Merck & Co. Q3 Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode until the question-and-answer session. This call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Mr. Peter Dannenbaum, Vice President, Investor Relations. Sir, you may begin.

Thank you, Julie, and good morning, everyone. Welcome to Merck’s third quarter 2023 conference call. Speaking on today’s call will be Rob Davis, Chairman and Chief Executive Officer; Caroline Litchfield, Chief Financial Officer; and Dr. Dean Li, President of Merck Research Labs. Before we get started, I’d like to point out a few items. You will 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 set forth in the forward-looking statements. Our SEC filings, including Item 1A and the 2022 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 publicly update any forward-looking statements. During today’s call, a slide presentation will accompany our speakers’ prepared remarks. These slides, along with the earnings release, today’s prepared remarks, and 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. We continue to bring forward innovation that can save and improve the lives of patients and animals around the world. We are advancing our broad pipeline and executing in support of our key growth drivers, enabling strong progress for our business and providing tangible benefits to patients. To that end, I want to acknowledge the efforts of our talented global team. Their passion and commitment to our science-led strategy are fundamental to our continued success. Scientific innovation is truly the foundation of our strategy, and it drives everything we do. We are pushing the boundaries of science through the significant investments we are making across our deep pipeline augmented by strategic business development. I am pleased by the continued progress with these programs and our growing diversity across new therapeutic areas and modalities. Along these lines, we are particularly excited by our recently announced clinical and commercial collaboration with Daiichi Sankyo for three potentially first-in-class antibody-drug conjugates. The scientists at Daiichi Sankyo are proven innovators in this space, having developed proprietary ADC technology that has resulted in an approved product, which is being rapidly adopted for patients with certain cancers. We are privileged to begin working alongside them to advance this important science and achieve both companies’ objectives of addressing the significant unmet patient need in oncology. Based on our strong conviction in these programs and the profound benefit they may bring to patients, we believe each has multi-billion dollar commercial revenue potential for Merck on a non-risk adjusted basis approaching the mid-2030s. We are also applying our clinical expertise to accelerate the development of other potentially transformative treatments that we have added through strategic business development, such as sotatercept for pulmonary arterial hypertension and MK-7240, our TL1A inhibitor for ulcerative colitis and Crohn’s disease. This is complemented by our strong commercial execution capabilities, which we expect to amplify the impact of these life-changing medicines and enable the creation of sustainable value for patients and shareholders over the long term. Turning to this quarter’s performance. We delivered robust growth driven by demand for our innovative portfolio. We are confident that we will close out 2023 with continued strong performance, which is reflected in the updated full-year outlook that Caroline will speak to in a few minutes. Moving to our research organization, as I mentioned, we are making remarkable progress across multiple therapeutic areas in our promising late-phase pipeline. In oncology, Dean will speak to the significant success we are having in broadly leveraging the foundational position that we have achieved with KEYTRUDA. This includes the continued advancements we are making in the treatment of earlier-stage cancers. We are very excited by the recent FDA approval of a KEYTRUDA regimen for the neoadjuvant and adjuvant treatment of certain patients with resectable non-small cell lung cancer based on the KEYNOTE-671 trial results, which notably demonstrated an improvement in overall survival compared to a placebo and chemotherapy regimen. In addition, we presented numerous important datasets at last week’s European Society of Medical Oncology meeting, across a wide range of molecules, tumor types and indications. Our progress across a broad set of programs reinforces our confidence in the sustainability of our oncology leadership well into the next decade. We are also making exciting progress in our cardiometabolic pipeline. Most significantly, the FDA accepted for priority review our filing for sotatercept based on the unprecedented results of the STELLAR trial, and we look forward to the potential approval and launch in early 2024. We remain confident that sotatercept has the potential to change the treatment paradigm for patients suffering with pulmonary arterial hypertension. We also initiated Phase 3 clinical trials for our oral PCSK9 candidate, MK-0616. We believe MK-0616 has the potential to provide significant benefit to patients with elevated cholesterol and impact cardiovascular disease on a global scale. We are very pleased with our progress and what we have achieved this quarter, as we continue to focus on advancing and expanding Merck’s pipeline, and I want to thank Dean and his team for their unwavering commitment to addressing unmet patient needs. In summary, we continue to move with urgency to deliver on our purpose, pursuing transformative science to save and improve lives around the world. We are executing scientifically, commercially, and operationally on the significant opportunities now in front of us while also making the disciplined investments needed to sustain strong growth well into the future. With the efforts of our global team, we have increased confidence that we will deliver value to patients, shareholders, and all of our stakeholders. With that, I will turn the call over to Caroline.

