will position us for sustained growth well into the future. We will improve all aspects of our operations, prudently invest for growth and most importantly, deliver value through innovation. A key part of our growth strategy is to maximize revenue from our current products while launching new ones, and this quarter's results clearly demonstrate that we're delivering on that front.

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