Merck & Co., Inc. Q1 FY2026 Earnings Call

Thank you for standing by. Welcome to the Merck & Co., Inc., Rahway, New Jersey, USA, First Quarter Sales and Earnings Conference Call. Please listen for instructions. This call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Peter Dannenbaum, Senior Vice President, Investor Relations. Sir, you may begin.

Thank you, Julie, and good morning, everyone. Welcome to the First Quarter 2026 Conference Call for Merck & Co., Inc., Rahway, New Jersey, USA. 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 Laboratories. Before we get started, I'd like to point out that we have items in our GAAP results such as acquisition-related charges, restructuring costs and certain other items that we have excluded from our non-GAAP results. There is a reconciliation in our press release. I will also 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 our company'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 in the 2025 Form 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 & Co., Inc., Rahway, New Jersey, USA, 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 our company's website. With that, I'd like to turn the call over to Rob.

Thank you, Peter. Good morning, and thank you for joining today's call. Advancing and delivering breakthrough science to address unmet medical needs remains the foundation of our strategy to create sustainable value for patients and shareholders. We continue to make tangible progress in accelerating and augmenting our pipeline. And with the recent new product launches, the transformation of our portfolio to a far more diversified set of commercial drivers is now well underway. Turning to our first quarter results. We delivered year-over-year growth with revenue of $16.3 billion, driven by continued strength in oncology, animal health and growing contributions from new products. We remain confident in our outlook for 2026, which Caroline will speak to in a moment. We also achieved several important pipeline milestones, the FDA approved IDVYNSO as a new treatment option for adults with virologically suppressed HIV-1, reflecting our ongoing commitment to innovation to address the evolving needs of people living with HIV. Additionally, the FDA granted priority review for I-DXd, our antibody drug conjugate being developed in collaboration with Daiichi Sankyo for adult patients with previously treated extensive stage small cell lung cancer. In ophthalmology, we initiated Phase IIb/III studies in neovascular age-related macular degeneration for MK-8748, our TIE-2/VEGF bispecific antibody, the second candidate from our acquisition of iBio. We also presented important Phase III results across multiple other therapeutic areas. Finally, in our Animal Health business, we have high expectations for long-term growth, driven by new and ongoing product launches. We're pleased to have introduced NUMELVI to the U.S. market, the first and only second-generation JAK inhibitor for allergic dermatitis in dogs. Our planned acquisition of Terns Pharmaceuticals with its promising candidate for certain patients with chronic myeloid leukemia is another example of our science-led business development strategy in action. TERN-701 has the potential to be a best-in-class therapy in a disease where there is an opportunity to further improve depth and duration of response for patients. Given the substantial unmet need for additional options, we believe TERN-701 has multibillion-dollar commercial potential and will be a significant driver of growth in the next decade. This transaction demonstrates our disciplined approach to pursuing business development when compelling science and value align. And we are confident in our belief that TERN-701 can benefit patients while generating value for our shareholders. Looking ahead, we continue to expect a particularly robust period of Phase III data readouts from novel candidates over the next 18 months. Our portfolio is undergoing a meaningful transformation to one with a rapidly expanding and diversified set of growth drivers. We're in the midst of initial launches of over 20 new products, almost all of which have blockbuster potential across a broad set of therapeutic areas. To move with the speed and precision this opportunity demands, we announced an evolution of our commercial operating structure. Our new business unit model, organized around products in therapeutic areas, is built to drive accountability, sharpen focus and increase agility, ensuring that every part of our commercial organization delivers on the promise of our pipeline for patients. We're pleased to welcome Brian Ford to our executive team to lead our new specialty, pharma and infectious diseases business unit. Yani Ushausen has been appointed to lead our new global oncology and MSD International business unit. Corp Guindo has taken leadership of a newly formed strategic access policy and communications unit. Each of these individuals brings deep experience to these important roles. Together, this leadership team and structure will enable strong execution of our strategy, which includes extending our leadership in oncology while building a powerful, diversified portfolio across a range of therapeutic areas. We're confident that this change will best position us to deliver on a potential commercial opportunity of over $70 billion by the mid-2030s from these 20-plus anticipated new growth drivers alone. We're also taking important additional steps to accelerate our ongoing transformation as it relates to artificial intelligence. Last week, we announced a multiyear partnership with Google Cloud to scale advanced AI, data and agentic capabilities across our company. This complements our recently expanded collaboration with Tempus AI designed to advance our precision oncology strategy as well as a recent agreement with the Mayo Clinic that will allow us to leverage Mayo's clinical insights and genomic data sets at scale. Together, these efforts support improved productivity across our organization and create a real opportunity to advance the innovation in our pipeline with greater speed and with a higher likelihood of ultimately reaching patients. As we look forward, we continue to see robust demand for our innovative medicines and vaccines around the world. We're investing behind our pipeline, optimizing our operating structure and are fully committed to our purpose of using leading-edge science to save and improve lives. We're encouraged by the progress we're making and look forward to the many significant milestones coming in the months ahead. In summary, we remain confident in our strategy and in our ability to deliver sustained growth and value for our shareholders. Before I turn the call over to Caroline, I want to recognize Sanat Chattopadhyay and Joe Romanelli, both of whom have announced retirements from Merck. Sanat and Joe have made lasting contributions to our company and to the patients we serve, and I want to thank them for their many years of impact. And now to Caroline.