Thank you, Rob. Good morning. As Rob highlighted, we achieved very strong growth this quarter driven by robust underlying demand across our innovative portfolio, and we remain confident in our ability to continue to deliver strong results in the near term. We are also making disciplined investments to leverage leading-edge science to save and improve lives around the world well into the future, positioning us to deliver long-term value for patients and shareholders. Now turning to our third-quarter results. Total company revenues were $16 billion. Excluding the impact from LAGEVRIO and foreign exchange, the business delivered strong growth of 8%. The remainder of my revenue comments will be on an ex-exchange basis. Our Human Health business sustained its strong momentum. Excluding LAGEVRIO, growth was 10%, driven by Oncology and Vaccines. Sales in our Animal Health business increased 2%. Turning to the performance of our key brands. In Oncology, sales of KEYTRUDA grew 17% to $6.3 billion driven by increased uptake from earlier-stage cancers and continued strong global demand for metastatic indications. In the U.S., KEYTRUDA growth was driven by increased utilization in both metastatic indications and earlier-stage cancers such as triple-negative breast cancer. Uptake in earlier stages of non-small cell lung cancer remains strong, and KEYTRUDA has now achieved brand leadership in this setting, reflecting the significant impact it is having as adjuvant treatment for patients with stage IB to IIIA disease. Our recently approved KEYNOTE-671 indication provides an important additional treatment option to patients and physicians by including usage in the neoadjuvant and adjuvant setting. We remain exceptionally well positioned to serve patients with non-small cell lung cancer and extend our leadership to the earlier stage setting. In bladder cancer, we are excited to potentially expand usage of KEYTRUDA to cisplatin-eligible patients based on the compelling results from the KEYNOTE-A39 study. If approved, this study would more than double the eligible patient population for KEYTRUDA in first-line bladder cancer. Outside the U.S., KEYTRUDA growth was driven by uptake in earlier stage cancers, including high-risk, early-stage triple-negative breast cancer and renal cell carcinoma, as well as increased demand in metastatic renal cell carcinoma and certain types of head and neck cancer. Lynparza remains the market-leading PARP inhibitor, with alliance revenue growing 6% this quarter. Lenvima alliance revenue had growth of 30%, driven by shipment timing in China, which we expect will negatively impact growth in the fourth quarter. Growth was also driven by increased demand for the treatment of certain patients with advanced renal cell carcinoma and endometrial cancer in the U.S. Our Vaccines portfolio delivered strong growth, led by GARDASIL, which increased 16% to $2.6 billion, driven by underlying global demand, particularly in China. In the U.S., GARDASIL sales decreased due to CDC purchasing patterns. Vaccine sales also benefited from continued uptake in the pediatric indication of VAXNEUVANCE in the U.S. and its launch in key European markets. In our Hospital Acute Care portfolio, BRIDION sales were flat as increased market share among neuromuscular blockade reversal agents in the U.S. was offset by the impact of generic entry in Europe. Sales in our Animal Health business grew 2%. Livestock sales grew 7% reflecting price actions as well as higher demand for ruminant products. Companion animal sales declined due to a reduction in vet visits in the U.S., partially offset by pricing actions. 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 77%, consistent with last year as the impact of unfavorable foreign exchange was offset by product mix. Operating expenses decreased 4% to $5.8 billion. There were no significant business development expenses in the quarter, compared with $690 million of charges a year ago. Excluding these charges, operating expenses grew 9%. This growth reflects increased investments in support of our robust early and late-phase pipeline, with research and development expenses increasing 17%. Other expenses were $133 million. Our tax rate was 15%. Taken together, earnings per share were $2.13. Before I cover the outlook for the balance of the year, I wanted to briefly touch upon the recently announced strategic collaboration with Daiichi Sankyo. This transaction follows a similar, de-risked and disciplined financial structure as we have employed in prior successful collaborations and we are very excited about the opportunity to create meaningful value for patients and shareholders. Now turning to our 2023 non-GAAP guidance, which includes the strategic collaboration with Daiichi. The continuing operational strength of our business has enabled us to raise and narrow our full-year revenue guidance. We now expect revenue to be between $59.7 and $60.2 billion, an increase of approximately $900 million at the midpoint. This range reflects strong double-digit underlying year-over-year revenue growth of 11% to 12%, excluding LAGEVRIO and an approximate 2-percentage-point negative impact from foreign exchange using mid-October rates. Our gross margin assumption is unchanged at approximately 77%. We now estimate operating expenses to be between $39.8 billion and $40.4 billion. This range reflects $17.1 billion in acquisition and upfront collaboration research and development expenses, including $5.5 billion for the collaboration with Daiichi, as well as those associated with Prometheus, Imago, and Kelun. Our guidance does not assume additional significant potential business development transactions. We now assume other expenses of approximately $200 million, which reflects updated foreign exchange expectations given recent dollar strengthening and higher net interest expense related to Daiichi. Our full-year tax rate is expected to be between 39% and 40%, which includes an approximate 24.5-percentage-point impact related to our business development activity. Our underlying tax rate is approximately 14.5% to 15.5%. We assume approximately 2.55 billion shares outstanding. Taken together, we expect EPS of $1.33 to $1.38. This range includes a negative impact from foreign exchange of approximately 6 percentage points versus 2022 using mid-October rates. Recall our prior guidance range was $2.95 to $3.05. Including the one-time charge of $5.5 billion or $1.70 per share and an estimated $0.04 to advance the assets and financing costs from the collaboration with Daiichi, our prior guidance range would have been $1.21 to $1.31, with a midpoint of $1.26. Our current guidance midpoint of $1.36 represents an increase resulting from strength in our business of approximately $0.15, partially offset by an incremental headwind from foreign exchange of approximately $0.05. Now turning to capital allocation, where our priorities remain unchanged. We will continue to prioritize investments in our business to drive near- and long-term growth. We are proud of the significant progress our team is making to advance and augment our pipeline, including our collaboration with Daiichi. We will continue to invest in our pipeline, which contains many assets with tremendous potential to address significant unmet medical needs, positioning us for strong performance well into the future. We remain committed to our dividend and plan to increase it over time. Business development continues to be a high priority. Our track record demonstrates our ability to identify compelling science and technologies that have the potential to advance standard of care, access such opportunities in a disciplined and capital-efficient manner, and importantly, to rapidly progress the opportunities for the benefit of the patients we serve and our shareholders. We maintain ample capacity given our strong investment-grade credit rating and cash flow to pursue additional, science-driven, value-enhancing transactions going forward. We continue to execute a modest level of share repurchases. To conclude, as we finish the year, we remain very confident in the outlook of our business in the near- and long-term, driven by the global demand for our innovative medicines and vaccines and our exceptional pipeline. We are in a position of financial and operational strength, and our continued excellent execution will enable us to deliver value to patients, customers, and shareholders well into the future. With that, I’d now like to turn the call over to Dean.

