默克藥廠 (MRK) 2013 Q1 法說會逐字稿

Good day, everyone, and welcome to Merck's first-quarter 2013 earnings conference call.

Today's call is being recorded.

At this time I would like to turn the call over to Alex Kelly, Vice President of Investor Relations.

Please go ahead.

Thank you, Jackie, and good morning, everyone.

Welcome to Merck's first-quarter 2013 conference call.

Before I turn the call over to Ken I want to point out just a couple of items.

First of all there are a number of items in the GAAP results such as acquisition-related charges, restructuring costs and certain other items.

You should note that we've excluded those items in our non-GAAP reconciliation tables and you can see them in our press release in table 2 and that will give you a better sense of the underlying performance.

There are three tables in the press release; the first table is the GAAP results, table number 2 reconciles our GAAP P&L to the non-GAAP results for the first quarter and table 3 provides the sales performance for the Company's business units and our products both on a reported basis and excluding exchange.

During the call we will be referring to tables 2 when we discuss the P&L and table 3 when we talk about revenue performance.

Finally, 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 provisions of the US Private Securities Litigation Reform Act of 1995.

Such statements are based upon the current believes of Merck's management and are subject to significant risks and uncertainties.

If underlying assumptions prove an accurate or uncertainties materialize actual results may differ materially from those set forth in the forward-looking statements.

The Company's SEC filings including Item 1A in the 2012 10-K identify certain risk factors and cautionary statements that could cause the Company's actual results to differ materially from those projected in any forward-looking statements made this morning.

Merck undertakes no obligation to publicly update any forward-looking statement.

Our SEC filings can be found on the website at Merck.com.

You can also find our earnings release and all the tables there as well.

This morning I am joined by Ken Frazier, our Chairman and Chief Executive Officer; Roger Perlmutter, our new President of Merck Research Laboratories; Adam Schechter, our President of Global Human Health; and Peter Kellogg, our Chief Financial Officer.

Now I would like to introduce Ken Frazier.

Thank you, Alex.

Good morning, everyone, and thank you for joining the call today.

Our results for the first quarter underscore the challenges of managing through a major patent expiration and the impact of headwinds which were even tougher than we had anticipated.

However, we took the focused actions necessary to drive our business and deliver our first-quarter EPS target on an operating basis.

Given the trends facing us for the remainder of the year, including substantial non-operational impacts such as foreign exchange, we have adjusted our 2013 guidance downward.

Peter Kellogg will discuss our guidance in more detail.

Despite these short-term challenges we remain committed to driving shareholder value.

One way we demonstrate that commitment is by returning cash to shareholders.

In the first quarter we delivered a 2.5% dividend increase and nearly $600 million in share repurchases and this morning we announced a $15 billion expansion of our share repurchase program.

We expect to repurchase approximately half of that for $7.5 billion in the next 12 months.

Also key to creating shareholder value is our four-part strategy which is focused on executing on our core business, expanding in key markets geographically, extending our complementary businesses and excelling at managing our cost structure.

This strategy enables us to take a balanced approach to address the short-term and long-term challenges and opportunities inherent in our business.

We knew the first half of 2013 would be challenging for us due to the patent expiries we face and the first-quarter results illustrate that challenge.

We fell short of our expectations for top-line performance and are not satisfied with our overall number for the JANUVIA franchise which, along with the continued decline in sales of SINGULAIR and other products with patent expirations, led to a 9% decline in worldwide sales.

However, the opportunities for JANUVIA remain strong and we are deploying more resources in a targeted manner to this important brand moving forward.

Let me be clear, I am confident in the continued growth of our diabetes franchise both in the United States and globally.

Adam will walk you through the human health product performance including additional context for the JANUVIA performance this quarter.

Overall it is important to note the good performance of vaccines, immunology products and ISENTRESS as well as Animal Health and Consumer Care in the first quarter.

In response to the challenges we encountered this quarter we moved quickly to reduce SG&A spending that prioritize our investments versus our previous plans.

We continue to decrease costs without compromising our best opportunities for future growth such as the necessary investments in our core brands and product launches.

Turning to our expansion strategy in key geographies, the emerging markets grew 8% excluding exchange and accounted for approximately 21% of pharmaceutical sales for the quarter.

We continue to make investments in commercial, manufacturing and R&D to align with the long-term potential of the emerging markets.

For example, just last month we opened a new manufacturing facility in pain show Hangzhou, China with capabilities to supply our high-quality medicines to China and the Asia-Pacific region at lower cost.

In terms of our complementary businesses, our Animal Health sales grew 4% in the quarter excluding exchange.

We had continued strong performance in the US and Northern Europe despite challenging market conditions.

We drove continued growth of the poultry business as well as the companion animal business which was led by strong uptake of our new product ACTIVYL for ticks and fleas.

Merck Consumer Care also continued its top-line growth driving good demand in several key markets including the US, Canada, Mexico and Russia.

Sales grew 4% this quarter ex-exchange driven by Coppertone and CLARITIN as retailers gear up for the allergy management and sun protection seasons.

Moving now to R&D, we continued to advance the pipeline in the first quarter.

We now have five products under regulatory review including suvorexant for insomnia and sugammadex for reversal of neuromuscular blockades.

As I've underscored many times, innovative R&D is the cornerstone of Merck.

Given how essential R&D is to our long-term future I am pleased to welcome our new President of Merck Research Labs, Roger Perlmutter, to today's call.

As you know, Roger is a world-class physician scientist with an established track record of successfully leading large research organizations and delivering a broad and diverse pipeline of medicines.

With his deep knowledge and appreciation for basic science and the opportunities for applied biomedical research, the challenges we face from regulatory authorities and especially payors to demonstrate the comparative safety, efficacy and cost advantages of new drug candidates and the implications of all of this for how we can best use R&D resources Roger is the ideal leader for our Research Labs.

I am confident that under Roger's leadership Merck will increase our return on R&D capital while successfully bringing forward transformative medicines that make a real difference for patients and shareholders alike.

Although he has only been with us now for about two weeks I invited Roger to make a few remarks.

So, Roger?

Thanks, Ken.

I feel very privileged to have the opportunity to lead the Merck Research Laboratories.

As many of you know, this is a true homecoming for me since I was responsible basic research and early clinical development at MRL about 15 years ago.

I've spent the last two weeks familiarizing myself with the current state of the laboratories and with our most critical projects.

As Ken mentioned, both suvorexant, our dual orexin receptor antagonist, and sugammadex, our modified cyclodextrin that permits rapid reversal of neuromuscular blockade during surgery, are currently under regulatory review.

We are looking forward to having more detailed discussions with the FDA on these agents.

Last week we announced that the FDA had granted breakthrough status to lambrolizumab, also known as known as MK-3475, which is our investigational PD-1 specific monoclonal antibody for the treatment of advanced malignancy.