Thank you, Rob. Good morning. As Rob noted, we delivered growth in the quarter driven by continued strength in Oncology and Animal Health as well as increasing contributions from our many compelling product launches. Our commercial and operational execution continues to enable us to generate strong results in the short term while we advance our broad and deep pipeline and invest in innovation to deliver long-term value for patients, customers and shareholders. Now turning to our first quarter results. Total company revenues were $16.3 billion, an increase of 5% or 3% excluding the impact of foreign exchange. The following revenue comments will be on an ex-exchange basis. In Oncology, sales of the KEYTRUDA family of products, which includes KEYTRUDA and KEYTRUDA QLEX, increased 8% to $8 billion, with global growth driven by continued strong demand from metastatic indications and robust uptake in earlier-stage cancers. Strong utilization in tumors that primarily affect women, including breast and cervical cancer, continues to be a key contributor to growth. In addition, we saw increased use of KEYTRUDA in combination with Padcev in locally advanced or metastatic urothelial cancer. In the U.S., growth benefited by approximately $250 million from the timing of purchases. We are pleased with the positive feedback following the recent launch of KEYTRUDA QLEX. Sales in the quarter were $128 million. On April 1, we received the permanent J-code, and we look forward to having an even greater impact on patients and health care systems. Our broader oncology portfolio achieved another quarter of strong growth. Notably, WELIREG sales increased 43% to $199 million driven by continued uptake from ongoing launches in international markets and increased use in certain patients with previously treated advanced renal cell carcinoma in the U.S. We look forward to potentially reaching more patients with renal cell carcinoma, following positive results from the LITESPARK-011 and -022 studies. In Vaccines and Infectious Diseases, GARDASIL sales were $1.1 billion, a decrease of 22%, driven by lower demand in China and Japan, consistent with our expectations. In the U.S., sales declined 10%, primarily due to timing of CDC purchases, which was partially offset by price. In pneumococcal, CAPVAXIVE continues to progress well, with sales of $142 million, an increase of 31%. Outside of the U.S., sales were driven by uptake from ongoing launches in certain markets. In the U.S., growth was driven by increased demand from both retail pharmacies and nonretail customers, partially offset by a reduction in wholesaler inventory. In Cardiometabolic and Respiratory, WINREVAIR continues to have a positive impact on patients with pulmonary arterial hypertension. Global sales were $525 million, a reflection of the continued strong demand for this important therapy. In the U.S., we continued to see steady progress with more than 1,600 new patients having received a prescription and an increase in usage by patients with background therapies that do not include a prostacyclin. Outside the U.S., we continue to progress with securing reimbursement and ongoing launches. Sales of OHTUVAYRE, a novel maintenance treatment for adults with COPD, were $131 million. As expected, sales were adversely impacted by the CMS reimbursement change as well as Medicare deductible resets. We are encouraged by the prescription trends, which began to recover in March. Consistent with our strategy to maximize OHTUVAYRE's strong potential, we are making investments to reach more patients and physicians, which we expect will accelerate growth in the second half of the year and beyond. Our Animal Health business delivered another quarter of strong growth, with sales increasing 6%. Livestock sales grew 8%, driven primarily by higher demand for ruminants and poultry products as well as price. Companion animal sales increased 4% due to new product launches and price, partially offset by a reduction in vet visits. 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 81.9%, a decrease of 0.3 percentage points. Operating expenses increased to $15.2 billion, including a $9 billion onetime charge related to the acquisition of Cidara Therapeutics. Excluding this charge, operating expenses grew 2%, reflecting increased investments in support of our key growth drivers, partially offset by benefits of our multiyear optimization effort and recognition of a portion of the external funding for sac-TMT. Other expense increased to $318 million, primarily reflecting financing related to recent business development transactions. Our tax provision was $957 million. As a result of the nontax deductible onetime charge for Cidara, we had a pretax loss this