Thank you, Caroline. Good morning, everyone. Today, I will start with our oncology programs followed by vaccines, immunology, and conclude with cardiometabolic disease. Over the last few years, our oncology strategy has focused on leveraging the remarkable properties of KEYTRUDA to establish a diverse clinical pipeline of candidates with novel mechanisms and modalities. This is broadly based on three strategic pillars: immuno-oncology, precision oncology, and tissue targeting. In immuno-oncology, we continue to evaluate KEYTRUDA in the metastatic and increasingly in earlier stage disease settings, while also investigating multiple novel immuno-oncology combinations and coformulations. With precision oncology, we are selectively targeting pathways to inhibit cancer cell growth. And in tissue targeting, we are developing agents such as antibody-drug conjugates designed to increase cancer cell sensitivity and killing. The latter is exemplified by our recently announced collaboration with Daiichi Sankyo. Daiichi Sankyo scientists have made pioneering contributions in advancing novel antibody-drug conjugate technology with proven benefit to patients. By combining our companies’ respective strengths, we are well-positioned to accelerate three clinical stage potentially first-in-class candidates with the goal of transforming the treatment paradigm. These include Patritumab deruxtecan, an investigational fully humanized anti-HER3 ADC, in Phase 3, Ifinatamab deruxtecan, an investigational humanized anti-B7-H3 ADC in Phase 2, and Raludotatug deruxtecan, an investigational humanized anti-CDH6 targeted ADC in Phase 1. We provided details during our investor event earlier this week and are eager to begin working with the team. The Daiichi Sankyo collaboration complements our important ongoing alliance with Kelun Biotech, whose talented scientists have developed their own innovative ADC platform. At ESMO, new Phase 2 data for MK-2870 or SKB-264, a TROP-2 targeting ADC, in patients with previously treated metastatic hormone receptor-positive, HER2-negative breast cancer, showed encouraging anti-tumor activity with an objective response rate of 36.8%. This builds on existing data for MK-2870 both in triple-negative breast and non-small cell lung cancer. We are now poised to initiate larger studies starting with non-small cell lung cancer and expand into additional tumor types. We are also advancing clinical development of MK-1200, an ADC targeting Claudin 18.2. Recognizing the proven benefit of KEYTRUDA in combination with chemotherapy in certain tumor types, we are exploring the tissue-targeting concept by evaluating regimens combining ADCs and immunotherapy. At ESMO, in collaboration with Seagen and Astellas, potentially practice-changing survival data were presented from KEYNOTE-A39/EV-302, evaluating KEYTRUDA plus enfortumab vedotin as first-line treatment for patients with locally advanced or metastatic urothelial carcinoma. This regimen represents the first approval of a combination of a checkpoint inhibitor and an ADC. Turning to immuno-oncology. Evidence continues to emerge for the benefit of KEYTRUDA in the treatment of earlier-stage cancer. Positive survival data from KEYNOTE-671 evaluating KEYTRUDA in combination with platinum doublet chemotherapy as neoadjuvant therapy, followed by adjuvant KEYTRUDA in patients with resectable stage II, IIIA, or IIIB non-small cell lung cancer compared to pre-operative chemotherapy were presented at ESMO, further reinforcing the benefit of routine lung cancer screening for certain populations to enable early intervention. Based on the KEYNOTE-671 results, last week the FDA approved this indication with a differentiated label that includes overall survival. KEYTRUDA has now been approved for six indications to treat patients with non-small cell lung cancer. KEYNOTE-671 represents the eighth approval for KEYTRUDA in earlier stage cancer. Positive data from additional earlier stage studies in women’s cancers were also presented at ESMO for KEYNOTE-756 in patients with estrogen receptor-positive, HER2-negative breast cancer, for KEYNOTE-522 in high-risk early-stage triple-negative breast cancer, and KEYNOTE-A18 for patients with high-risk locally advanced cervical cancer. The FDA recently granted priority review for KEYTRUDA based upon this study with a target action date of January 20th. We also announced KEYTRUDA significantly improved disease-free survival for the adjuvant treatment of patients with localized muscle-invasive and locally advanced urothelial carcinoma based on KEYNOTE-123. And finally, in collaboration with Moderna, the Phase 3 trial for KEYTRUDA in combination with V940, an individualized neoantigen therapy, in earlier stage non-small cell lung cancer has now been posted and is poised to start soon. In precision oncology, our efforts continue to yield progress. WELIREG, our HIF 2 alpha inhibitor, is approved for the treatment of certain cancers in patients with von Hippel Lindau Disease, a rare cancer-prone genetic disorder. Studies evaluating WELIREG in broader populations of patients whose tumors display analogous genetic underpinnings are ongoing. Data presented at ESMO from LITESPARK-005 evaluating WELIREG for adult