As you are aware, a 510 the patient Phase II study of this agent in malignant melanoma is currently underway.

We will be presenting more mature data from our Phase Ib study in the same indication at the American Society for Clinical Oncology meetings in early June which will demonstrate why we are so enthusiastic about this new approach for treating a variety of otherwise devastating malignancies.

I've also had a chance to review the odanacatib program.

Last year an independent data monitoring committee recommended that our pivotal study be closed for robust efficacy and a favorable benefit risk profile while noting that safety issues remained in certain selected areas.

The DMC recommended continuing the previously planned extension study in a blinded format to collect important safety and efficacy data.

That extension study is proceeding at pace.

We have a good plan in place and hope to accrue the necessary data and allow for a 2014 filing as previously discussed.

Finally, just two days ago we announced a worldwide collaboration agreement with Pfizer to develop and commercialize their investigational SGLT2 inhibitor, ertugliflozin, for the treatment of type 2 diabetes.

This partnership builds on our very significant expertise in diabetes and will permit the exploration of a potent and selective SGLT2 inhibitor, both as a stand-alone intervention and in combination with other agents including of course JANUVIA.

There is more work ahead over the next three to six months as I continue assessing the lab's and our pipeline, so it's too early for me to go into details about my views about specific programs or what changes I see ahead for Merck research.

Suffice it to say that when the time is right I will have more to say on all of these topics.

Meanwhile know that I'm excited to be back at Merck and delighted to be working with the gifted scientific team at MRL in addressing the needs of patients around the world.

Thank you, Roger.

In terms of R&D, as you could hear, we remain committed to accessing the best opportunities whether they are internal or external and this year we have already entered into a number of new licensing agreements.

In addition to the diabetes partnership with Pfizer that Roger just mentioned, last week we announced a hepatitis C agreement with Bristol-Myers Squibb to study MK-5172 in an all oral combination with Bristol's NS5A inhibitor in a Phase II study.

And in February we announced an agreement with Samsung which combines Merck's global commercial presence with the development and manufacturing capabilities of Samsung to increase access to biosimilars.

In closing, our top-line performance for the quarter reflected both the challenges facing Merck and the benefits of our broad diversity across businesses, products and geographies.

While we are not satisfied with our first-quarter top-line results, they are also not indicative of the future opportunities for our business.

Despite the continuing economic pressures and the need to manage through patent expiries, we are committed to driving better top-line performance with key growth products such as JANUVIA in key geographies, advancing and augmenting our pipeline and taking out cost through continuous productivity improvements.

By doing these things well we will continue to generate steady cash flow and drive shareholder return over the longer term.

I would like to now turn the call over to my colleague, Adam Schechter.

Thank you, Ken, good morning, everyone.

This morning I will focus my remarks on three areas -- first, our core products; second, our core markets; and third, the launches we anticipate later this year and those we are preparing for beyond this year that will provide additional long-term growth opportunities.

So let me begin with our results.

Human health sales declined 12% year over year.

There is a $1.4 billion impact from the loss of exclusivity of SINGULAIR, PROPECIA, CLARINEX and MAXALT and there was weakness in the yen.

While the loss of exclusivity was expected, the rate and the level of erosion has been more rapid.

In addition, we had an unexpected decline in US wholesaler inventory levels of about $150 million.

Though I am not satisfied with our results this quarter I am confident in our future outlook.

So let me share with you what I do to get a sense of the underlying business performance.

First, I look at sales on a constant currency basis.

I also exclude sales from products that lost exclusivity.

Then I look to see if there's an impact to the business from wholesaler purchasing patterns.

Putting that aside this quarter our underlying growth was 4%.

I will now provide more details.

Starting with JANUVIA and JANUMET franchise which had sales of $1.3 billion and 1% growth ex-exchange.

7% growth in international markets was offset by a 5% decline in the US this quarter.

Let me take a moment to talk about the factors that affected the growth rate this quarter.

This is important context that I want to provide.

First in the United States let's talk about demand, price and inventory.

With regard to demand, as you can see from prescription data, growth was about 4% this quarter.

This was significantly lower than demand growth in the first half of last year.

The growth last year was driven by the TZD market events.

There is no longer opportunity to grow share from the TZDs.

In addition, we are comparing versus a very high volume increase last year.

Regarding price, the market is very competitive.

We are seeing rebate and pricing pressure as newer competitors seek to improve their formulary positions by lowering price.

We have maintained greater than 75% marketshare and we have an 85% preferred formulary status despite these attempts.

Finally on inventory, our customers reduced their inventory levels for the JANUVIA franchise by about $70 million in the first quarter.

We believe this is a one-time adjustment.

If we exclude this inventory reduction we believe our sales would have grown by about 5% in the United States.

Now moving to international markets.

JANUVIA and JANUMET grew 7% ex-exchange.

In Japan we are starting to see lower year-over-year growth due to high market penetration.

The DPP-4 class is the number one class of all diabetic medicines in Japan, they are ahead of metformin, they are ahead of sulfonylureas.

And we are the market leader with close to a 70% share.

So let's talk about our expectations for JANUVIA in the remainder of this year.

In the United States, based on current Rx trends in the competitive market, we anticipate mid-single-digit sales growth.

Internationally we expect to see a return to low-double-digit growth ex-exchange, that is consistent with the underlying demand growth this quarter.

There continue to be good growth opportunities in the future.

Diabetes prevalence is growing around the world and the sulfonylurea class still represents about 35% of patient days of therapy worldwide.

We have made strong inroads in some markets like Japan, but this has proven to be more challenging than other markets like the US.

We are increasing our investments to make inroads into the sulfonylurea class.

For example, in the United States we have recently trained and re-assigned additional dedicated sales personnel to JANUVIA.

Moving now to ISENTRESS.

ISENTRESS continues to be an important core brand for Merck with sales of $360 million and 8% growth.

In the United States we are maintaining our patient share despite new competition.

Outside of the US ISENTRESS continues to have good volume growth offset partially by pricing pressure in certain European markets.

In our cholesterol franchise ZETIA and VYTORIN global sales were slightly down over the prior year.

ZETIA sales growth was offset by a decline in VYTORIN sales.

We are looking forward to our potential launch of [liptrozad] in the United States and I'll talk more about that in just a moment.

Moving now to immunology, the combined immunology business consisting of REMICADE and SIMPONI grew 10% in the quarter ex-exchange driven mostly by SIMPONI.

Sales of SIMPONI grew 40% exceeding $100 million in quarterly sales for the first time.

We are seeing a positive impact from the recent launch in France and from the reintroduction of the auto-injector in Germany.

Moving to VICTRELIS.

Global sales were $110 million this quarter.

Continued growth in international markets was offset by a decline in the United States compared to the prior year.

