Ladies and gentlemen, thank you for standing by. Good morning. My name is Alan, and I will be your conference moderator today. At this time, I would like to welcome everyone to the Merck & Company Q2 Sales and Earnings Conference Call. As a reminder, this conference is being recorded. Thank you. I would now like to turn the conference over to Peter Dannenbaum, VP Investor Relations. Please go ahead.

Welcome to Merck's Second Quarter 2022 Conference Call. Speaking on today's call will be Rob Davis, President and Chief Executive Officer; Caroline Litchfield, Chief Financial Officer; and Dr. Dean Lee, President of Merck Research Labs. Before we get started, I'd like to point out a few items. You'll see that we have items in our GAAP results such as acquisition-related charges, restructuring costs, and certain other items. You should note that we have excluded these from our non-GAAP results and provide a reconciliation in our press release. I would like to remind you that some of the statements that we make today 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 made based on the current beliefs of Merck's management and are subject to significant risks and uncertainties. If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those in the forward-looking statements. Our SEC filings, including Item 1A and the 2021 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 of our forward-looking statements made this morning. Merck undertakes no obligation to imply update any forward-looking statements. During today's call, a slide presentation will accompany our speakers' remarks. The presentation today, earnings release, as well as our SEC filings are all posted to the Investor Relations section of Merck's website. With that, I'd like to turn the call over to Rob.

Thanks, Peter. Good morning, and thank you for joining today's call. I'm proud to report that the business continues to perform extremely well. We remain firmly guided by our strategic priorities to build long-term growth and deliver value to patients and shareholders. We're executing on the opportunities in front of us today while simultaneously making the necessary investments to sustain our success long into the future. I'm pleased to report that during the second quarter, we achieved robust top and bottom line growth and made additional important clinical advancements in our pipeline. Turning first to our results. We again achieved exceptional performance this quarter led by strong growth of key products, including KEYTRUDA, GARDASIL, and BRIDION. Our results were driven by revenue from LAGEVRIO, which is helping to in fighting COVID-19. We're confident in the underlying demand for our innovative portfolio and we continue to see momentum in our business, which we are pleased to reflect in our updated guidance. Moving to research organization. We continue to advance our pipeline most significantly across our suite of pneumococcal vaccines. VAXNEUVANCE received an expanded approval from the FDA for pediatric cases, providing an important option for preventing invasive pneumococcal disease. We also presented results from clinical studies of V116, our vaccine designed specifically to address the needs of adults, and we've initiated ongoing phase III studies. These milestones reinforce the confidence we have in our population-specific approach to address the needs of children and adults. We've also taken additional steps to understand the significant opportunities we see in the pipeline. In June, we hosted an investor event at ASCO. We highlighted the depth and breadth of our oncology program. At the event, we reiterated our ambition to become the leading oncology company by 2025 and our goal of sustaining this success well into the next decade. As I reflect on my first year as CEO, I'm very pleased with the significant progress we've made in advancing our position as a global pharmaceutical leader and the interim momentum starting across our business. The unwavering focus and dedication of our employees worldwide is driving strong execution on the significant opportunity in front of us. We're demonstrating impressive resilience across all aspects of our business in a very challenging global environment. We're achieving market levels of production in our manufacturing operations, delivering exceptionally strong revenue growth, making meaningful advancements in our pipeline, and taking important steps to expand our outlook. Our strategy is working, and our future is bright. I was very confident a year ago, and I'm even more confident today that we are well positioned to achieve our near and long-term goals, anchored by our commitment to deliver important medicines and vaccines to patients and value to all of our stakeholders, including shareholders. With that, I'll turn the call over to Caroline.