quarter resulting in a tax rate of negative 43.5%. Taken together, we reported a loss of $1.28 per share, which includes a negative impact of $3.62 per share from the onetime charge related to Cidara. Now turning to our 2026 non-GAAP guidance. We have narrowed the range and raised the midpoint of both our full year revenue and EPS guidance. We now expect revenue to be between $65.8 billion and $67 billion, representing growth of 1% to 3%, including a positive impact from foreign exchange of approximately 1 percentage point using mid-April rates. Our gross margin assumption remains approximately 82%. Operating expenses are assumed to be between $36 billion and $36.8 billion. This range does not include the proposed acquisition of Terns or any additional significant potential business development transactions. Other expense is expected to be approximately $1.3 billion. We assume a full year tax rate between 23.5% and 24.5%, which reflects the nontax deductible onetime charge for Cidara. We assume approximately 2.48 billion shares outstanding. Taken together, we expect EPS of $5.04 to $5.16, including a positive impact from foreign exchange of approximately $0.10 using mid-April rates. It is important to note that this guidance does not include the impact of the proposed acquisition of Terns, which is expected to close soon. We expect the transaction will result in a onetime charge that will increase research and development expense by approximately $5.8 billion or approximately $2.35 per share. In addition, ongoing investment to advance TERN-701 and the assumed cost of financing will negatively impact EPS by approximately $0.12 this year. As you consider your models, there are a few items to keep in mind. For KEYTRUDA, recall that while growth benefited from the timing of wholesaler purchases in the first quarter, we will face a corresponding headwind in the third quarter. For ENFLONSIA, consistent with the first quarter, we expect minimal sales in the second quarter, given the seasonal nature of the product and continued high levels of RSV monoclonal antibody inventory in the market. We are actively engaging customers in advance of the RSV season and remain focused on educating health care professionals and parents on the importance of protecting infants from this potentially serious disease and expect shipments to increase in the second half of the year. Lastly, we expect SG&A expenses to increase over the remainder of the year as we invest to maximize the impact of our recent and upcoming launches. Now turning to capital allocation, where our strategy remains unchanged. We will prioritize investments in our business to drive near- and long-term growth, including new product launches and a robust pipeline. We remain committed to the dividend with the goal of increasing it over time. Business development remains a high priority as evidenced by our recently announced acquisition of Terns. We maintain the ability within a strong investment-grade credit rating to pursue additional, science-driven, value-enhancing transactions going forward. We are on pace for approximately $3 billion of share repurchases this year, as previously communicated. To conclude, we are confident in the outlook for our business driven by global demand for our innovative medicines and vaccines, including our many new product launches. We remain committed to bringing forward medically significant innovations that 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. Progress continued with a steady cadence of clinical and regulatory development. Today, I will provide updates in cardiometabolic and respiratory, oncology, infectious diseases and ophthalmology then conclude with key upcoming milestones. Starting with cardiometabolic and respiratory. The global burden of atherosclerotic cardiovascular disease remains significant. And with recently updated clinical guidelines recommending lower LDL-cholesterol thresholds, there remains a need for innovation that is broadly accessible. At the American College of Cardiology Congress last month, additional Phase III data were presented for enlicitide, our investigational oral PCSK9 inhibitor. Enlicitide is designed to reduce LDL cholesterol in a similar manner to PCSK9 antibody therapies with the simplicity of a daily pill. The Phase III CORALreef AddOn study demonstrated statistically significant and clinically meaningful greater reductions in LDL-cholesterol at 8 weeks compared to other oral add-on lipid-lowering therapies when added to background statin therapy. Of note, enlicitide also showed statistically significant greater reductions across key secondary endpoints, including apolipoprotein B and non-high-density lipoprotein cholesterol. The