While we are pleased with our strong global marketshare we continue to see a contraction in markets, particularly the US, France and Germany, due to warehousing and a large number of clinical trials.

Lastly moving to vaccines.

Vaccines had another strong quarter with combined growth of 25%.

GARDASIL maintained its strong performance with over 30% growth year over year.

Strong growth in the United States reflects continued uptake of the male indication and includes about $50 million of higher public-sector purchases this quarter.

Moving on to ZOSTAVAX.

ZOSTAVAX sales increased significantly over prior year to $168 million reflecting strong demand in the US and Canada.

The sequential decline versus fourth-quarter sales was expected given seasonality.

As you may recall, we saw very strong demand in fourth quarter driven by patients representing themselves during the flu season.

We may see another sequential decline in second quarter given that the first quarter included a benefit from the flu season extending into January.

In the United States we estimate that about 20% of the population ages 60 and older have received the vaccine, so there remains the opportunity for growth.

In addition, we continue to anticipate ex-US launches beginning this year.

The UK has announced plans for a national vaccination program with ZOSTAVAX which is expected to start this fall.

Now I'd like to discuss our performance on a regional level.

Let me start with the United States where sales were significantly affected by patent expirations.

Excluding sales from products that lost exclusivity, US sales in the first quarter increased by 4%.

First-quarter sales in Europe and Canada declined by 4% ex-exchange.

Good volume growth from many brands only partially offsets price pressures and austerity measures.

Moving to Japan, first-quarter sales declined 7% ex-exchange.

The decline was driven by the prior year biannual price cuts, generic competition and timing of sales per partner.

Our volume growth is outpacing the market and we continue to expect sales growth on a constant currency basis for the full year of 2013.

In emerging markets first-quarter sales of $1.9 billion grew 8% ex-exchange.

Growth in China alone was 21%.

Growth in emerging markets was broad-based coming from core business, early contributions from our joint ventures in China and Brazil and from new products.

This year we have plans to launch a significant number of new products across the emerging markets.

In key emerging markets our growth is outpacing the overall market and we expect to deliver strong growth in 2013.

Now I'd like to move from our quarterly results to some of our future growth drivers.

We have five products currently under review with regulatory agencies.

Let me touch on two launches we are planning for if approved in the United States this year, a [liptrozad] and sugammadex.

First liptrozad, the combination of ZETIA plus atorvastatin.

Many patients continue to have high LDL cholesterol despite the wide use of statins, including generic atorvastatin.

Liptrozad can lower LDL cholesterol by more than 50% at the starting dose.

We believe many patients can benefit from this product.

Second, sugammadex, our novel reversal agent for deep neuromuscular blockade.

Now marketed in 50 countries BRIDION had $260 million in sales last year.

We believe the US represents a significant opportunity.

There are 30 million general anesthesia surgeries in the US annually.

BRIDION could be used in about a quarter of these based on the type of surgery and the type of muscle relaxants utilized.

This brings me to upcoming new product launches for which we will begin to prepare for this year.

First, the potential launches of suvorexant, our novel therapy for insomnia.

The US and Japan, our first two major launch markets, represent 75% of the 3.3 billion global insomnia market and 2 billion patient days of therapy in each of the markets.

We may have approval in Japan by the end of this year and pricing approval early next year.

While we anticipate FDA action by the middle of this year, there is also a subsequent DEA review.

Second, our allergy immunotherapy tablet for grass has been filed with the FDA and ragweed has also been submitted.

Currently there are about 3 million moderate to severe allergy sufferers in the United States who receive immunotherapy shots.

There are also many people who opt out of receiving shots or drop off from therapy.

Our AITs are daily sublingual products that we believe will be well received in the market.

And third, we continue to anticipate filing odanacatib in 2014.

So in closing, in addition to a significant sales decline due to loss of exclusivity we saw pressures to some of our growth drivers this quarter.

We have a strong diverse portfolio and despite these challenges I remain confident that we can drive growth of our core products and our growth markets in 2013.

We also have many future growth opportunities coming in the short- and in the long-term and we continue to look forward to sharing our progress on these with you as we move forward.

Now I would like to turn the call over to my colleague, Peter Kellogg.

Thank you, Adam, and good morning.

In the first quarter we worked hard to offset the top-line pressures posed by patent expiration and foreign exchange to deliver the bottom-line.

We accomplish this by holding our costs flat to achieve our first-quarter guidance.

Additionally, we had a benefit from unanticipated tax items which drove our earnings up to $0.85 on a non-GAAP basis.

Although we achieved our first-quarter guidance, the pressures on the business are greater than we had previously anticipated.

As a result, we have updated our full-year guidance to reflect additional top-line pressures including from foreign exchange, as well as new R&D programs and revised tax rate.

I will talk about that in a minute.

Separately, we are significantly increasing our share repurchase activity to increase the amount of cash we return to shareholders.

Now before I discuss our 2013 outlook and the new share repurchase program, I would like to review the operating results in the first quarter.

My remarks will focus on our non-GAAP financials.

On this basis we earned $0.85 per share this quarter compared to $0.99 in the prior year.

The biggest driver of the decreased EPS was the loss of sales due to generic erosion of SINGULAIR, MAXALT, CLARINEX and PROPECIA.

Now, these are all relatively high gross margin products, and their erosion created a 2.3 point headwind on the gross margin this quarter.

As a result, the overall gross margin was lower in the first quarter of 2013 on a year-over-year basis and on a sequential basis as we said it would be on our last call.

Our non-GAAP gross margin declined on a year- over-year basis to 74.4%.

Now, on a full-year basis, our productivity gains will offset part of the patent expiry impact, but we still expect about a 1 point reduction in our full-year gross margin compared to the prior year gross margin of 75.9%.

Turning to marketing and administrative expenses, our first-quarter SG&A expenses were about $50 million lower year over year.

During the quarter we proactively reduced spending in response to the top-line pressures.

Whereas we previously felt that there was upward pressure on SG&A spending in this year, we now expect SG&A spending in 2013 to be lower than in 2012 due to our cost reduction actions.

Moving on to R&D, research and development expense in the first quarter was about $50 million higher year over year due to upfront payments and milestones for newly in-licensed programs.

Excluding these items R&D expense would have been lower than prior year.

Moving on to the other expense line, results in the first quarter reflect a one-time exchange loss of approximately $140 million due to the impact of the Venezuela currency devaluation as we previously announced.

Moving to tax, our non-GAAP tax rate was 12.5% in the first quarter.

This is significantly lower than expected due to some unanticipated tax benefits of $0.06 per share.

While we had expected a significant portion of these tax items in our full-year guidance, they came through earlier than we were anticipating.

Now let's turn to the 2013 outlook.

On the bottom-line our 2013 non-GAAP EPS guidance range is now $3.45 to $3.55.