Thank you, Rob. Good morning. As Rob highlighted, we are maintaining this year's strong momentum with another quarter of exceptional performance in both revenue and earnings. These results further demonstrate that our science as the core of our strategy is working. Our success is being enabled by the excellent execution of our dedicated products across the globe and our ability to deliver value for patients, customers, and shareholders. Company revenues were $14.6 billion, an increase of 28%. LAGEVRIO contributed $1.2 billion in revenue. Excluding LAGEVRIO, the business delivered very strong growth of 18%. The remainder of my comments will be on an exchange basis. Our Human Health business continued its strong momentum with growth of 33% or 21%, excluding LAGEVRIO driven by our key pillars. Our Animal Health business also delivered strong performance, with sales increasing 5% driven by growth across both our livestock and companion animal products. Now turning to the performance of our key brands. In oncology, KEYTRUDA grew 30% to $5.3 billion, driven by the vast global demand as well as continued expansion into new indications reflecting the positive impact it is having for more patients across the globe. In the U.S., KEYTRUDA continues to demonstrate momentum in metastatic indications and is experiencing strong growth from recent launches in early-stage treatments for triple-negative breast cancer, renal cell carcinoma, and melanoma. KEYTRUDA is now approved in 6 indications for earlier-stage cancers. We've seen strong utilization and are confident in its continued success as physician and patient experiences grow. We have seen a particularly strong uptake in neoadjuvant adjuvant high-mileage triple-negative breast cancer based on KEYNOTE-522, offering a distinct treatment option for patients in an area of significant unmet need. In the metastatic setting, KEYTRUDA maintained the leadership position in non-small cell lung cancer capturing 8 out of 10 patients. Outside the U.S., KEYTRUDA was driven by continued uptake in non-small cell lung cancer and ongoing approvals in head and neck cancer and renal cell carcinoma. Initial indicators also point to encouraging trends in the United States for breast cancer and renal carcinoma in key European markets. The Lynparza remains a market-leading PARP inhibitor. Our revenue grew 17%, driven by uptake in patients with high-risk early-stage breast cancer following FDA approval. We look forward to potentially expanding leadership by reaching the patient population based on studies. Lenvima revenue grew 33% due to strong demand following the launch in advanced renal cell carcinoma and the use of PMOT775 in metastatic endometrial cancer. New patient targets remain strong. Lastly, we continue to be encouraged by WELIREG, which is tracking in line with expectations. The portfolio again delivered excellent growth, fueled by GARDASIL, which increased 40% to $1.7 billion. Outside the U.S., GARDASIL's significant growth was driven by strong underlying demand, particularly in China, as well as increased supply. In the U.S., the decrease was primarily due to CDC purchasing patterns, although we continue to be impacted by various market dynamics. We continue to invest behind activation campaigns to ensure that parents recognize the importance of routine vaccinations for their children. We remain confident in the growth trajectory of GARDASIL given the proven ability to help prevent certain HPV-related cancers in both females and males. In our hospital acute care portfolio, sales increased by 15% driven by greater market share and an increase in surgical procedures. Our animal health business delivered another solid quarter, with sales increasing 5%, driven by higher demand in livestock and poultry. Companion animal sales increased 3% due to global demand for our product portfolio. I will now walk you through the remainder of our P&L, and my comments will be on a non-GAAP basis. Gross margin was 74.7%, a decrease of 1.8 percentage points. The decrease was due to the impact of market factors, higher inventory levels, and increased manufacturing costs, partially