CORALreef program has generated compelling evidence for the efficacy and safety of enlicitide. As a pill, enlicitide has the potential to democratize access to a potent lipid-lowering therapy. With clinical guidelines targeting lower LDL-cholesterol targets, the field of preventive cardiology is increasingly energized and focused on early, aggressive LDL-cholesterol reduction. Also at ACC, we showed full results from the Phase II CADENCE trial, evaluating WINREVAIR in adults with combined post- and pre-capillary pulmonary hypertension and heart failure with preserved ejection fraction. WINREVAIR met the primary endpoint of reduction from baseline in pulmonary vascular resistance compared to placebo. At the 0.3 milligram per kilogram dose, WINREVAIR prolonged the time to first occurrence of a clinical worsening event, which was an exploratory secondary endpoint with a hazard ratio of 0.18. Results provide compelling proof-of-concept and warrant further evaluation in Phase III. This is an underdiagnosed condition with an extremely poor prognosis. There are currently no approved therapies. Moving to Oncology, KEYTRUDA now has 44 FDA-approved indications across 19 tumor types as well as 2 tumor-agnostic approvals and continues to generate evidence further transforming cancer care. In the first quarter, the FDA and European Commission approved KEYTRUDA in combination with paclitaxel, with or without bevacizumab, for the treatment of certain patients with platinum-resistant ovarian cancer based on the findings of KEYNOTE-B96. This is the first PD-1 inhibitor-based regimen to show a statistically significant improvement in both progression-free survival and overall survival versus paclitaxel with or without bevacizumab for these patients. We also announced findings from the KEYNOTE-B15 study demonstrated KEYTRUDA plus Padcev reduced the risk of event-free survival related events by 47% and risk of death by 35% for cisplatin eligible patients with muscle invasive bladder cancer. This is the first and only perioperative immunotherapy plus ADC regimen to extend survival for these patients. Based on these data, the FDA has accepted supplemental BLA filings for KEYTRUDA and KEYTRUDA QLEX under priority review and is targeting an action date of August 17. KEYNOTE-B15 is the sixth study of a KEYTRUDA-based regimen to demonstrate overall survival in an earlier stage cancer and, if approved, would mark the 12th earlier-stage indication for KEYTRUDA. We also continue to make progress across the broader oncology portfolio. WELIREG, our first-in-class oral HIF-2-alpha inhibitor initially approved for the treatment of certain patients with von Hippel-Lindau syndrome, has now shown additional clinical data for patients with renal cell carcinoma across multiple stages of disease. The LITESPARK-022 study evaluating WELIREG plus KEYTRUDA in the adjuvant setting, demonstrated a 28% reduction in the risk of disease recurrence or death compared to KEYTRUDA alone. In addition, the LITESPARK-011 study, evaluating WELIREG plus Lenvima, demonstrated a 30% reduction in the risk of disease progression or death in certain patients with advanced RCC versus cabozantinib. Supplemental applications for WELIREG in combination with KEYTRUDA or KEYTRUDA QLEX based on LITESPARK-022 were granted priority review by the FDA with the PDUFA date of June 19. The FDA also set a PDUFA date of October 4 for WELIREG in combination with Lenvima based on the LITESPARK-011 study. As announced last week with our partner, Eisai, the combination regimens from the LITESPARK-012 study did not meet the dual primary endpoint of progression-free survival and overall survival for the first-line treatment of patients with RCC compared to KEYTRUDA plus Lenvima. The data from the study provides learnings to the broader program. Studies from the LITESPARK clinical program, including LITESPARK-033 and -034, evaluating WELIREG in combination with zanzalintinib, are ongoing. Together with our partner, Daiichi Sankyo, we announced that the biologic license application for ifinatamab deruxtecan, or I-DXd, for the treatment of extensive-stage small cell lung cancer in certain patients with disease progression has been granted priority review by the FDA. This was based on results from the Phase 2 IDeate-Lung01 trial, and the Phase 1/2 IDeate-PanTumor01 trial. The FDA has set a PDUFA date of October 10. As Rob mentioned, we continue to identify external opportunities to strengthen and diversify our pipeline, most recently with the proposed acquisition of Terns Pharmaceuticals. TERN-701, a novel oral allosteric inhibitor of the BCR::ABL oncogene is being evaluated for the treatment of certain patients with chronic myeloid leukemia and has the