On a GAAP basis we expect to earn between $1.92 and $2.16.

Let me explain some of the drivers of our revised guidance.

Basically we see three pressures -- additional top-line pressures mostly due to foreign exchange as well as new R&D programs and a revised tax rate.

Let me start with revenues.

During the first quarter we saw further deterioration of the yen, a stronger dollar trend globally and the currency devaluation in Venezuela.

If these current rates persist we would expect full-year 2013 sales to be down 3% to 4% with foreign exchange accounting for about 2.5 points of the decline.

Adam described some of the operational trends affecting sales.

While we expect a 3% to 4% decline on a full-year basis we have known that the first half of the year would be the most challenging due to the effective annualizing US SINGULAIR patent expiry as well as the more recent patent expirations.

Because of the seasonal increases in SINGULAIR during the second quarter of 2012 we anticipate similar top-line pressures in the second quarter of 2013 and a similar year-over-year decline in sales as we saw in the first quarter.

Once we annualize the SINGULAIR effect at the end of the first half we should see better revenue performance in the second half of 2013.

On R&D expenses new deals like the SGLT2 inhibitor from Pfizer bring upfront payments, milestones and development costs into 2013.

In addition, we are accelerating development of our breakthrough PD-1 monoclonal antibody.

As a result we now expect our 2013 non-GAAP R&D expense will be higher than the 2012 level on a full-year basis.

These R&D investments will partially offset the SG&A savings that I mentioned earlier, but in total we expect our full-year operating expenses to be slightly lower in 2012.

The final element that I will discuss is the tax rate.

At year-end we indicated that the tax rate in the first quarter would be the lowest of 2013 due to the 2012 R&D tax credit.

As I mentioned, in addition to the R&D tax credit we also had about $0.06 of tax benefits that were originally expected in subsequent quarters of 2013 and assumed in our prior full-year guidance.

Separately, the product mix shift that we're seeing in the business actually puts upward pressure on the overall rate in 2013.

We are now estimating our 2013 non-GAAP tax rate to be in the range of 22% to 23%.

As a result the tax rate in the remainder of the year will be significantly higher than it was in the first quarter.

Speaking of the quarters, from an EPS perspective the second-quarter non-GAAP EPS is expected to be lower than the first quarter.

Remember the tax rate will be significantly higher than the first quarter.

Before I close I would like to discuss capital allocation.

Over the past three years we have paid out about $15 billion in dividends and have repurchased more than $6 billion of common stock.

Consequently we have returned more than 70% of our free cash flow to shareholders over this period.

In the first quarter we continued this pattern of returning cash to shareholders by repurchasing nearly 14 million shares of stock for approximately $600 million.

Given our sustained strong cash flow and financial position, the low interest rate environment and our desire to continue to return a higher percentage of our free cash flows to shareholders, our Board has authorized a $15 billion increase in our share repurchase authorization.

We expect to repurchase about half of this amount, or $7.5 billion worth of common stock during the next 12 months and the remainder will be available on an open ended basis.

We believe this action, which is factored into our full-year EPS guidance, demonstrates our long-term commitment to shareholder value.

At the same time we remain committed to maintaining a strong balance sheet and a strong financial position.

In conclusion, while the first quarter was challenging we were encouraged by a number of bright spots such as vaccines, immunology, HIV, emerging markets, Animal Health and Consumer Care.

We managed our cost base well to achieve our bottom-line EPS targets.

Additionally, we are taking significant new actions to return more cash to shareholders.

And most importantly, we advanced some very high potential pipeline programs and brought in others.

Thank you.

Now I will turn the call back over to Alex.

Thanks, Peter, and now we are ready to open up the call to answer your questions.

In order to help us get through as many questions as possible please limit yourselves to one or two questions and note that we won't take follow-up questions.

But if you do have additional questions you are welcome to rejoin the queue.

Jackie, we are ready for the Q&A.

(Operator Instructions).

Marc Goodman, UBS.

(Technical difficulty) [addition] of the PD-1 program, I was wondering if you could talk about what that means and what the programs are that you are planning on?

And 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 are thinking about letting us know what is going to happen here and just what the update is?

Thanks.

Okay, Roger, the question I think was about PD-1, the first question, and then (multiple speakers).

Maybe you could give me the first question on PD-1 again because unfortunately we can't hear you very well.

So go ahead.

Mark, would you mind repeating your question on melanoma or on PD-1?

He may not be there.

So I think the question was what is the status of the PD-1 program, what are we thinking about other indications?

Again, as I indicated, we are 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 have been conducting a Phase I study in which we are looking at a variety of other malignancies.

And using those data we'll be able to target to 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.

Okay, next question, please.

Jami Rubin, Goldman Sachs.

Peter, my first question to you is if you could walk us through the math on your share repurchase program.

You said you are 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 buyback so we can figure out what the other offsets are and 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.

And then just secondly, Roger, I think that what Marc was trying to ask was what are the practical implications of breakthrough status or breakthrough designation for your PD-1?

Thanks very much.

Peter?

Sure hi, Jami, it is Peter.

Let me take the first part.

So what we did indicate, I think you got this right, is that we are going to repurchase over the next 12 months $7.5 billion, so if our stock is in the [40s], you can do the math.

I don't think it is quite 340 million shares, that might be for the full $15 billion over a longer period of time.

And I think obviously the other thing I would just advise is, obviously going against that, you do have to factor in the fact that we do have stock being issued as part of our compensation program.

Just as a metric, in 2012 we issued about 50 million shares, that is 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.

And I think what is really important to recognize on our guidance is that we have a very strong international business which has positives and negatives obviously, but when foreign exchange rates shift as strongly as they have 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 and I think everyone was able to do the math on that.

That is about -- on a full-year basis about a $0.07 per share impact to our EPS.

The other pressures we are 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 are reducing costs elsewhere throughout the Company pretty aggressively.

So that gives you a sense of roughly how the EPS has been impacted and the top-line obviously has been impacted.

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 there will be about a 2.5% impact on foreign exchange in the top-line.

So you work those factors into a model I think you will 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'm going to hold off on that -- we are not going to give any guidance on that until we finalize our plans.

Roger, you want to talk about breakthrough --?

Yes.

Jami, 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 a grievous illness.

And we found already that there have been lots of productive interactions with the agency in terms of the design of our program.

We are moving forward quite aggressively in that.

We really believe this can have a big impact and we are delighted to be able to work closely with them.

Okay, next question, please.

Seamus Fernandez, Leerink Swann.

Maybe Ken and Roger, you can talk -- can you both talk a little bit about what the predetermined mandate is?

There is a period within which one can accelerate programs which may be tied to increased spending in R&D.

So I'm just kind of wondering what the mandate is in terms of near-term improving efficiency in R&D given the higher spend versus some of the peers.