offset by favorable product mix across the remainder of the portfolio. Operating expenses decreased 19% to $5.2 billion, reflecting charges primarily related to last year's acquisition, which is reflected in our second quarter 2021 R&D expense. Operating expenses excluding these charges increased as planned, driven by investments in our key growth drivers and pipeline. Other expenses were approximately $200 million, reflecting higher-than-expected pension settlement effects. Our tax rate was 13.8%. Taken together, we reported earnings of $1.87 per share. Turning now to our 2022 non-GAAP guidance. The strength of our business enables us to raise and narrow our full-year revenue guidance. We now expect revenue to be between $57.5 billion and $58.5 billion. Our increased revenue guidance range represents growth of 18% to 20% or 13% to 14%, excluding LAGEVRIO and the impact from foreign exchange. The projected impact from foreign exchange includes an incremental headwind of more than 1% using data from July resulting in a net impact of approximately 3%. We are maintaining our gross margin expectation of between 74% and 74.5%. We are increasing our operating expense projection to $20.5 billion to $21.5 billion, primarily driven by an upfront payment from the recently announced collaboration. As an ongoing practice, our finance does not include significant potential from development transactions. We increased our expectations for other expense to approximately $100 million, reflecting higher-than-anticipated pension settlement expenses. We continue to assume a full-year tax rate between 13.5% and 14.5%. We assume 2.54 billion shares outstanding. Taken together, we have managed our expected EPS range to $7.25 to $7.35. The operational strength in our business has led to approximately a 20% increase in our guidance. This strength is being offset by upfront entry costs, pension settlement expenses, and an incremental headwind on foreign exchange. Overall, that guidance reflects our confidence that the strong underlying momentum of our business will continue into the second half of the year. As you consider your models, there are a few things to keep in mind. First, the pandemic has influenced growth in the first half, and we expect the benefits to reset over the remainder of the year. In addition, we actively manage the impact of foreign exchange through our revenue-saving program. To the extent we see further negative impacts from foreign exchange, we will seek additional benefits from our hedging strategies as we did in this quarter. Other revenue also includes supply agreements and partnerships. In total, we expect other revenue to be higher in the second half versus the first half of 2022. With respect to our products, we recently expect a negative impact on U.S. sales due to a shift towards new adult pneumococcal vaccines. In Animal Health, we're seeing normalized industry growth rates as we adjust for favorable trends resulting from the pandemic and foreign exchange headwinds. However, given our broad innovative portfolio, we are well positioned to continue to drive market growth in 2022 and beyond. Finally, we continue to expect full-year sales of $5 billion to $5.5 billion, with second-half sales weighted towards the fourth quarter. Adaptation priorities remain unchanged. We will continue to clarify investments in our pipeline and business to realize the value of the many near and long-term opportunities in front of us. We continue to pursue strategic business development to augment our internal pipeline. Our recent collaboration is another example of our execution of this strategy. We remain committed to our dividend, which we expect to increase over time. Finally, to the extent we have excess cash, we will return it to shareholders through share repurchases. To conclude, at the end of the second half of the year, we remain very confident in our business, driven by global demand for our innovative medicines and vaccines. Our excellent execution will enable us to continue to deliver value to patients and shareholders well into the future. With that, I'd now like to turn the call over to Dean.

