Merck & Company, Inc. (MRK)

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Merck & Co. (MRK)

Q3 2012 Earnings Call

October 26, 2012 8:00 am ET

Executives

Alex Kelly

Kenneth C. Frazier - Chairman, Chief Executive Officer and President

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

Peter N. Kellogg - Chief Financial Officer and Executive Vice President

Analysts

Marc Goodman - UBS Investment Bank, Research Division

Christopher Schott - JP Morgan Chase & Co, Research Division

Charles Anthony Butler - Barclays Capital, Research Division

David Risinger - Morgan Stanley, Research Division

Tim Anderson - Sanford C. Bernstein & Co., LLC., Research Division

Mark J. Schoenebaum - ISI Group Inc., Research Division

Jami Rubin - Goldman Sachs Group Inc., Research Division

Steve Scala - Cowen and Company, LLC, Research Division

Catherine J. Arnold - Crédit Suisse AG, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Alex Arfaei - BMO Capital Markets U.S.

Seamus Fernandez - Leerink Swann LLC, Research Division

Michael Kallai Tong - Wells Fargo Securities, LLC, Research Division

Presentation

Operator

Good day, everyone, and welcome to Merck's Third Quarter 2012 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

Thank you, Jackie, and good morning, everyone, and welcome to Merck's Third Quarter 2012 Conference Call. Before I turn the call over to Ken, I want to mention just a couple of housekeeping items. First, there are a number of items in the GAAP results such as acquisition-related charges, restructuring costs and certain other items, and you should note that we've excluded those in our non-GAAP numbers. You can see reconciliation tables for the non-GAAP results in the press release and also in Table 2 of our supplement. We've also provided tables to help you understand the GAAP results, and that is in Table 1; the reconciliation tables, as I mentioned, on Table 2; and Table 3 in our press release provides sales performance for the company, our business units and our products. During the call, we'll be referring primarily to Tables 2 and Table 3.

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 provisions of the U.S. Private Securities Litigation Reform Act of 1995. The statements are based upon the current beliefs of Merck's management and are subject to significant risks and uncertainties. You can see our SEC filings, including the 2011 10-K. They identify certain risk factors and cautionary statements that could cause our actual results to differ materially from any forward-looking statements we make today. You should note that Merck undertakes no obligation to publicly update any forward-looking statement. And importantly, you can find our SEC filings as well as today's press release on our website at merck.com.

This morning, I'm joined by Ken Frazier, our President, Chief Executive Officer and Chairman; Adam Schechter, our -- the President of Global Human Health; and Peter Kellogg, our Chief Financial Officer.

Now I'd like to turn it over to Ken Frazier.

Kenneth C. Frazier

Thank you, Alex. Good morning, everyone, and thank you for joining the call today. Our results this quarter reflect the continuing momentum of our underlying business. One year ago, we told you that our intention was to maintain 2012 revenues at or near 2011 levels despite the U.S. SINGULAIR patent expiration, and the Merck team is making good on that commitment. In the third quarter, we drove growth of our key products and in our key geographies, which offset the impact of the SINGULAIR patent expiration. With one more quarter to go in 2012, our year-to-date sales are up 2%, excluding the impact of exchange, so we are right on track in executing our strategy.

We strongly believe that our 4-part strategy provides a sound basis for weathering short-term market volatility and driving longer-term shareholder value. As a reminder, our strategy is focused on executing on our core business, which includes our largest markets, core brands, new launched brands and innovative R&D targeted at therapeutic areas with the greatest future patient demand and scientific opportunity; two, expanding geographically to leverage high-growth markets such as Japan and key emerging markets; three, extending into the complementary businesses of Consumer Care and Animal Health; and four, excelling at managing our costs while continuing to invest for future growth. We also believe this strategy will allow us to continue doing what Merck does best: providing innovative products that have demonstrated patient outcomes, provide value to the public and private payers alike and make a real difference for our customers.

In terms of executing our core business, our company-wide sales grew 7% this quarter, excluding SINGULAIR sales globally and foreign exchange. We are pleased with the solid growth across the portfolio, including double-digit growth for a number of our key products.

In terms of expanding geographically, we continue to invest disproportionately in higher-growth markets. In the third quarter, emerging market sales grew 15% excluding exchange. We are also starting to get our joint ventures up and running, such as our partnership with Simcere in China, which began operating this quarter. As always, Adam will provide more specific details about our human health performance by product and by geography.

The third part of our strategy is extending into complementary businesses. Our Animal Health business continues as a strong contributor with 7% growth in the third quarter, excluding exchange. Additionally, we launched ACTIVYL in the U.S., a companion animal health product line for ticks and fleas. Merck Consumer Care grew 10%, excluding exchange. This growth was led by the expansion of our Dr. Scholl's franchise with the launch of the Active Series as well as key skin care brands.

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