And then longer term how do you see improving the productivity of the organization overall?

And then a second question for Roger on PD-1.

Can you just clarify -- what were the reasons offered or how did you position PD-1 to gain breakthrough status in melanoma?

Was the design of the trial specifically the fact that you tested this in Yervoy failures and achieved a 40% response rate?

Was that a particularly strong contributor to gaining that status?

Thanks.

So why don't we start?

Ken?

Well, I would say that when Roger came in -- and again, I am very pleased that Roger has rejoined us.

I worked with Roger for a number of years in his prior Merck career.

I think the three things that I think I have asked Roger to do and that he's agreed to take on, the first one is to look at the organization and to make the kinds of assessments that are necessary to enhance the overall longer-term capability of MRL to continually be successful, if you will, in its endeavors of looking for these transformational drugs that are so important to companies like Merck.

The second one is looking at the various programs that are underway and making assessments along with his colleagues about those programs that are most productive so that we can ensure that the capital that we are spending on R&D is productively spent.

I would say the third thing that I have asked him to do, and this of course is the critical thing, is to continue looking for the best opportunities both inside and outside so that we have a flow of significant products in our pipeline to drive our future success.

And, Roger, you can comment on how you are looking at -- it's only two weeks in.

Yes.

So the -- it won't surprise anyone on this call that you bring in a new guy and a fresh pair of eyes that there are going to be some changes that take place.

And Ken would not have wanted me to come here and assert that everything is going to be exactly as it was before.

I am doing a very detailed review of programs of process and people and already two weeks in I can say there are some opportunities for acceleration and for productivity enhancement.

And you can be confident that am going to address all of those and we will have a chance to talk about them in much more detail going forward.

With respect to the PD-1 breakthrough designation, it is all about the data.

You have seen the data that was announced early on, there will be more of it at ASCO.

Those are the data really that persuaded the agency that this was something important to pursue.

Okay.

Next question, please.

Chris Schott, JPMorgan.

My first one was on capital deployment priorities and what got you to this $7.5 billion target the next 12 months.

I guess specifically as we are thinking about this, what does this mean for potential dividend increases going forward with this announcement?

The second question was on JANUVIA and just kind of a little bit more detail just kind of what happened here.

It seems like we have had competitors in this space for some time, did something change recently?

And without this TZD kind of tailwind what you think you need to do a better job highlighting to physicians to really get the class of JANUVIA kind of back on track?

I'm just looking for a little more color there.

Thanks.

Well, before Peter gets into the details, I think our approach to capital deployment is to try to figure out after doing a rigorous analysis how we can create the most shareholder value.

And I will turn it over to Peter to give him an opportunity to speak to that.

But that is what the real key here is, driving the most shareholder value.

Chris, thanks for the question.

The dividend has always been our primary means for returning cash to shareholders and this announcement today doesn't change that at all.

Obviously we increased our dividend about 2.5% this year and increased it 11% in 2012.

So I think our commitment to the dividend remains very strong.

What we did here is we did a rigorous analysis of our capital structure and liquidity and from that we concluded that our current strong balance sheet and financial position are more than adequate to achieve our capital structure priorities and to preserve our ability to invest in the business in the ways we want to even in a down-size scenario.

So it gave us -- we feel like we've definitely got the capacity to fund both internal and external growth opportunities and we certainly will be doing that.

But we also, as Ken said, are focused on shareholder value and returning cash to shareholders.

And so, with a kind of marrying up as a strong dividend program that we continue -- we plan to continue to support we felt that a share repurchase opportunity was appropriate and certainly reasonable.

Okay, Adam?

So, Chris, let me give you some additional thoughts on JANUVIA.

And I want to first start off by saying we remain confident that there are growth opportunities for JANUVIA and for the DPP-4 class moving forward.

The opportunities are that diabetes prevalence is growing, sulfonylureas still represent a huge amount of patient days of therapy, about 35% of the patient days of therapy.

And we have been successful in some markets where in Japan, for example, DPP-4s now represent more patient days of therapy than the sulfonylureas do.

We have to continue to talk with physicians and show them the benefits that you can get by adding JANUVIA to metformin.

And I think with the additional dedicated resources that we are putting behind JANUVIA in countries like the United States where we now have full-time dedicated people in discussions with physicians, that will give us some additional momentum.

I also want to give you a little bit more perspective on what has occurred and what we see as we move forward.

And I will go back to demand and I will give you a little bit more color on demand.

So if you look at IMS data you can see about 4% growth.

But if you look prior to the TZD events you can see JANUVIA volume growth was in the single digits, it was somewhere between 8%-9%.

When the TZD opportunity occurred we increased our resources, we focused on the opportunity and we saw growth between 11% and 16%.

So we saw a very big acceleration.

There is -- very difficult to compare now to back then when this acceleration was occurring.

So we believe that there is room for us to continue to grow.

And as we get through this summer when the acceleration started to go away we'll start to see better comparisons your over year in terms of our Rx growth.

In terms of price, we have increased our price consistent with the market.

The rebates and discounts have increased because new competitors are seeking to try to improve formulary physicians by lowering price or offering more rebates.

So our discounts have gone up since last year, but we manage them closely and we manage them to maximize access.

And the good news is we have very strong managed care access with about 85% preferred formulary status.

And if you look at our share in the US, we still have about a 75% share despite all the competition.

And then the last thing which I mentioned before, our customers did reduce inventory levels in the US by about $70 million for the JANUVIA franchise in the first quarter.

This is the lowest days of supplies that they have been running for about two years.

So if you excluded that we would have seen sales growth of about 5% in the United States.

Outside the US the underlying growth remains in the low-double-digits.

And that is what leads us to feel confident that we anticipate mid-single-digit growth in the United States and we expect this return to low-double-digit growth outside the US.

So we believe that there is opportunity for JANUVIA moving forward.

Okay, next question, please.

Mark Schoenebaum, ISI Group.

Hey, Roger, I just want to say it is nice to hear your voice and it is great to have you back again.

Sorry if I accidentally ask you a few Amgen questions every now and again.

Just -- if I could just go back to JANUVIA, thanks for the color.

Can I just expand on that though?

The $70 million inventory reduction, you mentioned you think it is one time.

Can you just elaborate on why you think it is one time?

And should we thus expect to commence -- return to more normal wholesaler levels next quarter so we could expect a sequential bump up and we should be thinking about that in our models?

And then if I might on the anti-PD-1 program there has been several questions, but I wanted to ask something a little bit more direct.

Is the ongoing melanoma trial, which is technically labeled as a Phase II in clin trials, but is actually rather large I think at 500 or 600 patients?

Is that -- could that or is that a pivotal trial that could support registration?

Have you seen a signal in lung cancer yet?