Thank you, Caroline. It's my pleasure to provide an update on our progress since the first quarter call. We continue to execute on our pipeline strategy. We are advancing the latest signs to generate medicines and vaccines that provide clear benefits for patients. Today, I will highlight recent progress in our vaccine pipeline and provide an update on our oncology program as well as LAGEVRIO. As Rob noted, we have made significant progress across our pneumococcal portfolio. Building upon the approval in the adult indication we received a year ago. Last month, we received FDA approval for our 15 valent pneumococcal conjugate vaccine, VAXNEUVANCE, an important new option to help protect pediatric populations against invasive pneumococcal disease. VAXNEUVANCE is the first pneumococcal conjugate vaccine approved for pediatric populations in almost a decade. VAXNEUVANCE provides comparable immunogenicity for 12 shared serotypes compared to the currently available 13 valent pneumococcal conjugate vaccine, improved immunogenicity for serotype 3 and expanded coverage for serotype 22F and 33F. Serotype 3, 22F, and 33F are key invasive disease-causing serotypes known to be responsible for more than a quarter of all invasive pneumococcal disease in children. Following FDA approval, the CDC's Advisory Committee on Immunization Practices voted unanimously to endorse VAXNEUVANCE as an option for children under 19 years of age. Additionally, the ACIP unanimously voted to include VAXNEUVANCE in the vaccines for children program. We await publication of the final recommendations. Also in June, at the International Symposium on pneumococci and pneumococcal diseases in Toronto, we presented positive results from our Phase I/II study evaluating V116, our investigational 21-valent pneumococcal conjugate vaccine in pneumococcal vaccine-naive adults. V116 is designed to significantly expand coverage compared to currently licensed pneumococcal vaccines by targeting serotypes that account for 85% of all invasive pneumococcal disease cases in adults aged 65 and older in the United States as of 2019. As a strong indicator of our progress, we recently enrolled the first patient into the STRIDE 3 trial evaluating V116 in vaccine-naive adults, the first of 4 current Phase III trials. We have taken a thoughtful and tailored approach to establishing a pipeline of pneumococcal vaccine candidates designed to improve protection by targeting strains posing the greatest risk to specific populations. I look forward to providing additional updates on the progress of our pneumococcal program for VAXNEUVANCE, V116, and V117, our investigational candidate specifically targeting pediatric disease. Turning to oncology, we continue to build on the momentum in earlier-stage cancers. We announced that the FDA has accepted our application of KEYTRUDA for the adjuvant treatment of patients with non-small cell lung cancer following surgical resection based on the results of the ongoing KEYNOTE-091 trial. The FDA has set a Prescription Drug User Fee Act (PDUFA) date of January 29, 2023. However, additional data may be provided during the review process that could delay this timeline. At the American Society for Clinical Oncology Meeting in June, we provided expanded analysis and presented data on new endpoints in key subgroups for KEYNOTE-716 and for the adjuvant treatment in Stage IIb and III melanoma, KEYNOTE-522 in neoadjuvant high-risk early-stage triple-negative breast cancer, and KEYNOTE-564 in adjuvant renal cell carcinoma. We are also delivering on our regulatory strategy outside the United States. Notable actions include 4 approvals for KEYTRUDA from the European Commission based on KEYNOTE-716 for the adjuvant treatment of patients 12 years and older with completely resected Stage IIb or 2C melanoma; KEYNOTE-522 in high-risk early-stage triple-negative breast cancer; KEYNOTE-164 and KEYNOTE-158 in MSI-high and/or mismatch repair deficient tumors in 5 different cancer types; and KEYNOTE-826 in certain types of persistent recurrent or metastatic cervical cancer. In addition, we received a positive EU CHMP opinion for adjuvant treatment with LYNPARZA for patients with high-risk early-stage breast cancer based on the Phase II OLYMPIA trial. Finally, we are encouraged by the positive readout of KEYNOTE-869 or EV-103 in first-line urothelial cancer, which is in collaboration with SGI. Next, I want to discuss our ongoing efforts to treat prostate cancer. Prostate cancer impacts millions of men, and those with advanced disease have low rates of 5-year survival. We continue to generate insights about prostate cancer from our ongoing work, and we remain focused on improving patient outcomes. Business development and licensing remain a key element of our strategy to build and maintain a strong and diverse pipeline. Earlier this month, we announced a global development and commercial collaboration agreement with Orion for the investigational oral steroid synthesis inhibitor, ODM-208, which is currently in Phase II development for treating metastatic castrate-resistant prostate cancer. ODM-208 targets cytochrome P450 17A1, a novel approach that is complementary to our broad-based prostate cancer program, which includes the combination of KEYTRUDA with chemotherapy based on KEYNOTE-091, KEYTRUDA with anti-androgen therapy based on KEYNOTE-641 and KEYNOTE-991, and LYNPARZA with anti-androgen therapy based on the PROPEL trial. Now, regarding COVID-19 and LAGEVRIO, the pandemic persists and SARS-CoV-2 continues to evolve. There is emerging evidence for the threat of resistance to antibody therapies from Omicron variants, notably BA.4 and BA.5. The rate of transmission and increased hospitalizations with these variants reinforce the need for multiple effective antiviral treatment options, especially for those most vulnerable. For high-risk patients, evidence continues to show that prompt therapeutic intervention improves outcomes. Importantly, a large proportion of high-risk individuals, including older adults, are likely receiving additional medications for chronic conditions. LAGEVRIO's low propensity for drug-drug interactions avoids the need to adjust existing dosing regimens and monitor liver and kidney functions during treatment, which can facilitate timely intervention for appropriate patients. Recently, data reported from Denmark, Hong Kong, and Poland have provided support for the utility of LAGEVRIO in real-world settings. We plan to share more data as they become available. To conclude, I am proud of the advancements across our pipeline to date and look forward to providing further updates on our scientific progress in the future. And now I will turn the call back to Peter.

