Merck & Co.'s CEO Discusses Q1 2012 Results - Earnings Call Transcript

Merck & Co. (MRK)

Q1 2012 Earnings Call

April 27, 2012 8:00 am ET


Alex Kelly -

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

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

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


Jami Rubin - Goldman Sachs Group Inc., Research Division

Christopher Schott - JP Morgan Chase & Co, Research Division

Steve Scala - Cowen and Company, LLC, Research Division

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

Marc Goodman - UBS Investment Bank, Research Division

John T. Boris - Citigroup Inc, Research Division

Alison Yang - Barclays Capital, Research Division

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

Thomas Chiu - Morgan Stanley, Research Division

Gregory B. Gilbert - BofA Merrill Lynch, Research Division

Seamus Fernandez - Leerink Swann LLC, Research Division

Catherine J. Arnold - Crédit Suisse AG, Research Division



Good day, everyone, and welcome to Merck's First 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, Christine. Good morning, everyone, and welcome to Merck's first quarter 2012 conference call. Before I turn the call over to Ken, I'd like to mention a few housekeeping items. First, there are a number of items in the GAAP results this quarter such as acquisition-related charges and restructuring costs and certain other items, and you should note that we have excluded those items in our non-GAAP reconciliation tables and we've put those in the press release and also in Table 2, so that you can get a better sense of the true underlying performance.

Next, we've also provided tables to help you understand the revenue trends, so there are tables with the GAAP results, and then there are also tables that -- Table 2, which reconciles GAAP P&L to non-GAAP, and Table 3 provides the sales performance of the company, business and the units. During the call, we're going to primarily refer to Table 2 and Table 3 when we talk about performance.

Finally, I'd like to remind you that some of the statements we make during today's call might be considered forward-looking statements. And as such, such statements are based upon the current beliefs of management and are subject to significant risks and uncertainties. The company's SEC filings, including our 10-K, which was filed for 2011 back at the end of February identifies certain risk factors and cautionary statements that could cause the company's actual results to differ materially from any projected this morning. Merck undertakes no obligation to publicly update any forward-looking statement and you can find our SEC filings, as well as today's earnings release and tables on our website at

This morning, I'm joined by Ken Frazier, our President and Chief Executive Officer and Chairman of the Board; Adam Schechter, our President of Global Human Health; and Peter Kellogg, our Chief Financial Officer.

Now I'd like to introduce Ken Frazier.

Kenneth C. Frazier

Thank you, Alex. Good morning, everyone, and thank you all for joining the call today. Our performance in the first quarter underscores key things that we've emphasized since early 2011: growth and execution. We remain committed to building shareholder value through continued execution while focusing on both performance and innovation. All in all, this quarter showed a strong start in a year when we intend to overcome a significant patent expiry. We are building momentum, particularly with our key growth drivers and plan to achieve numerous major milestones in our late stage pipeline, including a series of important filings with significant commercial potential. Our focus on aligned execution across geographies and divisions allowed us to deliver worldwide sales of $11.7 billion in the quarter, with solid growth in each of our 3 major businesses, 6% in the global pharmaceutical and vaccines business when one excludes the impact of the J&J arbitration, 7% in Consumer Care and 8% in Animal Health. It should be noted that we delivered this growth while also tightly managing costs, resulting in an 8% growth in non-GAAP EPS. Once again, we saw double-digit growth from a number of key products in our global pharmaceutical and Vaccines business. As always, Adam Schechter will discuss the performance of our product portfolio in more detail.

Consumer Care growth was due to strong performance from brands across the consumer product portfolio in both developed and developing markets, including the U.S., Canada, Russia and Brazil. Animal Health growth was driven by the top 20 products in the portfolio, which grew a combined 18%, excluding foreign exchange, in the quarter. Overall, I remain pleased with the long-term global trends and the growth prospects for both the Consumer Care and Animal Health businesses.

As you know, this is a challenging period for many companies in the industry due to major patent expirations, continued uncertainty in the global economy and increasing external pressures in the macro health care environment. However, we are confident in our ability to successfully manage these pressures and improve Merck's competitive position over the long term. In fact, we believe the growth momentum of our underlying business and the strength of our late stage pipeline position us well as we prepare for the SINGULAIR patent expiry and beyond.

In 2012, we intend to maintain our revenues at or near 2011 level on a constant currency basis and drive bottom line growth. In addition to executing our core business strategies, we also made progress in our efforts to expand in the emerging markets. For the quarter, emerging market sales represented 17% of total pharmaceutical sales. China alone grew 19%, including a 5% benefit from foreign exchange. We continue to estimate that the emerging markets will represent about 1/4 of our total pharmaceutical and vaccine sales by the end of 2013.

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