Thank you.

Okay, let's start with Adam.

So thanks, Mark, for the question.

And with regard to JANUVIA, we believe there is a $70 million inventory reduction in the United States, and we based that upon days of supply on hand that we receive data on.

And I think what happened was with the very strong acceleration that we saw with the TZD volume wholesalers are buying in based upon that volume growth.

Now that we have seen less of a volume growth they've kind of taken the inventory down to I think manageable levels.

They are at levels where they can consistently supply to the market, but they're at days of supply that are lower than they have been before.

So we don't expect them to go lower, but I would not necessarily expect a bump up in the future.

What we expect is mid-single-digit sales growth in the US and that is reflective of the current Rx trends and the current marketplace competition.

And then outside it is low-double-digit growth and that is really what we are seeing with underlying demand and growth for the first quarter.

Okay, Roger, you want to comment on (multiple speakers)?

And, Mark, thanks for your comments.

With respect to PD-1, again, it is too early to really be just talking about regulatory strategy.

You are right that we have an ongoing Phase II study, it's relatively early days for this 510 patient study in malignant melanoma.

Everything will depend on the data.

And as you know in oncology, there are a variety of mechanisms that permit a relatively early entry.

If the data are especially strong you can be confident that we will pursue all of those possibilities through our discussions with the agency.

And with respect to other indications, we are very encouraged by what we are seeing now in Phase I studies in multiple tumor types.

But we need to wait for quite a bit more data before we will know how best to use this agent in other malignant diseases.

Okay, thanks, Roger.

Next question, please.

Andrew Baum, Citi.

Firstly, with regards to your PD-1, there were a couple of early anecdotal patient reports of drug -- potentially drug-related anorexia, stroke, cachexia.

Perhaps could you outline if there have been any additional cases reported or whether you believe this is just anecdotal observations that may be independent of the drug or whether there is any cytokine-related phenomenon, either drug or class related?

And then second, perhaps you could comment on the Animal Health business where you posted 2% growth, whether that is just because of a high baseline effect, FX or are there other issues as well in that?

Thank you.

So, Roger, why don't we start with you on the PD-1 question?

So with respect to PD-1, again, the -- we'll have an opportunity to present in more detail the safety analysis from the Phase Ib study at ASCO and you will be able to see that.

Not surprisingly in these very seriously ill patients there are a variety of signals that one sees, but it is too early to know to what to attribute those things or to begin to talk about class effect.

At the moment I would just reiterate that we are very encouraged by what we see in terms of the benefit/risk profile at a very early stage in the development of this new intervention for cancer.

And did you want to talk about Animal Health?

Well, this quarter we continue to see strong growth in the US, about 19%; Northern Europe was about 8%, but it was sort of offset by weakness in Southern Europe which was down and Asia specific which was down and also Latin America also grew slower sequentially.

So I would say we saw some weakness that was impacted in certain areas by economic conditions, but overall we see excellent prospects for this business going forward.

Okay, next question, please.

Tim Anderson, Sanford C. Bernstein.

A couple questions, one on Consumer Health.

Ken, in the past you have said on several occasions you have felt you don't have critical mass in this division.

Is that still the case?

And if so, what options does Merck have in front of it to address that?

And then I had another question on PD-1.

It seems to be a class-based side effect where if you block PD-1 you get pneumonitis.

And obviously with the Bristol compound we saw three pneumonia-related deaths -- or I should say lung-related deaths.

In your program can you talk about pneumonitis that you have seen?

Okay, yes, Ken?

Tim, thanks for the questions; I will start with my thoughts on consumer.

My thoughts about the critical mass issue really have not changed.

I think that continues to be an issue that we have to look at.

And as I've said before, we periodically assess our business strategy based on the fit and the business opportunity that we see.

As I said in my earlier comments, we believe that this quarter our business diversity actually helped us, it was complementary, it contributed to the top- and the bottom-line growth that we need to have.

But as always, we have to look at all of our portfolio and make assessments about what is the best way to create shareholder value going forward.

Okay, Roger, do you want to comment?

Yes.

So specifically with respect to the pneumonitis issue, again, I caution everyone that it is too early in these studies to understand what is truly class-based.

But it is the case that there has been pneumonitis reported.

We can't compare the frequency of those events across studies, but we would say the majority of events that we have seen with MK-3475 are grade 1-2 and we have not had any reported fatalities to date.

So that is what we know at this time but, as I say, early days.

Okay, thank you, Roger.

Next question, please.

David Risinger, Morgan Stanley.

So I just wanted to welcome Dr. Perlmutter and ask -- and I'm not sure if it is appropriate for Ken to answer this, but could you just talk about your mandate with respect to rebuilding the pipeline?

Whether you see doing that more internally and thus maintaining the R&D cost structure?

Or taking the internal cost structure down and going externally for products to accelerate the late stage pipeline?

And then second, another PD-1 question.

Last year when Bristol presented its early data on PD-1, it presented the data in multiple cancers.

Your Phase Ib trial I believe includes multiple cancers, but you're only presenting the melanoma cohort at ASCO.

Could you just tell us when we should expect data in other cancers from your PD-1?

Thank you.

Ken, do you want to start?

So, Dave, let me start by saying I am also pleased that Dr. Perlmutter has rejoined us.

What is important for us going forward if we're going to be successful in our strategy is we have to have the best medically important products available whether they are internal or external.

You saw this quarter that we did some deals showing that we really are very much focused on what is going on in the outside world.

And so I've not tried to be prescriptive to Dr. Perlmutter.

I think it is all about the products, it is all about making sure that we have the right products in sufficient numbers over a period of time to make sure that we have the ability to grow this Company and to meet the needs of patients around the world.

So I will turn it over to Roger to see if he has any other comments.

Yes, David, thank you.

My response to the question about the sufficiency of the pipeline is always the same.

In my view I always want more; it is never good enough.

I want more products and I want those products to be the very best possible.

And I'm actually not so concerned about where they come from.

Let's be clear that no matter how good your research organization is, and we are very, very good, the majority of great research is being done elsewhere.

It has to be true because of the sheer bulk of research organizations around the world.

And I have worked with a lot of those people and they are terrific.

So I am eager to take advantage of their programs and bring them in-house where that makes sense where it complements our expertise and we will do that.

And we will also accelerate the process of bringing forward products internally.

I hope that is helpful.

With respect to additional tumor types, yes, we do have a multi-arm study in our Phase I program.

We are looking at a variety of potential indications.

The opportunity for an anti-PD-1 agent, our anti-PD-1 agent we believe is really quite broad.

But the data at this point, it is too early to present the data.

Our Phase Ib study in non-small cell lung cancer is ongoing.

We -- it's a little bit a function of patient accrual and how long it takes.

So I don't want to promise you when exactly the data will be presented.

