Merck & Co Earnings Call Nuggets: PD-1 Program and Share Repurchases
Merck & Co (NYSE:MRK) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.
Marc Goodman – UBS: Question of the PD-1 program, I was wondering if you could talk about what that means and what the programs are that you’re planning on? Then second just on odanacatib, can you just give us a sense of how we should be thinking about hearing from you later this year, how you’re thinking about letting us know what’s going to happen here and just what the update is?
Peter N. Kellogg – EVP and CFO: Well, Roger, the question I think was about PD-1 the first question and then…
Roger M. Perlmutter – EVP and President of Merck Research Laboratories: Yeah, maybe you could give me the first question on PD-1 again, because it’s – unfortunately we can’t hear you very well so go ahead.
Alex Kelly – IR: Marc, would you mind repeating your question on melanoma on PD-1?
Roger M. Perlmutter – EVP and President of Merck Research Laboratories: He may not be there.
Peter N. Kellogg – EVP and CFO: So I think the question was what’s the status of the PD-1 program? What are we thinking about other indications?
Roger M. Perlmutter – EVP and President of Merck Research Laboratories: Again as I indicated, we’re going to have the opportunity to review in detail the Phase Ib data at ASCO and in addition we have an ongoing Phase II study in malignant melanoma and as everyone knows, we do have breakthrough designation from FDA as we recently announced. We have the belief that the drug may have potential in a variety of other indications. We’ve been conducting a Phase I study in which we’re looking at a variety of other malignancies and using those data, we’ll be able to target the appropriate patients and really ascertain whether or not the drug can make a big difference for patients with malignant disease. Your second question related to the tempo of data from the odanacatib study and as I indicated, the data-monitoring committee had requested that we continue this blinded study in order to obtain additional data on efficacy and safety. We’re doing that. We have a good plan in place and as these data become available for review, we will as soon as we can let you know what our plans are, but we have to wait and see the data.
Jami Rubin – Goldman Sachs: Peter, my first question to you is, if you can walk us through the math on your share repurchase program, you said you’re going to buy 7.5 million over the next 12 months. That would, just based on my calculations, reduce your share count by about $340 million or so which would be highly, highly accretive. So of just related to your new guidance, I guess if you could just walk us through what your expectations are for the accretive impact from the buybacks so we can figure out what the other offset are? Am I thinking about this correctly? Obviously, you don’t get that full benefit in 2013, but I would think you would get a big chunk of that benefit. Then just secondly, Roger, I think that what Mark was trying to ask was what the practical implications of breakthrough status or breakthrough designation for you PD-1?
Alex Kelly – IR: Peter?
Peter N. Kellogg – EVP and CFO: Jamie, it’s Peter. Let me take the first part. So what we did indicate, I think you got this right. We’re going to repurchase over the next 12 months $7.5 billion. So our stock is in the 40s, you can do the math. I don’t think it’s quite (340 million) shares. That might be for the full $15 billion over a longer period of time. I think obviously the other thing I’d just advise is, obviously going against that you do have to factor into the fact that we do have stocks being issued as part of our compensation program. Just as a metric, in 2012, we issued about 50 million shares, so that’s kind of the run rate there. But, in general, we have factored in the benefit of the share repurchase into our EPS guidance for this year. I think what’s really important to recognize on our guidance is that we have a very strong international business, which has positives and negatives. Obviously, when foreign exchange rates shift as strongly as they had in Japan and in Venezuela, it does impact us. We mentioned earlier this year that Venezuela would be an impact to us on a full year basis. However, we kept our guidance range and that pushed us down low in that range obviously. I think everyone had – was able to do the math on that. That’s about on a full year basis about $0.07 per share impact to our EPS. The other pressures we’re seeing right now, most notably the yen, obviously, but other currencies as well around the world, add about $0.10 of headwind to our performance this year. We have added a little bit of spending on R&D, as I mentioned in my comments, and we’re reducing costs elsewhere throughout the company pretty aggressively. So that gives you sense of roughly how the EPS has been impacted in the top line. Obviously, it’s been impact before. We had indicated that we would be near prior year ex-exchange and there would be a 1% to 2% impact on foreign exchange now. We have updated that to, say, that will be about 2.5% impact on foreign exchange in the top line. So if you work those factors into a model, I think you’ll see that obviously offsetting that we have taken a lot of cost out, but still the guidance range is appropriate given the foreign exchange impacts. I think that we haven’t given any specific guidance on the pace or specific timing of the share repurchase activity and I am going to hold off on that, we’re not going to give any guidance on that until we finalize our plans. Roger do you want to talk about…?
Roger M. Perlmutter – EVP and President of Merck Research Laboratories: Yes, Jamie, with respect to the implications of breakthrough designation. This is a new program as you know from the FDA. The agency is eager to work closely with sponsors when they identify product candidates that potentially could have a large impact in treating grievous illnesses and we found already that there have been lots of productive interactions with the agency in terms of design of our program. We are moving forward quite aggressively in that. We really believe this can have a big impact and we’re delighted to be able to work closely with them.