Thank you, Dean. Alan, we're ready for the Q&A session. If you could please assemble the queue.

Our first question will come from Terence Flynn with Morgan Stanley.

Maybe a two-part question here. Just wondering if there's a pathway to extend the IP on KEYTRUDA via either subcutaneous formulation or maybe some other type of formulation patents? And then is there anything from a technical perspective that would prohibit a co-formulation of KEYTRUDA with an antibody-drug conjugate?

I guess I will take this. This is Dean. In relation to different routes of administration, I think you've highlighted that, especially as we go into early stages of cancer, there will be a demand from patients and the providers to really come up with other formulations besides intravenous formulations where you have to go to an infusion center. So subcutaneous pembrolizumab could be very important to serve that need. The innovation required for subcutaneous KEYTRUDA is viewed through the past history, and I would imagine the current situation is novel, useful, and non-obvious. So I think there is a path to think about that innovation. In relation to co-formulations. In general, co-formulations work well when we do immuno-oncology combinations with PD-1 that CTLA-4, TIGIT, or LAG-3. The issue with chemotherapy or antibody-drug conjugate bases, I would be a little hesitant to do that, as oftentimes they are based on weight. So, clinical trials involving co-formulations of immuno-oncology agents with chemotherapy or antibody-drug conjugates could be challenging.

That will be from Evan Seigerman with BMO Capital Markets.

With the widespread news reports of a potential deal with Senators management and Schumer, can you provide us with your thoughts on the structure for Medicare to directly negotiate with manufacturers for drug reimbursement and the potential impact on R&D going forward?

Yes. Evan, thanks for the question. This is Rob. As you said, there are reports from yesterday of a potential deal with the Senator, which includes elements of what have been part of the build back better plan related to drug pricing. So as we look at that, I think it’s important to understand, first and foremost, we do have significant concerns regarding a very important element of the provision, which is the fact that there is what we see as price setting, it's termed negotiation. But in effect, what it is, it is price setting on drugs after a period of time. We believe that will be highly chilling on future innovation, especially if you think about oncology, where the development of the drug continues long after the first approval. If you take KEYTRUDA, the launch in 2014 between 2014 and 2022, we had more than 30 indications approved. We expect to have well more than double that between 2022 and 2028. Our concern is that if you start to introduce mandatory discounts, companies might question their innovation pipeline because they will have to question whether or not they're going to see a return. So we see a higher chilling effect of that, and it's something that we will continue to communicate about as an industry. The only other thing I might add is as you think about our business going forward, it is important to understand that we have always assumed some form of price pressure would come, including in the United States. I think we have communicated that in the past. So as we look at this, and you think of it relative to the guidance we've given previously regarding expectations for strong growth through our long-range period, that continues to hold true and includes these assumptions. So while I think we will manage it, I do worry about what it will do to innovation in the industry.

Will come from Andrew Baum with Citi.

A couple of questions. Firstly, you've announced a couple of licensing from China of ATC. I think one of them is in late-stage development. It's widely reported that you're in talks with Seagen, which has Phase III data from another ADC molecule, which would compete with in HER2. In general, I'm interested if Dr. Pastor seems to have closed the doors on seeking approval in the U.S. using data from Chinese trials. But operationally, how fast does it enable you to go, knowing that you have efficacy and safety signals in a Chinese population in expediting the move into Phase III, i.e., is there an advantage here that you could enable you to catch up with the market leaders? Then my second question on islatravir, perhaps you could care to update us on how your discussions with Gilead in terms of the FDA regarding resuming trials. Is this drug alive as a prophylactic, in PrEP as a treatment, both, or neither?

