Good morning. My name is Darla and I will be your conference operator today. At this time, I'd like to welcome everyone to Merck's Q3 2016 Sales and Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Teri Loxam. Please go ahead. Teri Loxam - Merck & Co., Inc.: Thank you, Darla, and good morning. Welcome to Merck's third quarter 2016 conference call. Today I'm joined by Ken Frazier, our Chairman and Chief Executive Officer; Rob Davis, our Chief Financial Officer; Adam Schechter, President of Global Human Health; and Dr. Roger Perlmutter, President of Merck Research Labs. Before I turn the call over to Ken, I'd like to point out a few items. You will see that we have items in our GAAP results such as acquisition-related charges, restructuring costs and certain other items. You should note that we have excluded these from our non-GAAP results and provide a reconciliation of these in our press release. We've also provided a table in our press release to help you understand the sales in the quarter for the business units and products. I'd like to remind you that some of the statements that 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 made based on the current beliefs of Merck's management and are subject to significant risks and uncertainties. If our underlying assumptions prove inaccurate or uncertainties materialize, actual results may differ materially from those set forth in the forward-looking statements. Our SEC filings including item 1A in the 2015 10-K identify…

Thank you. Your first question is from Tim Anderson with Bernstein. Timothy Minton Anderson - Sanford C. Bernstein & Co. LLC: Thank you. Couple of questions. On business development, you mentioned it remains an important priority. It's a message you've had throughout the year. Two questions on this. I'm wondering how the news of August 5 had suddenly changed the outlook for KEYTRUDA, might change how you think about M&A. You could argue that doing a bigger deal now runs a risk of disrupting the focus that you'll need on immuno-oncology for example. And kind of related to that, can you give us some idea of the upper limit to deals you might be considering? Is everything on the table? Are you looking more at mid-sized deals or smaller? And then second question is on KEYTRUDA and IDO and the timing for making a possible go, no go decision for Phase III in lung cancer. Is that something that we would learn about maybe in the next six months or so? Kenneth C. Frazier - Merck & Co., Inc.: Good morning, Tim. Ken Frazier here. Let me start on the business development question. So I said that it remains an important priority, and you should know we're actively engaged and looking for ways of augmenting our pipeline. And in so doing, it's important to remember that we are not limited by size or by phase. We're going to continue to look for the best partnerships and collaborations. But fundamentally, we're looking for bolt-on opportunities as a company. Your question about whether or not KEYTRUDA changes our approach to business development, not really. We need to augment our pipeline. We continue to be active in that area. But I would not say that the August 5 news has changed our fundamental approach to business development. Roger M. Perlmutter - Merck & Co., Inc.: And, Tim, it's Roger. With respect to IDO1 and decision-making in lung, we continue to pursue the melanoma study with our colleagues at Incyte, and we are very interested in the IDO1 combination. As we develop more data for that, we'll be able to make a decision. And your timeframe is probably about right. I can't say specifically because these are event-driven studies. But sometime I would imagine towards the middle of next year we'd be in a position where we'd be able to make decisions about how much activity we're seeing and whether or not we should proceed in a registration-enabling study using that molecule. Timothy Minton Anderson - Sanford C. Bernstein & Co. LLC: Thank you. Teri Loxam - Merck & Co., Inc.: Thanks, Roger. Darla, next question, please.

It's from Colin Bristow, Bank of America Merrill Lynch.

Good morning, and thanks for taking the questions, and congrats on the quarter. So first on KEYTRUDA in lung, clearly you're going to be a lone and dominant player in first-line for the next 18 months. But how do you view the level of competitive threats from Bristol and Astra's IO-IO combos? And then just what are the combinations you are evaluating which you're most excited about in terms of the potential in the lung setting? And then second on KEYTRUDA's share in second-line lung, can you just talk about how much of a headwind to sales your requirement for PD-L1 testing has been and then what your expectations are for share sales in this setting, given the testing's now going to become standard? Thanks. Adam H. Schechter - Merck & Co., Inc.: Yeah, so let me start. First of all, we are thrilled to be the first to launch in first line lung. And I give Roger and his team a lot of credit for the design of the trials and the ability for us to actually be the first to have approval there. We are always looking at competition. We are always mindful of competition. And we want to make sure that we do everything we can to get as much utilization, appropriate utilization obviously, for the indication that we have, as quickly as possible and to really cement our product, KEYTRUDA, as foundational in the treatment of first-line lung cancer. With regard to second-line lung, right now we have about a 10% market share of the second-line lung market in the United States. But if you look at patients that have PD-L1 greater than or equal to 50, that's where the majority of our market share is. And our market share is much, much higher in that…

It's from Geoff Meacham with Barclays.