But suffice it to say we are working assiduously to bring this program forward.

Next question, please.

Steve Scala, Cowen.

Sorry if I missed this, but how much did currency contribute to the reduction in your full-year EPS guidance?

And then secondly, a question for Dr. Perlmutter.

I think FOSAMAX was licensed and developed on your watch.

How does its benefit to risk profile compare to odanacatib based on what you now know about odanacatib?

Thank you.

Ken?

Okay, let me just start to try to answer your questions about the factors that -- and the primary drivers that drove the change in the EPS guidance.

I think the factors are the following.

So, let's just go back -- we started at $3.60 to $3.70.

I said when we set that target that we were going to try to set an ambitious target given that we were going through these patent expiries and last year it was $3.82.

So the original guidance was $3.60 to $3.70, Venezuela knocked off $0.07, the additional FX pressures on our top-line that we have seen since February we last talked about our guidance are another $0.10.

We also have some tax pressures that constitute about $0.05.

As we look at the new R&D spend that is about $0.05 and the product trends that Adam referred to are about $0.06.

So that all adds up to approximately $0.30 of pressure -- $0.33 of pressure, of which I would say 22% -- $0.22 are I would characterize as non-operational and operational items are about $0.11.

And we were able to offset over half of those pressures with operational cost reductions versus our prior plans.

So we are able to offset a huge amount of that by cost-cutting, again, more than half; by my calculation around $0.18.

But we still have Venezuela and FX, those are still pretty significant drivers and those are what led -- among other things -- to us saying at this point we think it is prudent for us to take down our guidance.

Okay --.

And with respect to FOSAMAX versus odanacatib just a few things.

You are right of course that FOSAMAX -- I was deeply involved in the alendronate program here.

When I was at Merck previously I also supervised the Cat-K program which led to odanacatib.

So it was nice to be there at the beginning and now I get to be here as we carry it over the finish line too.

And in addition, of course I have had experience with other anti-resorbtive agents, most particularly denosumab at Amgen as well as anabolic agents.

So I have some background in the area.

You can't compare different classes of anti-resorptive agents.

The important thing to recognize is that there is great need -- in the osteoporosis population there is great need for new agents that reduce fracture risk.

And what we have heard from our data monitoring committee is that odanacatib has robust efficacy that's very important.

We have an ongoing Phase III blinded study, which the data monitoring committee as looked at, they have said they want is to continue that study on blind to look at additional safety and efficacy data and we are doing that.

We know from prior studies that odanacatib compares very favorably in terms of its ability to build bone mineral density and to continue to build bone mineral density over time.

Other things will clearly distinguish odanacatib from bisphosphonate anti-resorptive agents and the need is very, very large.

So I am encouraged by this and I'm eager to see what the data look like when we are finally able to get a complete unblinding of the study.

Okay, next question, please.

Alex Arfaei, BMO Capital Markets.

First for Adam regarding your recent partnership with Pfizer.

In general where do you see the SGLT2 sitting in diabetes, particularly relative to the DPP-4s?

And then on hep C and your partnership with BMS, my understanding was that you had your own NS5A which was QD.

Was there an issue with that product that led you to partner with BMS or was it simply that daclatasvir was so much further ahead and that this would speed things up a little bit?

Thank you.

Okay, let's start with the first question, Adam.

So let me give you some background on the SGLT2.

And the first US launch was less than a month ago so it is still pretty early.

In Europe it was in late 2012 so it is early but we have some data on that.

We've done some market research in Europe and what we see is that in most cases the SGLT2 class is being used by specialists after DPP-4 class.

And diabetes is a progressive disease, most of the patients are on more than one prescription over time.

The physicians typically begin treatment with metformin and then they add on therapies until a patient ultimately gets to insulin.

So we believe there is room for another class.

However we believe the SGLT2s will be used as an oral option after the DPP-4s.

And we believe that JANUVIA will continue to be the preferred choice as an add-on to metformin because of the efficacy profile, the proven tolerability and the five years of experience that we have -- that physicians have with the product already.

But we are pleased to be collaborating with Pfizer.

We think that there is room to commercialize an SGLT2 inhibitor.

And we are excited about the potential combination because after utilizing JANUVIA a nice combination with a high-quality SGLT2 we think would be a very attractive option for physicians when they want to continue to use oral therapies prior to insulins.

Roger, do you want to comment about the hep C?

Yes, there is no problem with our internal program.

We do have a very satisfactory program, but, on the other hand, the opportunity to collaborate with Bristol is a good one and we clearly wanted to do that.

I should just say also with respect to SGLT2 that we -- I looked in detail at the materials of course from Pfizer before we went forward with that deal and their molecule that we are pleased to be collaborating on has very desirable properties and an extremely strong Phase II profile.

So there is reason to want to go forward with a leading molecule like that in developing combinations.

Okay.

Next question, please.

Jeff Holford, Jefferies.

So first off on the revenue guidance, the cut that you have made is greater than the incremental FX headwind that you (inaudible).

So I would assume that you've got some specific products which you're lowering your internal expectations for for 2013.

Could you just break out what those are?

And then just secondly, on the decision around the share repurchase program that you've put in place, would you say that is coincidental in terms of timing with this quarter or potentially reactive to some of the pressure on EPS that might be going forwards as potential things like (inaudible) estimates on the Street which I think the growth rates are higher than you have talked about on this call might come down.

Thank you.

Okay, Ken?

So let me start on the share repurchase question.

So, no, there is no connection to what happened in this quarter.

There are no specific triggers for the program.

Our Board approved a $15 billion share purchase program because after rigorous analysis of our capital structure and liquidity, the interest rate environment, we thought it was a good way to return additional cash to shareholders while maintaining our capital structure objectives.

So if anything it just reflects our longer-term confidence in our future.

And with regard to revenue there are three pressures that I think are important.

The first one is if you look at the patent expiries, the rate and the magnitude of decline from the products that we mentioned such as SINGULAIR, MAXALT, CLARINEX and PROPECIA, is very strong and it's even stronger than what one would anticipate if you looked at prior patent expiries.

So we are seeing a more rapid deeper loss than the patent expiry products.

And it's in the United States but you're also seeing significant generic erosion in countries like Japan to a level that is stronger than what we've seen before for patent expiries.

With the second pressure is hepatitis C where we are seeing very significant warehousing in countries like the United States and Germany and France where physicians are really starting to have significant warehousing which is in addition to the fact that there are a lot of clinical trials that are underway that are taking up a lot of available patients into the clinical trials.

And the third that we remain confident that there are growth opportunities for JANUVIA.

There still is pressure on JANUVIA, as I've outlined before.

So those are three areas where we see increased pressure as we look at 2013.

Okay, next question, please.

Michael Tong, Wells Fargo Securities.

Two questions, one on one ertugliflozin.