This is Dean. Thank you for those questions. Addressing your first question related to our recently announced partnership with Kelyn. I should just emphasize this was recently announced, but we've had a productive partnership for the past two years. Recently, they have announced progress in two programs. One focuses on Trop-2 ADCs and they are advancing it in China in relation to breast cancer and non-small cell lung cancer. Regarding the potential to move these molecules to the United States, I think the FDA has been very clear on the importance of conducting those trials, not just in a single geography such as China, but to have global studies that include the U.S. The ability for our partners to provide us signals in a human population is vital and allows us to navigate our approach on a global level. I am hopeful that this partnership will enable us to accelerate the benefits of this stroke-focused ADC to reach as many patients as possible. Regarding your second question on islatravir, it's an NRTTI that is highly potent with a long resident time and a high barrier to resistance. We had two Phase III studies that gave excellent results. However, we encountered reductions in lymphocytes across several of our programs, most of which were asymptomatic, but in a combo trial with MK-8507, we observed a clinically meaningful reduction that's still under examination. We have spent the last six months understanding it far better. We believe that there is a potential path forward to maintain efficacy while reducing the effects on blood cells. We are in active discussions with the FDA. I don't want to get ahead of myself there, and we clearly are in discussions with our partners. In terms of treatment and PrEP, we have always believed this class of molecules, NRTTI and islatravir as just one compound within this class, could be used broadly in treatment and in PrEP, we are interested in advancing both possibilities.

That will be Louise Chen with Cantor.

I wanted to ask about the checkpoint inhibitor strategy. What are your thoughts on the changing treatment paradigm for checkpoint inhibitors in the neoadjuvant and adjuvant cancer settings? How do you think about adoption and uptake in this setting? Do you think doctors are convinced of the opportunity yet? Or is there more work to be done?

Let me answer it from a scientific standpoint. Perhaps Caroline or Rob could answer it from a market standpoint. I think it's really important to highlight, at least for me, PD-1s have been incredible in metastatic situations across a broad range of tumor types. We keep growing in earlier stages. It's not a priority that a medicine that works in the metastatic patient who has a significantly different benefit-risk ratio will be as effective in the early stage. We've had impressive results. We have six approvals across various tumor types including breast, renal cell carcinoma, and melanoma, and we have positive trial results in lung, with many others advancing. I believe the uptake has been good, but importantly, the scientific data has been very solid, and I think that the field will adopt it. One challenge is that now we're dealing with a broader set of physicians, including those who may not be experienced with these therapies, so continued education is essential. But the results speak for themselves. Caroline, would you like to address the market aspects?

Yes. Thank you, Dean. We are very excited about the opportunities that we have moving into earlier stages of cancer. Clearly, if we can impact patients sooner, the possibilities of better outcomes are greater. We have seen impressive performance in our early-stage cancers, particularly in triple-negative breast cancer, renal cell carcinoma, and melanoma. Regarding triple-negative breast cancer, following the KEYNOTE-522 approval here in the United States in July of last year, we experienced tremendous uptake in the first segment of treatment, which is the neoadjuvant treatment preceding surgery a few months later. We are now seeing not only patients come onto KEYTRUDA for neoadjuvant treatment, but also their return to treatment following surgery. Thus, we are optimistic about the opportunities we have in the adjuvant setting and the positive impact that we can make on patients.

We will go to Umer Raffat with Evercore.

I have two questions, if I may. First, Rob, I know you've mentioned that M&A is critical to further diversification of the business away from KEYTRUDA. You could explore M&A in basically a non-oncology bucket like Acceleron or in oncology. This brings me to my first question: in oncology, with KEYTRUDA being a foundational treatment across so many different tumors, how do you approach that given the increased FTC focus on examining many deals based on market shares in individual markets? Additionally, how do you consider oncology deals in general given KEYTRUDA's role? I'm sure you guys have thought about that at length as you consider any capital deployment. Separately, Rob, also, you mentioned drug pricing and mandatory discounts. I'm sure you have run exercises internally quantifying how much in discounts. Given that KEYTRUDA's price in the U.S. and outside the U.S. is quite similar, wouldn't there not be much mandatory discount at all? I want to ensure I’m not missing something here despite KEYTRUDA being a top Part B drug.