potential to be an important addition to our growing hematology pipeline. Clinical data has shown encouraging activity with promising rates of major molecular response and deep molecular response by week 24. Importantly, this includes responses in patients with high disease burden, who previously received multiple lines of therapy. We are eager to get to work with the talented Terns team to advance this program in a timely fashion. Turning to HIV. Last week, the FDA approved IDVYNSO, our once-daily, single-tablet 2-drug regimen of doravirine and islatravir, a next-generation nucleoside reverse transcriptase inhibitor that blocks translocation, indicated for the treatment of certain adults whose HIV-1 is virologically suppressed based on 2 Phase III SWITCH studies. Approval was previously granted in Japan. IDVYNSO is the first approved 2-drug regimen that does not include an integrase strand transfer inhibitor. At CROI, additional data was presented demonstrating noninferiority and a similar safety profile at week 48 versus the 3-drug, INSTI-based regimen Biktarvy in adults who had not previously received antiretroviral treatment. In addition, IDVYNSO was shown to maintain virologic suppression at week 96 in adults who switched from other oral antiretroviral therapies, including Biktarvy. Islatravir, a potent long-acting antiviral that forms an anchor for additional regimens, is currently being evaluated in late-phase trials as a once-weekly combination with Gilead's lenacapavir, an HIV capsid inhibitor, and separately in combination with ulonivirine, an internally developed non-nucleoside reverse transcriptase inhibitor. We plan to present data from our HIV pipeline at an upcoming medical meeting. Next to RSV. In February, positive new data were presented for ENFLONSIA for the prevention of RSV lower respiratory tract disease in infants and children under 2 years of age at increased risk for severe disease over 2 seasons from the Phase III SMART study. These findings will be shared with global regulatory authorities with the intent to obtain an expanded indication. RSV is a leading cause of infant hospitalization globally and is especially serious for children under 2 years of age at high risk for severe disease. These data provide additional evidence for ENFLONSIA for the prevention of RSV in younger children who remain at risk entering their second season. Earlier this month, the European Commission approved ENFLONSIA for the prevention of RSV lower respiratory tract disease in newborns and infants during their first season, based on the Phase IIb/III CLEVER and Phase III SMART trials. Next, in ophthalmology. We remain focused on retinal diseases associated with vascular leakage and neovascularization, with emphasis on improving structural and functional outcomes for patients and helping reduce the burden of certain retinal diseases. This month, we initiated 2 pivotal Phase IIb/III trials evaluating MK-8748, an investigational bispecific Tie-2 agonist/VEGF inhibitor for the treatment of neovascular age-related macular degeneration. The MALBEC and TORRONTES studies are the first trials in a broader late-phase development program for MK-8748. The decision to advance development is based on promising results from the Phase I/IIa RIOJA trial. In closing, we anticipate multiple events and milestones across therapeutic areas in the coming months, including, in oncology, please mark your calendars for our annual investor event at the ASCO Annual Meeting in Chicago on the evening of Monday, June 1, where we will outline progress on our oncology pipeline and strategy. On the regulatory front, as noted, potential approvals for KEYTRUDA plus Padcev in MIBC, WELIREG in expanded RCC settings and for I-DXd in extensive stage small cell lung cancer. In HIV, data from the Phase III ISLEND-1 and -2 trials evaluating islatravir and lenacapavir, a once-weekly oral 2-drug treatment regimen in collaboration with Gilead. In cardiometabolic and respiratory, the September 21 PDUFA date for WINREVAIR for the label update based on the Phase III HYPERION study and the Commissioner's National Priority Voucher Process for enlicitide is progressing. In immunology, data for tulisokibart, our TL1A inhibitor, based on the Phase III ATLAS-UC trial in ulcerative colitis and Phase II ATHENA study in SSc-ILD. Finally, in ophthalmology data from the Phase III BRUNELLO study of MK-3000, our novel Wnt agonist, being evaluated in patients with diabetic macular edema and the Phase II portion of the RIOJA study of MK-8748 being evaluated for the treatment of patients with certain retinal diseases. I look forward to providing further updates throughout the year. And now I will turn the call back to Peter.

