Merck & Company, Inc. (MRK)

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Merck & Co. (MRK)

Q2 2011 Earnings Call

July 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

David Maris - Credit Agricole Securities (USA) Inc.

Alison Yang - Barclays Capital

Catherine Arnold - Crédit Suisse AG

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

Jami Rubin - Goldman Sachs Group Inc.

Steve Scala - Cowen and Company, LLC

Christopher Schott - JP Morgan Chase & Co

Seamus Fernandez - Leerink Swann LLC

Gregory Gilbert - BofA Merrill Lynch

Marc Goodman - UBS Investment Bank

Barbara Ryan - Deutsche Bank AG



Good day, everyone, and welcome to Merck's Second Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Alex Kelly, Senior Vice President of Investor Relations. Please go ahead.

Alex Kelly

Thanks, Brooke, and good morning, everyone, and welcome to Merck's 2011 Second Quarter Earnings Call. Before I turn the call over to Ken, I want to point out a couple of things. First, there are a number of items in the GAAP results this quarter such as acquisition-related charges, restructuring costs and a one-time tax benefit. We have excluded those items in our non-GAAP reconciliation tables, so you can get a better sense of the underlying performance.

Next, we've also provided tables to help you understand the revenue trends. So in our press release, you see 3 tables. First table is the GAAP results. The second table reconciles GAAP to non-GAAP P&L. And the third table provides the sales results of the company, the products and the business units. During the call, we'll be referring mostly to Tables 2 and 3 when we discuss our performance.

Finally, I'd 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 the current beliefs of Merck's management and are subject to significant risks and uncertainties.

Our SEC filings, including Item 1A in the 2010 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 we make today. Merck undertakes no obligation to publicly update any forward-looking statement. The SEC filings, as well as our earnings release and the tables are available on our website at

So now we're ready to begin. This morning, I'm joined by 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 good morning, everyone. This is a time of great opportunity at Merck and our second quarter, which was strong, is indicative of the focused progress we're making to deliver on the goals I outlined for you earlier this year. This quarter, we delivered top line sales growth of 7%, driven by a strong in line portfolio and new product launches together with disciplined expense management while allocating targeted resources to fund our future growth drivers. This resulted in double-digit non-GAAP EPS growth. That is our game plan, and we are continuing to execute on all aspects of our growth strategy by maximizing our product portfolio, delivering the R&D pipeline, expanding geographically and building upon the newly renamed Merck Animal Health division and Merck Consumer Care. We're delivering this top line growth, while continuing our efforts to streamline and transform Merck's operating model.

In terms of maximizing the current portfolio, we had another quarter of double-digit growth for many of our key products such as JANUVIA, JANUMET, REMICADE and ISENTRESS. In addition, Merck Animal Health, once again, made solid contributions to our total performance. Another driver of our second quarter performance is the progress we are making in launching new products around the world. With more than a dozen product launches underway in various markets, we believe this speaks well of our ability to deliver new drugs from our research pipeline. As I said last quarter, we firmly believe that the predominant driver of long-term growth and sustainable value creation for Merck will continue to come from discovering and developing new and differentiated products that address unmet medical needs.

VICTRELIS is just such a product. It is a first-in-class protease inhibitor and a significant medical advance. As you know, the U.S. launch is underway. We are concentrating our efforts to ensure that patients are treated appropriately with the new standard of care. While many physician prescribers, thus far, have yet to initiate patients on triple combination therapy, we are encouraged both by the early demand and positive feedback from physicians, payers and patients. It is hard to overstate how rewarding it is for the Merck team to be able to bring such a significant new product to patients who need it. Our recent approval in Brazil now makes VICTRELIS the first in this new class to be approved in the U.S., EU and Latin America. Adam will speak more about the VICTRELIS launch in a moment.

Beyond the VICTRELIS approval, we've also received 3 recent approvals in Japan: GARDASIL, ZOLINZA and CUBICIN. From a life cycle management standpoint, we filed 2 applications with the FDA. The first is for an expanded indication for both VYTORIN and ZETIA, based on the data from the SHARP trial, for the treatment of patients with chronic kidney disease. If approved, this will be the first and only cholesterol-lowering therapy with proven cardiovascular outcomes for this set of patients. The second is for a preservative-free formulation of COSOPT. We've also made additional progress in the pipeline by enrolling the first patients in the 30,000-patient anacetrapib outcomes trial. As I mentioned to you last quarter, we are not in a business-as-usual mode when it comes to managing our investments in R&D. We continue to improve the decision process by which we either commit to or discontinue projects, and we're being more aggressive about prioritizing the programs, as well as the therapeutic areas where we will invest. With the number of important trials scheduled to complete in 2012 and 2013, we remain confident in Merck's late-stage pipeline, and we look forward to telling you more about our progress at the R&D and business briefing, which is planned for November 10.

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