patients with advanced renal cell carcinoma following immune checkpoint and anti-angiogenic therapies showed statistically significant and clinically meaningful improvement in progression-free survival versus the standard of care. These findings support our supplemental new drug application for WELIREG, which was granted priority review by the FDA with a target action date of January 17th. Additional Phase 3 studies in combination with KEYTRUDA and/or lenvatinib in advanced and adjuvant renal cell carcinoma are proceeding. First-time safety and preliminary efficacy data for MK-1084, our oral KRAS inhibitor both as monotherapy in patients with solid tumors and in combination with KEYTRUDA for metastatic non-small cell lung cancer whose tumors harbored KRAS G12C mutations were presented at ESMO. Notably, the combination arm showed a compelling objective response rate of 71%. While the data are early, we are encouraged by the potential to combine MK-1084 with KEYTRUDA. In the hematologic space, we will begin enrolling patients in our Phase 3 study evaluating MK-3543 or bomedemstat, as second-line treatment for essential thrombocythemia, an area with tremendous patient need. Bomedemstat is derived from our acquisition of Imago. Outside of the U.S., the European Union granted approval for KEYTRUDA for adjuvant treatment of patients with non-small cell lung cancer who are at high risk of recurrence following complete resection and platinum-based chemotherapy based on KEYNOTE-091. And for KEYTRUDA in combination with trastuzumab and chemotherapy as first-line treatment for patients with certain gastric or gastroesophageal junction adenocarcinoma based on KEYNOTE-811. In Japan, Lynparza, in combination with abiraterone and prednisone was approved for BRCA-mutated metastatic castration-resistant prostate cancer with distant metastasis based on the PROpel study. Now to our broader pipeline. Building on the ongoing launch of VAXNEUVANCE, which Caroline mentioned, progress continues in our population-focused pneumococcal conjugate vaccine program. V116, our investigational pneumococcal conjugate vaccine specifically designed for adults has demonstrated a robust immune response to all 21 serotypes in the STRIDE-3 and STRIDE-6 studies. Detailed findings from the STRIDE-3 study will be presented at the World Vaccine Congress West Coast in November. If approved, V116 would be the first pneumococcal conjugate vaccine specifically designed to address serotypes responsible for the majority of adult invasive pneumococcal disease in adults. Our company has deep expertise, given our breadth and depth of knowledge both in immuno-oncology and vaccines. We are leveraging these capabilities in immunology, where the first patient is ready to be enrolled in the Phase 3 trial for MK-7240 in ulcerative colitis. Turning to cardiometabolic disease programs. Last month at the European Respiratory Society International Congress, we presented data for sotatercept, currently under review by the FDA for the treatment of adults with pulmonary arterial hypertension. In an exploratory post-hoc analysis of right heart catheterization and echocardiography data from patients in the Phase 3 STELLAR study, patients with PAH treated with sotatercept for 24 weeks on top of background therapy showed a reduction in right heart size and improved right ventricular function and hemodynamic status. In addition, we presented promising data from an analysis of the Phase 3 SOTERIA open-label extension study in PAH. The results support the potential long-term durability of the response to sotatercept and represent the longest safety and efficacy analysis for this compound to date. Given the serious patient need in pulmonary arterial hypertension, our regulatory and clinical teams worked swiftly to submit the necessary regulatory filings for sotatercept. The FDA has accepted the Biologics License Application under priority review with a target action date of March 26th. In addition, the submission to the Committee for Medicinal Products for Human Use in the European Union has been completed. Also in cardiology, momentum continues in the clinical development program for MK-0616, our oral PCSK9 inhibitor. We have initiated the CORALreef Lipids study in a broad patient population and CORALreef Outcomes, a randomized, double-blinded study, evaluating the efficacy of MK-0616 with respect to major atherosclerotic cardiovascular events, as well as a separate CORALreef study in patients with heterozygous familial hypercholesterolemia. Over the last three years, we have moved with rigor and urgency to advance the best science while carefully coordinating our efforts internally and externally. We have and continue to leverage the foundational properties of KEYTRUDA while adding promising candidates with novel mechanisms and modalities in oncology. At the same time, we have expanded in our focused areas of excellence to establish a diverse pipeline of promising candidates spanning multiple additional disease areas. We understand there is still work to be done, but the tangible advances we are making underscore our purpose of creating innovative medicines and vaccines that save and improve lives. And now I turn the call back to Peter.