Thanks, Umer, for the questions. On your first inquiry regarding M&A in the oncology space, I would start by emphasizing that we are incredibly proud of the success we've achieved with KEYTRUDA and its ability to positively impact the lives of many across various tumor types. However, oncology continues to be an intensely competitive field, and importantly, it's not monolithic. Each tumor requires distinct approaches and modalities, whether they be immuno-oncology or targeted therapies. As a result, there are multiple different avenues we can explore. We must develop drugs indication by indication, investing in the necessary science to bring each forward. In that context, while we acknowledge the increased scrutiny on deals by the FTC, we believe that M&A focused on scientific innovation that expands patient access will still hold opportunities. Our approach will remain flexible and geared towards deals that strategically benefit our pipeline and ultimately our patients. Regarding your second question on drug pricing and mandatory discounts, many variables are at play. The proposed legislation would introduce mandated price discounts after a certain period post-approval. This period is roughly seven years for small molecules and eleven years for large molecules. My perspective is that, while negotiations will lead to discount discussions, the context matters. These determinations will depend on which drugs are selected for this process. Currently, the plan is to specify ten drugs each year for this negotiation basis. Thus, while we do not see imminent impacts from this regulation in the short term, we anticipate that the effects on our significant drugs, including KEYTRUDA, will occur longer term when we face loss of exclusivity. It remains uncertain how these mandatory discounts will ultimately affect our products once finalized. I hope this addresses your questions.

That will be from Geoff Meacham with Bank of America.

I have a couple of quick questions. Dean, I wanted to ask you about KEYNOTE-412; it didn't meet significance. Did CRT add complexity to the study in terms of your assumptions? More broadly, if you look at other indications, does a CRT backbone present any particular challenges when assessing other keynote studies? On COVID, how have recent infection trends over the course of this year or the emergence of any new variants changed your strategy regarding future investments in LAGEVRIO or other oral treatments?

I'll take both questions. Regarding KEYNOTE-412, we're trying to develop strategies for early intervention in head and neck cancers. You've pointed out unfortunately that while there was some improvement in event-free survival for patients receiving the KEYTRUDA regimen compared to those receiving the placebo plus CRT, these results did not meet statistical significance based on our plan. However, there was a positive signal, even though it crossed the line. Concerning how to approach CRT in other indications, I wouldn't say that it complicates future studies, but we will monitor closely across all trials we conduct. Additionally, it's important to note that this isn't our only project in earlier head and neck treatment; we also have KEYNOTE-689 targeting this area. On the pandemic, I need to be careful, as many predictions made regarding the pandemic have often proven inaccurate. We need to stay vigilant regarding what emerges, especially concerning resistance. The rapid mutation of the virus poses challenges for therapies. However, I want to emphasize that outside of the U.S., LAGEVRIO has demonstrated great efficacy, particularly in populations characterized by significant comorbidities where reducing mortality is a priority. LAGEVRIO’s properties make it suitable for rapid deployment in these vulnerable patients, and our real-world evidence for its efficacy continues to be promising.

I would add that we believe in this molecule as having potential therapeutic applicability beyond just COVID-19; we think it can work against pan-coronaviruses and respiratory viruses, as well as influenza. Thus, we're committed to investing in appropriate programs to explore these possibilities.

That will be from Mara Goldstein with Mizuho.

I wanted to clarify the statement about KEYTRUDA's supplemental PDUFA for neoadjuvant and adjuvant non-small cell lung cancer. Have you been asked for additional data, or are you planning for a major amendment? Additionally, can you clarify your comments about excess cash for share repurchase, and at what threshold should we be thinking about that if you're also committed to raising dividends?