Thanks, Dean. Julie, we're ready to start the Q&A now. We'd appreciate if analysts would limit themselves to a single question today so we can conclude the call at the top of the hour. Thank you.

Our first question comes from Carter Gould with Cantor.

Maybe we'll start on the pipeline on MK-3000. How are you thinking ultimately about dosing? The 1-year BRUNELLO data is likely not going to inform much on duration interval and the Lucentis comparison is going to leave lots of questions unresolved. I fully appreciate that 40% have suboptimal responses to VEGF, but can this reach your targets if it ultimately requires every 4-week dosing? Or put differently, are there reasons you have conviction about every 8-week or every 12-week dosing?

Thank you very much. So just stepping back, MK-3000 is our potential first-in-class novel candidate targeting the Wnt pathway for retinal vascular disease. Almost all the other mechanisms are based on VEGF. And as you've highlighted, up to 40% have suboptimal response to VEGF. In terms of dosing frequency, when one starts these trials one often starts at every 24 weeks and upon doing that, then you go further from that. So we believe that one should focus on Q4 weeks, but one should not only focus on Q4 weeks. So your question, which I think alludes to, are we considering other frequencies, the answer is absolutely yes. But the initial focus is on 4 weeks because that is very important to get into the label. I also want to highlight that it's not just MK-3000, it's MK-8748, which is the novel bispecific directly agonizing Tie-2 that we're also excited about, and that as well is advancing in Phase IIb/III trials in retinal vascular disease.

Our next question comes from Jason Gerberry with Bank of America.

Had an update or a question on the WELIREG clinical update on LITESPARK-012 recently provided. And I wanted to get your sense, does this provide any concerning read-through to some of the ongoing readouts for LITESPARK-022 and the ability to see OS benefit there? And also, you have another frontline study with WELIREG, albeit in a post-PD-1 setting. So just kind of curious if you can speak to some of the read-throughs to some of the ongoing trials.

We were having a hard time hearing you, Jason. Let me restate the question. I think what you're asking, given the LITESPARK-012 outcome, how does that make us think about getting overall survival in some of the upcoming LITESPARK studies and what's our overall view as it relates to WELIREG?

Thanks. In relationship to the other ones like LITESPARK-022 and LITESPARK-011, which have PDUFA dates in June and October, I think we're very bullish in relation to how those will turn out. Regarding the trial that had three agents involved—a PD-1, a VEGF TKI and a HIF-2-alpha—we are studying that data, but I would be very cautious to say that it has any negative implication for other trials where, for example, we have a VEGF TKI and WELIREG or a PD-1 and WELIREG.

Our next question comes from Michael Yee with UBS Securities.

As we think about coming up to ASCO, where you will obviously have your sac-TMT featured in lung cancer, of course, obviously PD-1 VEGF also featured in a plenary as well from a competitor, how are you thinking about the dynamic of a sac-TMT in the context of PD-1 VEGFs and your own lenvatinib asset and perhaps accelerating that? And maybe just give us a snapshot as to where we stand on these two types of programs.

I'll answer the question individually, and also address what I think you're alluding to—the possibility of combinations. Regarding PD-1 VEGF, we're very interested in the space. We shared some encouraging early data at AACR. The construct of the leading PD-1 VEGF is most similar to ours. We're looking at our own data and the broader field as well, and we're eager to move PD-1 VEGF forward in our trials. If a PD-1 VEGF should be better than KEYTRUDA, we have a plethora of agents that would benefit from combination with either KEYTRUDA or KEYTRUDA plus a PD-1 VEGF. So we're advancing that. In relation to sac-TMT, I believe that at ASCO, our strong partner and collaborator Kalan will provide OptiTROP-Breast05 in first-line non-small cell lung cancer. People will look at that data carefully because it may reflect on our global trials, which are not just within China but throughout the globe. Regarding combining these approaches, the answer is absolutely yes. We are developing the information and scanning the external landscape as to where and when to best combine a PD-1 VEGF with the rest of our portfolio.

Our next question comes from Asad Haider with Goldman Sachs.

Congrats on all the progress. Maybe just a high-level one back to business development: you've been fairly active across a number of different areas, and you're saying you're ready to pursue additional transactions. So just level set us on where you still see the biggest gaps in your portfolio that could benefit from more business development as you scan the therapeutic landscape. What's the sweet spot now in terms of deal size? And is there a point at which the business development lever starts to diminish in importance just given your growing confidence in the growth trajectory out of the mid part of the next decade with the portfolio transformation that's already underway?

Asad, I appreciate the question. I would start by saying we are very confident in the assets we have, the new assets we bought in through business development as well as the continuing progress we're making with our pipeline. That continues and that grows. That said, we also continue to focus on business development. As we've said in the past, we don't necessarily target specific therapeutic areas as the first question we ask. We always ask where we see a significant unmet scientific opportunity where the science is compelling and can address an important need. From there, we ask how it fits strategically and then move to the value question. Where science and value align, we move. Our approach remains the same. From a size perspective, we continue to look anywhere in the $1 billion to $15 billion range, with that being the sweet spot. But as we've consistently said, we have the capacity to go beyond that for the right strategic deal, and we will if and when we see that. The therapeutic areas where we continue to see interesting science: obviously oncology continues to be an area with a lot going on. Immunology is an area where we continue to see interesting opportunities as well as cardiometabolic—those are probably the three most likely areas, but we are willing to be opportunistic beyond that as well. When will we have less urgency to do a deal? My view is we can always do better. We can always grow stronger. If we have the capacity, we will continue to invest. We think in terms of one pipeline, whether internal or external. That mix of internal plus external will be an ongoing part of our strategy; you will not see that change.