Just wondering what kind of differentiation do you see in that molecule given the fact that you may be number four or later to market?

And then secondly, with respect to clinical news flow, what Phase II or Phase III data would you highlight to investors and analysts from now till the end of the year?

Okay, Adam, you want to start with that or --?

So I would start with the SGLT2 class and working with Pfizer and their compound.

We are excited about that opportunity.

As I mentioned, we see SGLT2s as a potentially important class that will be utilized in an oral diabetic agent after DPP-4s and in particular after JANUVIA.

We think having a combination with the market leader, JANUVIA, will represent a very significant opportunity.

So, it is early to see the exact data from the product as a monotherapy, although, as Roger said, we are excited about the initial Phase II data.

But we think the combination also represents a very significant opportunity because of the success of JANUVIA in the marketplace.

Roger, why don't you speak to the Phase II?

Yes, so, just again with respect to our collaboration with Pfizer -- the importance of combination therapy just can't be over emphasized.

And again, to have a compound that, based on what we can see, plays nicely with others -- that's really important and provides us with a big advantage.

Going forward we have a number of programs that we are going to be talking about.

Of course we spent a lot of time on the call talking about 3475, our anti-PD-1 antibody and there will be a lot of data coming out with respect to that.

We will also the opportunity to talk about other biologicals, particularly in the anti-inflammatory space, so there is additional data that will become available from MK-3222, our anti-IL-23 antibody.

We are going to have the opportunity to have some discussion of our BACE inhibitor program.

As everyone is aware, the impact of Alzheimer's disease is very profound and we have a leading program for the leading hypothesis with respect to the pathogenesis of Alzheimer's disease.

Safety analysis data will become available as part of a very large study in patients with mild to moderate cognitive impairment in Alzheimer's disease.

We also will have a lot of data in the HCV program, some of which has been touched upon during our call today.

That is just a beginning because, of course, we are very active in a lot of different fields.

Thank you.

I think we have time for two more questions, Operator.

Tony Butler, Barclays.

You commented about the construct, particularly in the US, of JANUVIA demand.

It's very appreciative.

But the question really is around the increased level of spend, which I think I heard earlier, why the need for that spend and under an environment of SG&A being down year over year are you actually robbing from one product to actually support of another?

That may be wise, but I would love some color.

And secondly, Roger, beyond anti-PD-1 in the immuno regulatory arena, does Merck have other molecules which they are pursuing or actually have in development?

Thanks very much.

Adam, would you like to start?

Absolutely.

So our goal is to maximize each and every growth opportunity that we have on our most important growth products and our most important growth markets.

And we really do invest our SG&A to go after the opportunities that exist before us.

JANUVIA obviously is an extremely important product for us.

We think there is significant opportunity with diabetes prevalence and we are going to invest in order to make sure that as many patients that can benefit from the product have access to the product.

So we are committed to investing behind that product, not at the expense of other growth opportunities, but in addition to other growth opportunities.

Part of the increased resources is actually an increased level of focus.

So we actually have more dedicated people in order to maximize the opportunities for each of the classes.

So in the United States, for example, we have many more people that are fully dedicated to our diabetes franchise where before they might have had part of their time on diabetes and part of their time on cardiovascular.

We have now made sure we have more dedicated people to each of the growth opportunities before us.

So I think it is an increased level of focus as much as anything else.

And with respect to the immuno regulatory molecules, the answer is yes.

We have a broad effort looking at immuno regulation.

I think others have probably heard me speak about this before, but there is no more effective method of killing cancer cells than by harnessing cytotoxic T cells, period.

It is just very difficult for tumor cells to escape that kind of attack.

And that is such a profound observation that it has catalyzed our work -- of course the work of others too, but our work in particular.

And we'll have a lot more to say about that going forward.

Last question, please, Operator.

Gregg Gilbert, Bank of America.

(Technical difficulty) these pressures that keeping up one last time.

I wanted to make sure I'm understanding which of these pressures are shorter term versus perhaps new realities of the business and longer lasting.

It seems like FX is what it is, de-stocking happens from time to time; loss of exclusivity effects should not surprise you frankly or if they have in certain countries they will never again.

So I want to make sure that I'm not missing anything that is new that you might be factoring into your longer-term models that you haven't sort of guided for yet.

And then for Roger, by when will you announce key decisions on the pipeline?

And your preliminary thoughts on Biosimilars conceptually -- I assume you had something to do with Amgen's thinking there and how that evolved?

Thanks.

Okay, Adam.

Yes, so, Gregg, I think you have outlined what we said the most important issues that we're facing right now.

In the patent expiries you learn as you see them come.

We haven't seen such rapid loss at the rate of loss that we've seen with a product like SINGULAIR in the US.

I mentioned it in the fourth quarter, but even in first quarter of this year if you saw, we had $1 million of sales of SINGULAIR in the United States.

So we learned from that.

We understand that as we model for the future and think about the future obviously.

Hepatitis C, frankly it depended on what the data was going to look like from the all oral therapy.

So it was very difficult to predict what that data would look like and therefore what the response would be in terms of physicians and warehousing.

So that is something we have to watch closely and as more data becomes available on all oral therapies we will certainly learn a lot more.

And then I mentioned as before the JANUVIA impact -- I've tried to give you guidance for what we see in terms of mid-single-digit growth in the US as we go through this year and low-double-digit growth outside the US.

So we tried to provide you as much information about what we know in the short-term and as we look out into the future.

Yes, with respect to key decisions on the pipeline, this is going to be a rolling process of course.

MRL is a large and complex organization and we have an awful lot of programs to review.

But you can anticipate that I'm not going to take forever here.

So within the next three to six months we are going to roll out a number of different I think approaches to the variety of very, very important medical objectives that we are pursuing.

Also with respect to the Biosimilar issue that you called out in particular, I am very pleased with the deal that we've made with Samsung.

I know that team well, I had the opportunity to speak with them previously.

I know what their capabilities are like and what they have invested behind it.

I think it will give us commercial access globally to a large slate of Biosimilar products that we'll be able to take advantage of.

Okay, Ken, I don't know if you have any closing remarks?

Well, first of all I thank you all for hanging in there for an extended call.

Just to wrap up I'll make three points.

First of all, we knew that 2013 would be challenging but we are confident about the future and we believe the second half of this year will be a better indicator of the strength of our business.

Second, we are managing our cost base and taking actions to strengthen our overall organizational capabilities including, as Roger said several times, in R&D that will allow Merck to be more successful in what will be the future healthcare environment.

And finally, as I always say, we are committed to creating shareholder value in the short-term and in the longer-term.

So, thank you very much for your attention and staying a little bit longer.

We look forward to speaking with you in the future.

Thank you.

Thank you.

This concludes today's conference call.

You may now disconnect.