Merck & Co. (MRK)

Q3 2011 Earnings Call

October 28, 2011 8:00 am ET


Kenneth C. Frazier - Chief Executive Officer, President, Director and President of Global Human Health

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

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

Alex Kelly - IR


Steve Scala - Cowen and Company, LLC, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

David Risinger - Morgan Stanley, Research Division

Seamus Fernandez - Leerink Swann LLC, Research Division

Jami Rubin - Goldman Sachs Group Inc., Research Division

Marc Goodman - UBS Investment Bank, Research Division

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

Anthony Butler - Barclays Capital

John T. Boris - Citigroup Inc, Research Division

Christopher Schott - JP Morgan Chase & Co, Research Division

Catherine J. Arnold - Crédit Suisse AG, Research Division



Good day, everyone, and welcome to Merck's Third Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Alex Kelly, Senior Vice President of Investor Relations. Please go ahead.

Alex Kelly

Thanks, Brooke, and good morning, everyone, and welcome to Merck's 2011 third quarter conference call. Before I turn the call over to Ken this morning, I want to mention a few housekeeping items. First, as a reminder, we're hosting our R&D and Business Briefing in less than 2 weeks on November 10. At the briefing, we will discuss our pipeline, and we'll also spend time discussing the company strategy. As a result, we're going to limit the content of today's call to a discussion of the business in the third quarter, and we'll also limit the call to 45 minutes because we know we'll have ample time on November 10 for further discussion about the business, and we look forward to seeing all of you then.

The second thing I'd like to mention is that there are a number of items in the GAAP results such as acquisition-related charges, restructuring cost and a gain resulting from our sale of our interest in our consumer joint venture. We have excluded those items in our non-GAAP reconciliation tables in the press release and also in Table 2, and so that will give you a better sense of the underlying performance in the business.

Finally, I'd 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 provisions of the U.S. Private Securities Litigation Reform 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 2010 10-K, identify risk factors and cautionary statements that could cause the company's actual results to differ materially from those projected in any forward-looking statements we make today. Merck undertakes no obligation to publicly update any forward-looking statement.

Our SEC filings can be found on our website at This morning, I'm joined by Ken Frazier, our Chief Executive Officer and President; Adam Schechter, the President of Global Human Health; and Peter Kellogg, our Chief Financial Officer.

And now I'd like to introduce Ken Frazier.

Kenneth C. Frazier

Thank you, Alex. Good morning, everyone. Thank you all for joining the call today. As Alex just said, since our business briefing will take place in 2 weeks, I'm going to be fairly brief in my remarks. We look forward to providing you an in-depth view of our pipeline, as well as the progress we are making in executing our growth strategy at that time. For today, I will simply provide a synopsis of the third quarter and our accomplishments year-to-date and then invite Adam Schechter and Peter Kellogg to provide additional context.

I'm pleased to report that we had another good quarter. We coupled top line growth with strong expense management to yield an 11% increase in non-GAAP EPS. In addition, this quarter, we were very active in repurchasing our shares. At this point, 3 quarters through to 2011, I can report that we are successfully delivering on our stated intent to grow both the top line and the bottom line, maintain the consistent execution we've seen all year.

While we transition rights to REMICADE and SIMPONI in certain countries this quarter, we were still able to drive 8% year-over-year growth in our overall business. If one excludes these territories from our history, total company sales on a comparative basis would have grown 10% or 5% x exchange. This quarter's results were, in large part, driven by the strength of our in-line portfolio, with double-digit growth from JANUVIA, JANUMET, ISENTRESS, SINGULAIR, GARDASIL and ZOSTAVAX. This strong underlying growth across our product portfolio is why we continue to make selective investments behind our key in-line products, key launches such as VICTRELIS, geographic growth in Japan and the key emerging markets and life cycle management for our key brands, all while we move towards the SINGULAIR patent expiry in August 2012. Adam will speak about our product performance in more depth in a few minutes.

Merck Consumer Care grew 3% for the quarter, and as we announced, we divested Merck's interest in the Johnson & Johnson-Merck pharmaceuticals joint venture. This gives Merck's greatest strategic freedom in the OTC consumer environment. In addition, we saw strong growth from our Animal Health business in the third quarter, which grew 20%.

In late August, we announced that Rick DeLuca will serve as the new President for our Animal Health division. I'd like to acknowledge the contributions of Raul Kohan, who is retiring after many years of distinguished service to our company. Rick and Raul are working closely together to ensure a smooth transition for our business and customers. We believe that Rick's extensive experience in Animal Health will help us continue to drive growth in this important component of Merck's portfolio.

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