Merck & Co. Q3 2010 Earnings Call Transcript

Merck & Co. Q3 2010 Earnings Call Transcript
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Merck & Co. (MRK)

Q3 2010 Earnings Call

October 29, 2010 8:00 am ET


Bruce Kuhlik - Executive Vice President and General Counsel

Peter Kellogg - Chief Financial Officer and Executive Vice President

Richard Clark - Executive Chairman and Chief Executive Officer

Kenneth Frazier - President and President of Global Human Health

Alex Kelly - IR


Catherine Arnold - Crédit Suisse AG

John Boris - Citigroup Inc

David Risinger

Jami Rubin - Goldman Sachs Group Inc.

Tim Anderson - Bernstein Research

Steve Scala - Cowen and Company, LLC

Seamus Fernandez - Leerink Swann LLC

Christopher Schott - JP Morgan Chase & Co

Marc Goodman - UBS Investment Bank

Charles Butler - Barclays Capital

Barbara Ryan - Deutsche Bank AG



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Good day, everyone, and welcome to Merck's Third Quarter 2010 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Alex Kelly, Senior Vice President of Investor Relations. Please go ahead, sir.

Alex Kelly

Thank you, Brooke, and good morning, everyone, and welcome to Merck's 2010 Third Quarter Conference Call. Before I turn the call over to Dick Clark, I want to point out a couple of things this morning. First, there are a number of items in the GAAP results such as purchase accounting adjustments and merger-related expenses, restructuring costs. There's also a $380 million tax benefit and a $950 million legal reserve. In those GAAP, we have excluded those items from our non-GAAP results, and you could see a reconciliation table from the GAAP to non-GAAP figures in our press release. And that'll give you a better sense of the underlying performance.

Next, we've also provided tables to help you understand the revenue trends. There are three tables in the press release. The first table, Table 1, is the GAAP results. Table 2 reconciles our GAAP P&L to non-GAAP for the third quarter and year-to-date period. Table 3 is a supplemental non-GAAP table, which provides the sales performance for the company, the business units and the products as if the company have been combined for 2009, as well as 2010. During the call, we'll refer to Tables 2 when we discuss the P&L and Table 3 for the revenue performance. So you may want to have those available.

Finally, I'd like to remind you that some of the statements we make during the call today may be considered forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Act of 1995. Such statements are based upon the current beliefs of management and are subject to significant risks and uncertainties. Our SEC filings, including Item 1A and the 2009 10-K identify certain risk factors and cautionary statements that could cause the company's actual results to differ materially from those projected this morning. Merck undertakes no obligation to publicly update any forward-looking statements.

Our SEC filings, as well as our earnings release are available on And with that, I'd like to let you know that I'm joined by Dick Clark, our Chairman and Chief Executive Officer; by Ken Frazier, our President; and also I'm joined by Peter Kellogg, our Chief Financial Officer.

Now I'd like to introduce Dick Clark.

Richard Clark

Thank you, Alex, and good morning, everyone. It's been a year since Merck and Schering-Plough merged to form today's Merck. First, let me say that I'm extremely pleased and proud of all that we have accomplished in such a short period of time. We had consistently focused on achieving the benefits of the combination for patients, customers, shareholders and employees. Most important is furthering the science that underpins Merck's ability to address many of the world's most serious, unmet medical needs.

Today, our company has greater geographic reach, one of the industry's broadest product portfolio, and has a tremendous late-stage pipeline that I believe is second to none. As we mark the anniversary of our merger, I want to thank many Merck colleagues who have helped us manage a significant combination so effectively. Throughout the past year, we have continued to drive revenue growth or key products, improve our cost structure and make the right strategic investments in our business. We've accomplished this while successfully taking on a challenging task of integrating our people, systems and cultures to form a powerful, unified organization. And while we still have work to do, Merck is well positioned now and for the future.

Our solid third quarter 2010 financial results illustrate that we are continuing to execute our strategy. We realized top line worldwide sales of $11.1 billion, non-GAAP earnings per share of $0.85 and GAAP earnings per share of $0.11 for the quarter.

Key brands including JANUVIA, JANUMET, SINGULAIR, ISENTRESS and REMICADE were each strong performers this quarter. It is Merck's ability to develop and offer these truly differentiated products that will position us to successfully navigate difficult economies, pricing pressures and challenging regulatory environments throughout the world. In a few moments, Ken will discuss our global product performance in more detail. Peter will then provide you with our full earnings outlook.

While our merger has always been about the science, synergies are also important. We are on track to achieve our previously announced synergy target of $3.5 billion in annual savings by the end of 2012. As we continue to integrate, there's exciting activity across all of Merck and the world, particularly R&D and commercial strengths at Merck. In coming months and into next year, we expect some important clinical data from promising candidates in our robust pipeline. You will hear more about these milestones in a few moments.

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