Morning, guys, and thanks for taking the question. I have a couple related ones. Payer question on first-line lung. So what limitations would you guys expect on both duration or patients below the 50% cut point? Are there lessons to be learned from the second-line experience? And then, Roger, you mention crossover. So, some have talked about the lower rate of crossover for 024 as being a major contributor to the OS benefit. Just want to get your perspective on this with an eye towards the crossover rates that we could see in 189 or 407. Thanks. Adam H. Schechter - Merck & Co., Inc.: Yeah, Geoff. So this is Adam. First of all, if you look at payers in first-line lung, we haven't seen any limitations on duration, and I don't think we'll see any limitations. With regard to people below PD-L1 greater than or equal to 50, we'll have to see what happens there. What we've seen in second-line is as long as they're PD-L1 positive that the payers are not pushing back very much on the physicians. So the physicians still have a lot of control if they're PD-L1 positive. I would assume it'll be the same in lung for first-line, but it's obviously early to tell. Roger M. Perlmutter - Merck & Co., Inc.: And, Geoff, it's Roger. With respect to crossover, clearly, if you have 100% crossover and it occurs early, then you're simply testing the treatment a few weeks apart, and under those circumstances, it's unlikely you'd be able to demonstrate an overall survival benefit. That said, patients in a chemotherapy-controlled study – chemotherapy does have effect, and so crossover tends to occur later as a result. And under those circumstances, it will be possible to demonstrate an overall survival effect. It's a fairly complicated set of differential equations one would have to apply to this to understand exactly what the puts and takes are. But my guess is that because the treatment effects seem to be really quite large in the 024 study, my guess is that we'll be able to see those kinds of treatment effects as well in the chemotherapy combinations. Time will tell. Teri Loxam - Merck & Co., Inc.: Thanks. Darla, next question, please.

It's from Andrew Baum with Citi.

Hello? Teri Loxam - Merck & Co., Inc.: Hi, Andrew. Kenneth C. Frazier - Merck & Co., Inc.: Good morning.

Good morning. Just following on from the earlier question, could you just update us in relation to your collaboration with NanoString in terms of when this could be an approvable diagnostic that could drive broader usage in patients who may not have the higher expression levels of PD-L1? Roger M. Perlmutter - Merck & Co., Inc.: Right, Andrew. So the collaboration with NanoString is designed to obtain better, really better diagnostic mechanisms because we know that PD-L1 expression is an imperfect biomarker. That said, the NanoString test does not exclude PD-L1 expression. PD-L1 expression is an indicator of an inflammatory response because the PD-L1 transcriptional unit is under the control of cytokines like gamma interferon, and wherever there's an immune response, you'll see PD-L1 up-regulation. Much of the NanoString signature involves other genes that are similarly regulated. So it isn't the case that the NanoString test will look totally different from a PD-L1 test. It will just have a better receiver-operator characteristics so that you will have better sensitivity and specificity. So I guess we continue to refine that signature. It's working quite well actually, but it'll take a while before we can actually reduce it in practice. Teri Loxam - Merck & Co., Inc.: Next question, please, Darla?

It's from Vamil Divan with Credit Suisse. Vamil K. Divan - Credit Suisse Securities (USA) LLC (Broker): Hi. Thanks so much for taking my questions. I appreciate the comments you made in the prepared remarks about the leverage and it may take time given the investment. Can you just maybe give a little more color? We get a lot of questions on how to think about 2017 versus 2016, and I know you're not ready to give guidance, but just would you expect any degree of margin expansion as we look at this point on how 2017 would look relative to this year? Robert M. Davis - Merck & Co., Inc.: Yeah, no. Vamil K. Divan - Credit Suisse Securities (USA) LLC (Broker): If I could just throw one second question in, this is actually, maybe just moving away from KEYTRUDA now. There's a lot of great news there. Just beyond KEYTRUDA and everything you're working on there in oncology, maybe, Roger, if you could just highlight what are the other key pipeline assets that you think people may be overlooking? I know obviously you have the base and the CTP coming out next year, but I think people view those as higher risk. So are there other ones that you could point to that people should keep an eye out to think about diversification beyond KEYTRUDA? Thanks. Robert M. Davis - Merck & Co., Inc.: Yeah, Vamil. This is Rob. Thanks for the question. Obviously we're not in a position to give guidance for 2017 this morning, but just directionally, as I said in the prepared comments, we're moving into a period where we will have the pressure from ZETIA VYTORIN coming. And that being said, we have the growing opportunity clinically we see with KEYTRUDA, and that's why…

It's from Seamus Fernandez with Leerink.