Our next question comes from Vamil Divan with Guggenheim Securities.

I appreciate your comments about the CADENCE data at ACC. Just curious if you could provide any updated thoughts on how the discussions with the FDA are going on moving forward the Phase III program there. Do you remain confident on the clinical endpoint being able to be the primary endpoint of the Phase III? And then just maybe any sort of rough estimate on how long you think you would actually take to execute a Phase III program in this indication.

So in relation to WINREVAIR, it is reshaping the standard of care in PAH. The question is whether we can move it to a different segment of pulmonary hypertension—those people with heart disease. The patient population we would pick is relatively small, but it's one of the biggest unmet needs in this area, a patient population that is different from PAH: older, more comorbidity and more complicated. We think the CADENCE data gives proof of concept. While reductions in PVR are important, for this patient population it's very important to have endpoints that allow patients, providers and payers to see a compelling set of outcomes including time to clinical worsening. That's where we will be having discussions with the FDA. Another important aspect is defining inclusion criteria with the FDA and the broader community to operationalize the clinical trial, and to be clear that in our minds, this is an orphan patient population.

Our next question comes from Daina Graybosch with Leerink.

I want to go back to ASCO and the data we're going to see from Kalan on OptiTROP-Breast05. That's a China study. I wonder what should we keep in mind as we look at those outcomes on how it could or could not translate globally? Any differences in what you're doing globally? Or any other things to keep in mind?

At a higher level, we think sac-TMT is akin to an ADC with important differentiation. We believe sac-TMT has potential to be a cornerstone and a workhorse ADC. We have 17 Phase III studies, 13 are in first movers across indications including NSCLC, gynecologic cancers, gastric and bladder. When we speak with our partner Kalan, they are, in some sense, doing signal finding in registrational trials in China. We recognize China is different, but these are important data for us. The OptiTROP-Breast05 study will have data; it's important to consider how that would read out. We are following their data closely. OptiTROP is sac-TMT plus KEYTRUDA versus KEYTRUDA in PD-L1 positive first-line non-small cell lung cancer. For interpreting results ex-China, one must consider the PD-L1 cut-offs and where KEYTRUDA has an indication. We have global trials such as TROPHouse-007, a global study of sac-TMT plus KEYTRUDA versus KEYTRUDA in TPS greater than 50% in first-line NSCLC. I emphasize this because in the United States and ex-China, TPS greater than 50% is where KEYTRUDA has an indication.

Our next question comes from Steve Scala with TD Cowen.

What are the gating factors for FDA acceptance of the enlicitide application? Dean, can you speak to the changes that you're pursuing on titration? What shorter durations are you pursuing? And is the 15 minutes you spoke to previously before or after administration of the drug?

Enlicitide is designed to be the first and best-in-class potent oral PCSK9, delivering a similar mechanism to antibody therapies. The Phase III data lay out the value statement regarding potency and important biomarkers. The regulatory process for the program uses a rolling submission model. Through that rolling submission, the FDA will review and ultimately provide a formal acceptance and a PDUFA date. We are actively in discussions with the FDA and will make an announcement upon formal acceptance of a complete file. In our discussions, it's important to demonstrate that the program addresses an important U.S. public health issue, delivers innovative treatments and supports domestic supply chain resilience; these are important to the FDA, and our conversations are progressing well. Regarding the label and dosing instructions, we are in active discussions with the FDA about the exact labeling language for prescription timing and administration, and I don't want to get ahead of those conversations as they are ongoing.

Our next question comes from Chris Schott with JPMorgan.

I just wanted to touch base on TL1A. I think this one's got maybe a little bit less attention than some of your other late-stage readouts this year. But can you just talk a bit about the role you're seeing TL1A playing in the IBD space? And more broadly, when we think about immunology and IBD, there does seem to be more discussion about combination therapy as maybe the next step for the market. I'm just interested in Merck's approach here—building on TL1A as I think about a broader pipeline?