Thanks, Dean. Julie, we are ready to take questions. And as usual, we request that analysts limit themselves to a single question please.

Our first question comes from Chris Shibutani with Goldman Sachs. Your line is open.

Thank you. Good morning. The comments from the capital allocation standpoint seem to indicate that you feel that you have done some critical mass and certainly some of the deals that you have done have been very important and meaningful. You set the cardiovascular revenue goal in 2030 to $10 billion. Do you think you have done enough there and then to provoke relatedly, Animal Health, do you still feel that that fits within the portfolio? You have been building, but is there reshaping that still could come? Thank you.

Great, Chris. This is Rob and I will maybe start, and Dean or Caroline can jump in if they would like. But first and foremost, I appreciate the comments. As we sit here today, Dean made reference to it; we feel very good about the progress we have made over the last couple of years through the assets we brought in. You mentioned cardiometabolic, but also immunology, the progress we are making to broaden our position in oncology. I will get to you in a moment, but as you mentioned, the durable growth drivers we have with vaccines and animal health. But specifically to the cardiometabolic area, I can tell you that today as we sit here and just to remind people what we had commented on in the past, we have said that based on both what we received through the acquisition of Acceleron plus other programs that we have been developing internally, we expected that we could be in a position to have greater than $10 billion of revenue potential in the mid-2030s, and I’d remind everyone that was on a risk-adjusted basis. But I would tell you as we sit here today, given what we have seen with the remarkable data from STELLAR, the excitement that is coming, and we are seeing from key opinion leaders, with the potential launch of sotatercept hopefully early next year and approval even in Europe next year, our confidence that we will achieve that $10-plus billion is higher today than it was when we made the original comment. So we feel very good, doesn’t mean we feel like we are done, but we feel very good about the progress. And then as you reflected on Animal Health. We continue to see the Animal Health business as an important business for us. It's a durable growth driver. As we look forward, it continues to be a business that we think will be accretive to our growth long term, and it has strategic value to us, where we are both benefiting from the synergies that it brings to us and that it benefits from the synergies coming from the science that we have on the human health side. So as we sit here today, we remain committed that it is the strategic part of the company. But as I have often said, that’s not a philosophical view that is unchanged; it’s something we are very objective about and we look out regularly. But I can tell you as we have continued to look at it, our view has not changed.

I would just add one thing, Chris, in relationship to your question, but not related to revenues or finance. I would remind that we have made incredible advances in cancer and we are known as an oncology company. But the unmet patient needs in cardiovascular and metabolic diseases in the U.S. and in the world are quite substantial, and I don’t know that we are ever going to be done with that field in the near term, so we are still very committed to doing more.

Great. Thank you, Chris. Next question please, Julie.

Thank you. Our next question comes from Mara Goldstein with Mizuho. Your line is open.

Great. Thanks so much for taking the question. I am curious about the discussion around KEYTRUDA and migrating components of the revenue to earlier lines of therapy. Relative to when you first made statements about where you expect it to be from a percentage, do you think you are ahead of that at this point in time or on track to where you originally thought you would be today?

Yes, Mara. The short answer is that we are ahead of where we anticipated being. To remind everyone, we expect 50% of our growth to come from moving into the earlier stages of disease in oncology, with the goal of reaching around 25% of our total revenues. I can tell you that as of today, we are tracking better than expected. This is not surprising given the phenomenal results from KEYNOTE-671 and what that means for the perioperative space in early-stage lung cancer, alongside the continued strength we are seeing in adjuvant, RCC, and melanoma, with our approvals in this area now totaling eight. We are in a very good position. Caroline, do you have anything you would like to add?

The only thing I’d add, Rob, is to your point, we have made tremendous progress. We think this year we will have 20% of our KEYTRUDA business coming from the earlier stage cancer setting. As we move forward given the tremendous state we have had and indications coming, we are really excited about the opportunities of further growth in lung, in potentially bladder and many other indications.

Yeah. I just want to make a call out, because we had an investor discussion this past Sunday and we are really focused on the ADC and Daiichi Sankyo and Kelun, but I just want to call out that for me KEYNOTE-671 is a watershed moment for the field. I would remind everyone that a similar watershed happened in metastatic lung cancer in 2018 KEYNOTE-189. In 2018 is when KEYNOTE-671 was initiated. It’s an earlier stage and only after 5.5 years, after only 5.5 years in an earlier stage trial, you have clear evidence of EFS and OS benefit. I really think this will catalyze a change in how we treat early-stage lung cancer, how we detect early lung cancer, and how we screen. If you think about treating early those patients with stages 2 and 3, you can reduce their mortality by 28%. I think it will catalyze people really looking at anyone going to surgery in stages 2 and 3, not just in stage 3; people are going to have to think very carefully of why someone should get this regimen. In terms of detecting early, I think it’s really important. How many individuals have a chest CT or chest x-ray with incidental findings, and there’s little follow-up? In the day and age of electronic health records, it’s very easy to figure out how many people have incidental nodules that never got followed up. I think that will change. And I think in screening, early we have guidelines, where the adherence is only 6% to 7%, and these guidelines were set four to five years ago where the concept was it would reduce mortality by 20%. With these data that we have, that number is no longer at 20%; it’s much lower. I think there will be a push by the American Cancer Society, NCCN, NCI, and NIH to simplify and broaden those guidelines, because this is the inexorable march of IO into earlier stage and into the most important cancer, which is lung cancer, which is the number one cause of death for women and the number one cause for men. Our commitment to this field is not just 671 and 091; it is also, as we highlighted, our interest in moving into individualized neoantigen therapy into earlier stage in lung cancer.

Great. Thank you, Mara. Next question please, Julie.

Thank you. Our next question comes from Carter Gould with Barclays. Your line is open.

Great. Good morning. Thanks for taking the question. Maybe at the risk of going back to that ADC topic. One of the key questions and sort of the back-and-forth has come out in the TROP2 space, it’s just the ability to combine your TROP2 with IO going forward has been a lot of commentary on the myelosuppression there, and to the extent that may restrict your ability to combine with IO. Dean, would love to get your thoughts there and any additional commentary you can provide?

Yeah. Specifically to any ADC that we would advance in any tissue tumor type, one thinks about monotherapy and one thinks about a clear indication and a line of sight, but one also thinks about how the field develops and in combinations. Those combinations can be with PD-1s, but I would also highlight it can be with chemo, it can be with RAS, it can be with novel hormonal agents, it can be with PAR, it can be with other ADCs, and you have to think from late and earlier. In relationship to TROP2, specifically in non-small cell lung cancer, I believe that I have said in the past that one has to think about how the field has evolved; there was a watershed moment, it was KEYNOTE-189 and pembro plus chemo in a broad patient population along that indication did really well. So those of us who want to advance, what I would say in ADC and NextGen chemo, that’s how I think about it, have to think about a way to combine it with PD-1 in a way that is not just effective, but substantially effective over KEYNOTE-189. We are very interested in advancing our TROP2 ADC in relationship to that. Like all chemotherapy-based treatments, whether it’s chemotherapy or chemotherapy on a payload with ADC, one has to think about adverse effects and combinatorial adverse effects and the ability to keep patients on the medicines. The data that we have shown with our partner, our valued partner Kelun, indicate that we think that there is room to be able to advance MK-2870 and PD-1 in a variety of tumors and that they are combinable, tolerable, and will be effective, but those are the trials that we are starting to do in Phase 3 in the ex-China regulatory arena.

