Merck & Co. (MRK)

Q2 2010 Earnings Call

July 30, 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


Eric Lo - BofA Merrill Lynch

David Maris - Credit Agricole Securities (USA) Inc.

David Risinger

John Boris - Citigroup Inc

Jami Rubin - Goldman Sachs Group Inc.

Tim Anderson - Bernstein Research

Seamus Fernandez - Leerink Swann LLC

Christopher Schott - JP Morgan Chase & Co

Marc Goodman - UBS Investment Bank

Charles Butler - Barclays Capital



Good day, everyone, and welcome to Merck's Second Quarter 2010 Earnings Conference Call. [Operator Instruction] 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

Thank you, Amanda, and good morning, everyone, and welcome to Merck's 2010 Second Quarter Conference Call. There are a number of items in the GAAP results this quarter such as purchase accounting adjustments, merger-related expenses, restructuring cost and also the gain on AstraZeneca's asset option exercise. We excluded those items in our non-GAAP reconciliation table, so you can get a better sense of the underlying performance for the quarter. We've also provided tables to help you understand the revenue trends.

So this quarter, there are three tables in the press release. Table #1 is the GAAP results. Table #2 is a reconciliation of our GAAP results to a non-GAAP basis for the second quarter and also for the year-to-date period. Table 3 is a supplemental non-GAAP table, which provides the sales performance for our products and our businesses, as if the company have been combined in 2009. During the call, we will be referring to Table 2 when we discuss the P&L and Table 3 when we discuss the product performance. So you may want to have those available.

In addition, I would like to remind you that some of the statements we make during today's call 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 based upon the current beliefs of Merck's management and 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 forward-looking statements we make today. Merck undertakes no obligation to publicly update any forward-looking statement.

In addition, you can see the company's SEC filings as well as today's earnings release in the tables at This morning, I'm joined by Dick Clark, our Chairman and Chief Executive Officer; Ken Frazier, our President; and Peter Kellogg, our Chief Financial Officer. Now I'd like to introduce Dick Clark.

Richard Clark

Thank you, Alex, and good morning, everyone. Our strong bottom line performance in the second quarter demonstrates Merck's continued success in executing our post-merger strategy. We're now halfway through our first full year as a combined company. Already, we're seeing positive signs of what can be achieved. Despite patent expiries and a challenging economy, I'm very pleased with what our team has accomplished.

We remain focused on driving revenue growth, maintaining the momentum of our business, reducing our cost structure and making the right strategic investments globally. All of which are allowing us to make good progress toward Merck's overall goal of becoming the best healthcare company in the world. Strong underlying product performance helped us to realize topline worldwide sales of $11.3 billion, non-GAAP earnings per share of $0.86 and GAAP earnings per share of $0.24 for the quarter.

Key brands including JANUVIA, JANUMET, REMICADE, ISENTRESS and TEMODAR were again standouts this quarter. In addition, Animal Health and Merck Consumer Care produced strong global sales. With our strong performance for the first half of the year, we continued to have confidence in delivering on our long-term financial targets. We also remain committed to achieving our previously-announced synergy target of $3.5 billion in ongoing annual savings in 2012.

We have already announced initial phases of the merger restructuring program that will contribute approximately $2.7 billion to $3.1 billion toward the overall target, with procurement savings in excess contagious [ph] to account for the rest.

In a few moments, Ken will discuss in more detail our global product performance, and then Peter will discuss our full year earnings outlook. But first, let me highlight a few areas.

Merck's integration remains very much on course. But it will involve more hard work and difficult decisions as we proceed forward with our efforts to capture the full value of the new Merck for patients, customers and shareholders. The announcements we made recently did tell them the plans to integrate Merck's global research and manufacturing operations is another key step, but not the final one, in successfully executing our overall plan to create an industry-leading operating model.

On the R&D side, our goal is to create a more flexible organization that fuels innovation in our pipeline and excels at external collaboration. On the manufacturing side, we aim to have a more reliable cost-efficient worldwide supply chain to support Merck's broader product portfolio, and meet the demand of a diverse and ever-revolving global health care environment. And while there are still lots of moving parts, we are building our strong track record of quickly executing our integration plans, while launching new products and delivering strong performance from current months. That has what allowed us to drive revenue growth in key brands despite patent expiries and difficult economic conditions.

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