Yes. This is Dean. To start off, regarding KEYNOTE-091 for lung adjuvant treatment, it’s essential to remember that it has dual primary endpoints. When I emphasize dual primary, it signifies that achieving success on one endpoint means the trial is deemed positive, differentiating it from co-primary trials where both endpoints must be met. In this case, we have positive data overall in disease-free survival for all patients, regardless of PD-L1 status. For those with PD-L1 TPS greater than 50%, a positive trend was observed but did not reach significance. I expect that as data matures, stakeholders may seek further insights, mainly as these studies are event-driven and closely tied to our FDA discussions. The PDUFA date is January 29, 2023, but it could evolve depending on the developing data. While nothing formal has been requested, it's plausible that further insights might be sought.

Mara, in response to your question regarding the utilization of excess cash, our capital allocation priorities remain unchanged. We continue to prioritize investments in our business and the significant opportunities before us. Business development also remains a key strategic focus, and we will invest appropriately as we have previously. Additionally, we intend to continuously raise our dividend over time. We will return any excess cash to our shareholders through share buybacks. We do not plan to keep excessive cash on our balance sheet for extended periods without utilizing it, so I trust that addresses your inquiry regarding cash management.

That will be from Seamus Fernandez with Guggenheim.

Can you clarify whether any acquisition plans or considerations by Merck will likely be all cash, or could equity potentially be used in a transaction? Additionally, I want a bit of perspective on V116 in terms of market competition, do you primarily see V116 as an opportunity solely for adults, or do you envision it being used broadly in pediatric populations too? When do you expect V116 to compete in the market and how do you perceive the overall market evolving over time?

Thanks, Seamus, for the question. Business development remains a priority for us, as we've discussed previously. We seek to add value wherever we find the best science and innovations that enhance our pipeline and drive long-term growth for our stakeholders. While I don't want to speculate on specific future transactions or the exact mixture of cash or equity we’d employ, it really depends on the unique aspects of each deal. That being said, our capital and balance sheet strength enable us to pursue any strategic opportunity that fits, whether it requires cash, debt, or equity. Therefore, we will remain flexible in how we structure our partnerships to maximize value for all stakeholders involved. Regarding your query on V116, I want to reemphasize our strategy focusing on distinct populations; specific serotypes affecting different age groups vary considerably. Therefore, V116 will target the serotypes most relevant to adults, while we have been developing vaccines for children focusing on different considerations. As of now, I do not see V116 as aiming for the pediatric population, but we want to ensure that our adult-targeted approach captures the most risk in this area. We’re excited about the opportunity and competitive strategy we have with V116, we want to be rapid as the market begins to open in this sector.

In relation to your question about V116, I want to reiterate our objective: we are focused on recognizing the specific serotypes that present significant risk in different populations. The strategy for V116 targets strains critical to adult health outcomes, as current epidemiological data suggest that this is where we should focus our efforts. We are prioritizing this vaccine to serve the adult market, and we are pleased with the progress we’re making in ongoing clinical trials. We envision competing strongly through this approach while leveraging the potential of V116.

That will come from Carter Gould with Barclays.

Dean, could you clarify on the subcutaneous formulation of pembrolizumab? Is that Phase III study in non-small cell lung cancer still on track to read out early next year? How should we think about the clinical measures in that study, not just around the primary endpoints; should we be considering this study alone as warranting a filing, or should we have a different outlook?

Yes. I want to emphasize that the trial is on track, and our intention is that it should support filings. I should also highlight that we have more than just one subcutaneous program covering various indications, as we recognize distinct patient populations may require specific formulations. I want to reemphasize our commitment to exploring these formulations and how they could benefit patient care across diverse scenarios.

Thank you all for joining us today. I’d like to express my appreciation for the efforts of the entire Merck team. We are performing exceptionally well despite the challenging environment in advancing our science and ensuring that our important medicines and vaccines reach the patients around the world counting on us. I am more confident than ever in our underlying momentum, and I look forward to providing future updates on our progress as we move forward. Have a great day.