Merck & Company, Inc. (MRK)

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Merck & Co. (MRK)

Q4 2011 Earnings Call

February 02, 2012 8:00 am ET


Alex Kelly -

Kenneth C. Frazier - Chairman, Chief Executive Officer, President and President of Global Human Health

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

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


Charles Anthony Butler - Barclays Capital, Research Division

Seamus Fernandez - Leerink Swann LLC, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Jami Rubin - Goldman Sachs Group Inc., Research Division

Catherine J. Arnold - Crédit Suisse AG, Research Division

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

John T. Boris - Citigroup Inc, Research Division

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

Steve Scala - Cowen and Company, LLC, Research Division

Marc Goodman - UBS Investment Bank, Research Division

Christopher Schott - JP Morgan Chase & Co, Research Division

Michael K. Tong - Wells Fargo Securities, LLC, Research Division



Good day, everyone, and welcome to Merck's Fourth 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 Fourth Quarter Conference Call. Before I turn the call over to Ken Frazier, I want to mention a few housekeeping items. First, there are a number of items in the GAAP results such as acquisition-related charges, restructuring costs and certain other items. We have excluded those items from our non-GAAP results, and you can see our reconciliation tables in the press release and also in Table 2 that accompanies the press release. That will help you get a better understanding of the underlying performance.

Next, we've also provided tables to help you understand the sales of our key products around the world. There are 3 tables in the press release. Table 1 is the GAAP results. Table 2 reconciles GAAP, P&L items to non-GAAP. And the third table provides the summary of our product sales. During the call we will 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 management and are subject to significant risks and uncertainties. And I invite you to refer to our SEC filings including our 10-K, especially Item 1A which identifies certain risk factors and other cautionary statements which could cause our actual results to differ materially from any forward-looking statements we make today. You can see our SEC filings as well as our press release and other tables on our website, which is

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

Now I'd like to introduce Ken Frazier.

Kenneth C. Frazier

Thank you, Alex. Good morning, everyone, and thanks for joining us on the call today. As we close out 2011, we remain as committed as ever to our mission of translating cutting-edge science into medically important products that make a real difference in people’s lives. During the course of this last year, I had the opportunity to meet with many of our customers, including leading physicians, large health plans and health ministers around the world. What I consistently heard reinforced 2 points to me. First, there is still a progress agenda. The world will reward those companies that can create and deliver innovative medicines and vaccines that address unmet needs. Second, there is a productivity agenda. In the face of rising health care costs, those companies that can drive significant productivity gains, both for their customers and within their own operating models, will be the ones who survive and thrive. That is why doing great science and delivering customer value both in a sustainable manner remain the broader context for everything we're doing at Merck. Having said that, I'd like to now turn to our fourth quarter and 2011 results.

We closed out the year with a high-quality fourth quarter growing the top line 2% and the bottom line 10%. Our overall performance in 2011 confirms our ability to deliver strong operational results in the short term while investing for growth over the longer term. In addition, it gives us confidence that we can achieve our ambitious plans for 2012 and beyond.

One of the differentiating success factors that allows companies to succeed over the long term is their ability to respond to the challenges they continue to face. I'm pleased with the way our teams responded to and overcame the challenges we encountered in 2011. In fact, we grew full year 2011 sales by 4% and leveraged our cost base to drive a 10% increase in non-GAAP EPS. This performance is an early indicator that we are on the correct path with our strategy, which focuses on executing on our plans to optimize our core business, expanding in key markets around the world extending our presence in complementary businesses like Consumer Care and Animal Care, and accelerate -- excelling at operating our business for maximum efficiency so that we can invest for future growth. We fully intend to execute this strategy well, which will lead to strong and sustainable cash flow and increase shareholder return. I outlined the fundamentals of this strategy during our recent R&D day, and today I will talk about how we executed against it in the fourth quarter and the full year.

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