Merck & Co. (MRK)

Q2 2012 Earnings Call

July 27, 2012 8:00 am ET

Executives

Alex Kelly

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

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

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

Analysts

Catherine J. Arnold - Crédit Suisse AG, Research Division

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

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Jami Rubin - Goldman Sachs Group Inc., Research Division

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

David Risinger - Morgan Stanley, Research Division

Seamus Fernandez - Leerink Swann LLC, Research Division

Steve Scala - Cowen and Company, LLC, Research Division

Marc Goodman - UBS Investment Bank, Research Division

Charles Anthony Butler - Barclays Capital, Research Division

Christopher Schott - JP Morgan Chase & Co, Research Division

Barbara A. Ryan - Deutsche Bank AG, Research Division

Presentation

Operator

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Good day, everyone, and welcome to Merck's Second Quarter 2012 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Alex Kelly, Senior Vice President of Investor Relations. Please go ahead.

Alex Kelly

Thanks, Jackie, and good morning, everyone, and welcome to Merck's Second Quarter 2012 Earnings Call. Before I turn the call over to Ken, I want to mention just a few housekeeping items. First, there are a number of items in the GAAP results this quarter such as acquisition-related charges, restructuring costs and certain other items, and you should note that we have excluded those items in our non-GAAP results. You can see our reconciliation tables in the press release and also in Table 2 of the charts. That will give you a better sense of underlying performance. We've also provided tables to help you understand the revenue trends, and we have some additional tables as well.

So during the call, we're going to refer primarily to the non-GAAP results, which you'll find in Table 2. And finally, I'd like to remind you that some of the statements we make today might be considered forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The statements are based upon management's current beliefs and are subject to significant risks and uncertainties. You can see our SEC filings in our -- which identifies certain risk factors and other cautionary statements that you should know about when -- concerning those forward-looking statements. You can find our SEC filings on our website at merck.com.

Now I'd like to turn the call over to our speakers. First, we have Ken Frazier, our Chairman and CEO. We also have Adam Schechter, the President of our Global Human Health business; and then Peter Kellogg, our Chief Financial Officer. Now I'd like to turn the call over to Ken.

Kenneth C. Frazier

Thank you, Alex. Good morning, everyone. Thank you for joining the call today. Last year, we laid out our plans for success in 2012 and beyond. We told you that we continue having high expectations for ourselves and that we intend to deliver strong operational performance and advance our pipeline. We are delivering both.

Our results this quarter demonstrate the momentum we continue building in our underlying business. As I've said for some time, we were focusing on delivering growth through innovation and execution. We are pleased with the growth we saw this quarter, and our longer-term focus on innovation remains intact.

This quarter, we delivered our sixth straight quarter of top line growth and even faster non-GAAP bottom line growth. We did sell in the face of significant pressures from the difficult global economic environment, including an increase in government austerity measures and currency headwinds. Although we anticipate many of these external challenges to continue, the greatest longer-term threat to the global health care system remains the rapidly increasing and unsustainable growth in costs. This is why we are committed to our strategy of bringing forward innovative medicines and vaccines that have demonstrated outcomes, provide value to public and private payers and make a real difference in the end to patients.

Despite external challenges to our industry and the imminent SINGULAIR U.S. patent expiration, we remain focused on building long-term shareholder value by executing the 4-part strategy we shared with you at our business briefing last November: first, executing on our core business, which includes our largest markets, our core brands, our new launch brands and innovative R&D; second, expanding geographically to leverage high-growth markets such as Japan and key emerging markets; third, extending into the complementary businesses of Consumer Care and Animal Health; and fourth, excelling at managing our cost structure while continuing to invest for future growth, which is critical in this industry.

Our second quarter results, plus a broader view of our robust pipeline, demonstrate that we are executing our strategy well. So let me start with how we executed on the quarter. Overall, we grew worldwide sales by 1%, which includes a 4% unfavorable impact from foreign exchange. On a constant currency basis, therefore, sales increased 5%. Once again, we saw double-digit growth from a number of key products. We remain confident in our ability to weather the loss of exclusivity for SINGULAIR, and in 2012, we intend to maintain our revenues at or near 2011 levels on a constant currency basis.

The second part of our strategy is to expand geographically in high-growth markets like Japan and key emerging markets. Since the merger, we've been making investments accordingly, and as you will hear from Adam, those investments are paying off. In addition to our organic growth initiatives and capabilities, we have also started new joint ventures in places like China, Brazil and India to expand our capabilities while making further inroads into these important markets.

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