Throughout immunology, certain nodes are important—IL-23, TNF, and TL1A may be such a node. Our hope is that tulisokibart could be one of the first and best-in-class TL1A inhibitors. There is increasing interest in combining different nodes. Attempts years ago had mixed results, but new data suggest combinations could be valuable in certain cases. From the AE profile in our Phase II data and across other Phase II data, tulisokibart has a tolerability profile that could be described as kinder and gentler than some other agents while showing profound efficacy. Combinations may be employed. We hope to see strong Phase III readouts in ulcerative colitis and Crohn's disease, and we also think TL1A may have a role beyond inflammation, potentially in fibrosis. We have Phase II data in SSc-ILD and hidradenitis suppurativa coming in 2026 to help define the unique role TL1A may have among other major nodes.

Our next question comes from Louise Chen with Scotiabank.

I wanted to ask you about the CADENCE study. There was some debate on the results that you recently presented at a medical meeting. I'm wondering what you think the Street may be missing about the competitiveness of your product.

In terms of the competitiveness of our product, I would say there is no current treatment for this patient population. This is a patient population with a tremendous unmet need. The focus is on whether someone, for the first time, can provide a compelling treatment. Our conversations with KOLs and the FDA center on how to move from Phase II to Phase III and how to model expected outcomes in a regulatory-consistent manner. The key is demonstrating meaningful benefit in this dire-need population.

Our next question comes from Umer Raffat with Evercore.

I wanted to touch on some incremental information that came out on your Terns deal, which I don't think we discussed on the call earlier. By my math, it looks like the incremental patients may have had an MMR achievement rate of something like 2 out of 10. Could you speak to that drop and how does that change or not change your overall thoughts about the drug's profile? Because presumably that's the real target population early in the launch?

In CML there are multiple approved therapies, and there is significant unmet need. Our value proposition for TERN-701 is whether it can be a best-in-class ABL inhibitor with high selectivity and an improved therapeutic index. Early public presentations sometimes report results in a particular way. It's important to translate abstracts into a conservative intent-to-treat regulatory-consistent view. Publicly stated data indicated approximately a 75% MMR and 36% DMR achievement rate; as we reviewed patient-level data, we believe MMR will be north of 50% within the publicly stated confidence interval. We think an MMR in that range is extremely compelling. We also find the DMR rate interesting and whether this drug could catalyze the field to view deep molecular response as a treatment goal.

Our next question comes from James Shin with Deutsche Bank.

Can you help us distinguish MK-6837 from sac-TMT? And going back to the TL1A question, is there a view within Merck that TL1A could stand alone in immunology? From a market or commercial perspective, immunology seems to be very much a portfolio-driven strategy. Some peers have large portfolios, and there's a very competitive dynamic that's built with that.

Regarding immunology, we're focused on TL1A and aim for tulisokibart to be first and best-in-class, but we would use TL1A as a beachhead to expand into other indications and combinations. If we have a leading TL1A that advances through multiple indications, in each we would consider combinatorial partners for IBD, HS, or SSc-ILD. On MK-6837, it is another ADC with a unique payload. We have discontinued that further development given the profound impact and promise of sac-TMT and our strategic prioritization in the ADC field. We remain interested in ADCs broadly—changing targets, payloads and combining or cycling payloads as the field evolves.

I'll add one small point. In our invisible pipeline we have other assets in immunology that are not yet public. We aren't just a TL1A company. We have other things in development beyond that. As those move into Phase I and beyond, you'll start to see more of them.

Our last question comes from Geoffrey Meacham with Citibank.

Dean, in HIV, just given the recent approval of Avito, can you talk about how you guys see the competitive setup? Related, I know you have pre-exposure prophylaxis coming up, but how much of a strategic priority is HIV and infectious disease when thinking about the overall business development strategy?

We have profound interest in our HIV program. Islatravir is a next-generation nucleoside reverse transcriptase inhibitor that blocks translocation. There's growing interest in moving from 3-drug daily regimens to 2-drug daily regimens. Of the 2-drug daily programs, we may be the only one without an integrase inhibitor backbone, which is important. Critically, we believe islatravir can anchor weekly regimens—combination with lenacapavir could be a once-weekly two-drug combination. Separately, combination with ulonivirine is in development and could be an effective small-pill option with favorable drug–drug interaction profile. Monthly or less-frequent regimens that protect people globally would be an important public health contribution. So are we committed and passionate about HIV? Yes—unequivocally.

Great. Thanks, Geoff, and thanks, everybody. Apologies for going over a few minutes. Give us a call if you have any follow-up questions. Thank you.

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