Thank you, Carter. Next question please, Julie.

Thank you. Our next question comes from Seamus Fernandez with Guggenheim. Your line is open.

Well, thanks so much for the question. So just wanted to talk about margins and some of the margin targets that you have offered. I think historically, you called out a 2024 margin target of better than 42%, just trying to get a better sense of how we are tracking towards that target, particularly in the context of the substantial reduction in your royalty burden both for KEYTRUDA and GARDASIL. If you wouldn’t mind, would you perhaps disclose what that cumulative royalty burden was in the third quarter of this year, just so that we can provide some context for the upside case or at least what we should be anticipating there? Thanks so much.

Seamus, thank you for the question. We have seen really strong margin expansion in our company over the last several years, and as we look forward, we expect continued margin expansion. That margin expansion really comes from the product mix on the revenue line; it also comes from the roll-off of royalties, as you have just noted, knowing that we have the royalty on global KEYTRUDA sales going from 6.5% to 2.5% at the start of next year and our royalty on GARDASIL going from 7% to zero percent on our global sales, again at the start of next year will drive significant gross margin improvement. At the same time, we will be investing in our business. We will be disciplined in that investment, but we are investing in the portfolio of products that we have in the market and that we will be launching, as well as investing in our robust and growing pipeline. That obviously includes the Daiichi collaboration, where we have noticed we expect about a $0.25 impact as a result of investing predominantly in the research and development of a wide range of programs, that Dean has partially outlined, as well as this financing costs. We also have made significant progress across our pipelines with many other collaborations, acquisition, and the progress we are making with our internal assets. So altogether, we still do point to an operating margin of greater than 43% in the year 2025. However, we will not forgo necessary investments in our business to progress our pipeline to ensure that we advance healthcare and drive growth, which really is our priority.

Great. Thank you, Seamus. Next question please. Julie.

Thank you. Our next question comes from Terence Flynn with Morgan Stanley. Your line is open.

Great. Thanks so much for taking the question. I guess, another one for Dean on the TROP2 landscape. I know you guys talked over the weekend about your first Phase 3 trial in lung cancer here. Maybe just any more context on the decision to pursue the EGFR mutant population, given what you are seeing from the landscape out there, including some of the Astra data, and then what that means for the front-line setting as you try to craft a trial in that broader population? Thank you.

I want to emphasize that while we highlight our partnership with Kelun and Daiichi Sankyo and share certain public indications, those are not the only indications we are considering. Regarding MK-2870, we are excited about its potential, despite the small sample sizes. There are notable differences in the construct related to the payload, linker, and dart. Importantly, we haven't observed serious IOD, which gives us the opportunity to think creatively about its broader applications. We are keen to move forward with 2870, particularly taking into account the positive data we've gathered, which we believe supports its advancement. The decision to focus on the EGFR mutant population is informed by the strong data generated in collaboration with our partners at Kelun, and we are confident in pursuing this specific indication.

Thanks, Terrence. Next question please, Julie.

Thank you. Our next question comes from Andrew Baum with Citi. Your line is open.

Hi. Thank you. Question in relation to trastuzumab and your KEYNOTE-003 trial. I am assuming that you are using a similar type clinical trial design and template for the stats from KEYNOTE-42, where you have a hierarchy. Given this is a PD-L1 enriched trial and with the hierarchy in place, we are expecting an interim potentially the very end of next year, beginning of the following year. Any comments on either design or timing of entrants? Thank you.

I would just say that in general principle, your observations of how we develop drugs especially in the IO has been something that we are known for, and the structure was laid out by great leaders from Merck, who laid the basis for that. In relationship to timing of interim analysis, we have generally not commented on interim analysis and we let those interim analysis do what they need to do, which is come, and if they are significant, we make that publicly known. If there is significance in relationship to public disclosure, that’s when we do that, but we generally do not lay out the timing of our interim analysis prior to them happening.

Thanks, Andrew. Next question please, Julie.

Thank you. Our next question comes from Louise Chen with Cantor. Your line is open.

Hi. Thank you for taking my question. I wanted to ask you about sotatercept, how you are preparing for that launch, what’s your go-to-market strategy, and how quickly you expect uptake to be? Thank you.

Yeah. Louise, this is Rob. I will maybe jump in and Caroline can add if I miss anything. I would tell you that we feel well-prepared. So, obviously, we have been working to ensure we have supply to be able to supply the market upon launch. But as we sit here today, given what is happening in the marketplace. You are seeing warehousing of patients in anticipation of the launch of sotatercept in the United States. From feedback from key opinion leaders and what we are hearing from the market, the demand for this will be quite high. Our expectation, as you will see, a strong launch with this drug, and I can tell you we have been invested and built an organization. We actually have a very focused group now in our U.S. business whose sole job is to manage this launch. I think we are both prepared from a commercial perspective and from a manufacturing perspective, with the expectation, as I said, that this should go with a very strong quick uptake. The other thing I would highlight is given the strength of the data, we do expect to see approval in Europe next year. We originally thought it would require a further study. So not only are we preparing in the United States, but we are also preparing in Europe as well, and we feel good about both. But Caroline, anything you would want to add?

No. I think you captured it, Rob. Dean, anything you would want to add?

Yeah. I just want to emphasize that sotatercept, this is the first drug out there that really is targeting the fundamental genetic basis of the disease. It’s going to be the first activin inhibitor, but most importantly, activin is what the genetics tells you imbalance that occurs in pulmonary artery hypertension. This is really important and I said watershed previously; I do think this is going to be a watershed moment for PAH. Rob already talked about the U.S. and EU, and the reason why that happened is because of the stellar data was quite impressive, and that drove the ability to do EU. What I would remind everyone is that we have other trials coming through. We have Zenith, Hyperion and Cadence. Zenith, for example, is one that’s going to look at mortality and those sort of endpoints as the primary endpoints. Should that read out in the next year or something like that, relatively soon to the launch, I think whatever estimates Caroline and Rob have talked about sotatercept that will only help the uptake of sotatercept. As Rob has mentioned, this is a field that many of the physicians, this was a place where I did research back in the academic days. The phone calls I am getting are that people are warehousing patients in anticipation of that March launch.

Thanks, Louise. Next question please.

Thank you. Our next question comes from Chris Schott with JPMorgan. Your line is open.

Great. Thanks so much. I just had a question on GARDASIL. We have seen, obviously, some very impressive growth over the past few years, but looking ahead, I am just interested in how much more opportunity for you see for this franchise to ramp from here. So maybe just elaborate a little bit more on what are the kind of unmet needs at this point, where is the biggest opportunity to do kind of roll-out the product and just, ultimately, how much larger can this franchise become over time? Thank you.

I appreciate the question, Chris. We take great pride in GARDASIL and our ability to prevent cancer, particularly cervical cancer, and to increasingly prevent certain head-and-neck cancers if we can ensure full vaccination. It’s encouraging to see progress in this area. Looking ahead, we remain confident that this business will continue to grow, and we expect to achieve over $11 billion in revenue by 2030. Our outlook on the business hasn't changed. We have significantly invested in manufacturing capacity, and now that our two new sites are up and running, we are in a strong position. As we consider future opportunities, I see three key areas for growth. First, while we have established a strong presence in developed countries, there is still significant potential in low and middle-income markets. We are committed to expanding in those areas, which will involve reducing our manufacturing costs and offering lower price points for our product. This can generate meaningful additional revenue over time. In established markets, there remains a substantial population to reach. We have been focusing on public vaccination programs outside the U.S. and the national immunization program primarily targeting young women and girls in the U.S. However, we see a growing opportunity to broaden our focus to include individuals up to 45 years old, which could boost growth in the U.S. and Europe. Additionally, the recent expansion in China presents another growth catalyst. Achieving this will require consumer engagement, which demands commercial investments and hard work. We are capable of doing this, as we've begun to see in China and are starting to do in the U.S. However, it will require substantial effort and commitment from us. Moreover, GARDASIL is still primarily viewed as a female vaccine, with only 70 markets having gender-neutral approvals. Even in those markets, particularly in Europe, there is significant room for improvement in awareness that this vaccine is not solely for females but is gender-neutral. With the increasing rates of head-and-neck cancers, which predominantly affect men, we see a real opportunity to enhance understanding and vaccination rates. A notable short-term opportunity is to secure gender-neutral approval in China. Across all these areas, there are potential prospects but also challenges. While it's not going to be an easy journey, we are dedicated to investing in these initiatives. Ultimately, our success will hinge on these factors, and I invite Dean or Caroline to add any further thoughts. Yeah. I would just emphasize two points. One, directly related to what you said. This is a highly effective vaccine to prevent women’s cancer, cervical cancer, and that is something that everyone recognizes. The gender-neutral part is really important and at MRL we are advancing studies and filings in relationship to make sure that as many places that can adopt gender-neutral can be in a position to do it. I also want to just make one comment about cervical cancer itself. We talk about Carticel in relationship to cervical cancer, but I would also emphasize that at ESMO, we had KEYNOTE-A18. I would remind people that cervical cancer is still the fourth leading cause of women cancer, and this was another trial that showed the effect of KEYTRUDA in earlier stage in combination with chemo radiation. That is a PDUFA date that’s coming up, and that hopefully might be the ninth early-stage, and I believe that PDUFA date is among like four that are coming up in the next six months in relationship to cancer. So, Carticel gender-neutral, but also cervical cancer being a critical driver and driving into earlier stage. Those are all things that play around what we are trying to do at Merck.

Thanks for the question, Chris. We have time to take some additional questions and go past the hour. Julie, next question please.

Thank you. Our next question comes from Geoff Meacham with Bank of America. Your line is open.

Hey, everyone. Thanks for the question. Question for Dean or even Rob on ADCs. So you guys have obviously done a number of deals, have partnered assets and clearly you think this approach is strategically important for Merck. So the question is how much of an investment is Merck making in building out a broader ADC platform in-house? I am just thinking beyond the partner programs, and especially, Dean, as you call out the IO paradigm is shifting earlier? Thank you.

Thank you for the question. We have been fortunate to collaborate with Kelun and Daiichi Sankyo, which helps advance our clinical programs significantly. Additionally, we have partnerships with other ADC companies regarding KEYTRUDA. We are gathering extensive data to guide our understanding of the future direction of the field. It’s been noted that there will be a variety of antibodies and structures that can alter our approach to tissue-targeting. There will also be changes to the linkers used. Currently, the main payloads in use are microtubule-based chemotherapy and TOPO1-based chemotherapy. However, I want to stress that there are more than just two classes of chemotherapy that have existed over the last 30 years, and each has its own rationale for being used. We have made significant investments in an ADC platform that is separate from our existing programs, but we will leverage the insights gained from our collaborations with Daiichi Sankyo and Kelun, as well as those with others related to KEYTRUDA. We are developing this expertise within our company, and we anticipate that our internal programs will advance clinically over the next few years.

Thanks, Geoff. Next question please.

Thank you. Our next question comes from Steve Scala with TD Cowen. Your line is open.

Thank you very much. What is VAXNEUVANCE’s share in pediatrics now and why hasn’t it seen an inflection in the U.S. sales in line with Merck’s prior comments that it held a 30% share of the pediatric market with plans to grow from there? I mean, 30% share of a $6 billion market is a big number, and it’s well ahead of where current sales are landing. So any color would be appreciated? Thank you.

Yeah. Steve, I will maybe jump on that and then others can jump in. But so your answer is we are in that low 30% share both in the public and private market. So that is what you are saying in the quarter. I think the U.S. roughly was about approaching $185 million to $200 million of total business or the products. So we are actually seeing growth pretty much consistent with what we expect and the share we got is pretty much what we expected. We will have to think through how the disconnect in what you are seeing. But I can tell you, in fact, and we are doing exactly what we expected we would do.

This is Caroline. The only thing I’d add to that would be the performance we are also seeing outside of the U.S. While we are early in our launch outside the U.S., we have gained 50% of the tenders in which we have participated, and which being shares north of that one-third. So we are very confident in our ability to continue to drive VAXNEUVANCE, and very much looking forward to augmenting our offering with V116 later next year.

Yeah. I would just add.

Steve, let me just clarify one thing, because I think it’s important. I was just reflecting on your question just to clarify my comments. Its 30% is our exit share, not overall of the year. So that’s an exit share, as we are seeing the business grow today.

Yeah. I wanted to just make a comment about VAXNEUVANCE in the setting of what Caroline said about V116. Essentially, with VAXNEUVANCE and V116, what we are trying to do is to drive the precision medicine mindset to vaccine, giving the right vaccine with the right set of serotypes to the right age group at the right time, and we believe that that strategy is important for VAXNEUVANCE. To think about VAXNEUVANCE not just on its own, but in relationship to V116, we have work cut out to us in relationship to a potential approval from the FDA, as well as we will have to speak to the ACIP as we advance this concept of a precision medicine mindset to pneumococcal vaccination.

Thanks, Steve. Next question please.

Thank you. Our next question comes from Evan Seigerman with BMO Capital Markets. Your line is open.

Hi, all. Thank you so much for taking my question. I want to touch on MK-0616, so clearly prioritizing given the advancement into multiple Phase 3 trials. Maybe talk to me about the importance of an oral PCSK9. Given the dynamics we have seen in the injectable market with both the antibodies and other long-acting assets? Thank you so much.

Okay. I will take that on and I will give my homage to Helen Hubs and Jonathan Cohen at the UT Southwestern in Dallas Heart Study. That was really important data in relationship to showing PCSK9. If you look at that patient population, that patient population is desperately in need of an oral potent LDL lowering cholesterol medicine, and that’s what we are trying to provide. We are trying to democratize our pathway such that people, whether they are in the rural and the inner city or globally, can get this. I would just emphasize the other point, which is cardiovascular disease, atherosclerotic disease, is still the number one killer in the United States and the developed countries, and lowering LDL is known to be important. We used to talk about resistant or refractory, but my experience is that the level of LDL that you are going to have to drive to that increasingly, the guidelines are taking is to forget about whether you are refractory or resistant to stand; it will be very hard with one agent to get your LDL below 70 or below 55 in some patient populations. That patient population, you want to treat; you want to have that treatment readily available with no cold chain and no requirement to go into a hospital system to get it. That’s what we are trying to do, and hopefully our data will support such a move.

Great. Thanks, Evan. Maybe final question please, Julie.

Thank you. Our next question comes from Mohit Bansal. Your line is open. With Wells Fargo.

Great. Thank you very much and thanks for squeezing me in. I just wanted to touch upon among EGFR mutant patients, how are you thinking about a TROP2 ADC versus a HER3 ADC? Because if you look at your data or even EV’s data, it seems like TROP2 seems to be working quite well among those AGA mutations. So how are you thinking about these two ADCs in that same indication?

I think that’s a great question. I would just answer that. I think the TROP2 ADC data is important to look at, but I would also emphasize that the HER3 ADC program is reasonably advanced in that patient population. We are interested in advancing both in getting the best medicines to the patients as quickly as we can. I do think more as a general statement that the role of biomarkers for some of these ADCs outside of EGFR will be important, in relationship to tissue targeting, also in relationship more broadly for ADCs and other combinations. We are going to have to see how that field is moving, but essentially the way I think about ADCs is trying to bring chemotherapy in the precision medicine approach. With that, we are going to have to find the right patient population, with the right biomarkers to give them the maximum benefit.

Thank you, Mohit, and thank you all for your time and attention today. Please follow up with Investor Relations if you have any additional questions, and we look forward to being in touch soon. Thank you all very much.