Oh, thanks for the questions. So couple of quick ones. First off, can you talk to us a little bit how the PD-L1 testing dynamic is actually shaking out percentage of basically lung cancer patients that are being tested with PD-L1 today? And where do you see that sort of maxing out in the next 12 months or so? And maybe can you give us a little bit of a sense of where you're seeing the majority of that uptake? Is it really starting at the academic hospitals or are the academic hospitals relatively fully penetrated and then the community's going to take a bit longer? Just trying to get a better sense of how the PD-L1 testing dynamic works. And then secondly, how do the tests actually come back, and in what timeframe? Maybe you can just help us understand what information is provided to the physician when they request a PD-L1 test and how that information come backs? And then a last question is biosimilars. Can you just give us a sense of how you are thinking about the opportunity for biosimilars for Merck specifically? And how you would encourage investors to think about that? Thanks so much. Adam H. Schechter - Merck & Co., Inc.: Okay. So let me address the questions on PD-L1 testing. I'll focus first on the U.S. because the dynamics are a little bit different in some other markets in the world. In the United States, about 60% of physicians are testing PD-L1. This was prior to ESMO. We don't have any new data on that percentage after ESMO. At the same time, we estimated that about 40% of non-small cell lung cancer new patients were being tested prior to ESMO. I get weekly data, and it's not perfect but you can certainly…

It's from Gregg Gilbert with Deutsche Bank.

Thank you. Assuming KEYTRUDA and ALIMTA as a combo won't be reimbursed soon, Roger and Adam, based on your interaction with physicians and payers considering the label and compendium listing, how are you expecting patients that are strong expressers, somewhat below 50%, to be treated in the near term – 35%, 40%, 45%, et cetera? And then on diabetes, Adam, can you talk more about the JANUVIA pricing pressure that you're seeing? What's driving it? And how sustained do you think it will be? Thanks. Roger M. Perlmutter - Merck & Co., Inc.: Well, I would just say, Gregg, that in my discussions, I think people are wondering about those patients who are younger, otherwise healthy patients without significant comorbidities who present with a diagnosis of advanced lung cancer, and far too often when people present with lung cancer, it is already at a quite advanced stage, and the question of how to give those people the greatest possible benefit. Whether they will choose to use chemotherapy combinations, obviously these are approved drugs, I don't know, but certainly I've heard physicians discuss that. They've wanted to discuss that with me and with others. So I think there is some consideration of that kind of issue. I think in the population of individuals who have significant comorbidities, of course the generally more favorable tolerability of KEYTRUDA as monotherapy will drive decision making. Adam H. Schechter - Merck & Co., Inc.: And, Gregg, with regard to JANUVIA, as I mentioned in my remarks, we expect to still have very good managed care coverage in 2017 that's consistent with what we had in 2016. So we will have good access. The pricing pressure in the United States, it's certainly increased over the last few years, and there's new in-class competitors that have had significant discounts. And every year, the rebates and discounts have increased, and the same time will be true in 2017. But at the same time with our strong position in terms of market share and our ability to grow our demand, in particular TRx volume, we've been able to offset most of the pricing pressures with the increase in demand. So I think that 2017 of course there'll be more pressure than 2016, but we're optimistic as we move into the year. Teri Loxam - Merck & Co., Inc.: Thanks. We'll go to the next question.

It's from John Scotti with Evercore ISI.

Hi. Good morning. Thank you for taking the questions. Just a couple on KEYTRUDA and one on hep C. So I was wondering if you could characterize a bit more your base case for what you see the ramp is into the first-line. Given the level of PD-L1 testing you're seeing already, should we expect a fast ramp into the 4Q? Is there a warehouse of patients ready to get on therapy? And then given the exclusion criteria in 024, so brain mets [metastases], autoimmune, EGFR, ALK, et cetera, should we think about the real world addressable population of KEYNOTE-024 as perhaps lower than the 25%, 30% of first-line lung that has PD-L1 expression? Or does that number bake into excluded patients? And then quickly, are there any interims built into the Phase III KEYNOTE-189 and KEYNOTE-407 chemo combo studies that have the potential to stop early? So do we have a sense for when those may be? And then briefly on ZEPATIER, can you characterize what you're seeing out there in terms of discounting? And is discounting increasing? And then you mentioned that new formulary position will take into effect in January of next year and I was just wondering if those are parity contracts or are there any exclusive contracts there? Thanks so much. Adam H. Schechter - Merck & Co., Inc.: Yeah. So let me start with first-line lung. There are no bolus of patients that we would expect in first line lung. We expect that as patients are newly diagnosed, that's when they would be considered for utilization for KEYTRUDA. So I would not expect a big bolus that would come into the marketplace in fourth quarter. It's going to be new patient by new patient. Over a year in the United States, Japan and the…

It's from David Risinger with Morgan Stanley. David R. Risinger - Morgan Stanley & Co. LLC: Yes. Thanks very much. Regarding GARDASIL, could you just tell us what the recent price increase was? And how we should think about the potential decline in sales next year, as there's the shift from three doses to two doses for treatment? So specifically how we should think about netting out the positive benefit of the price increase as we think about the reduction of dosing? And then with respect to KEYTRUDA, could you just tell us what the U.S. sales were by indication in the third quarter so we have a sense of the business mix in the third quarter? Thank you. Adam H. Schechter - Merck & Co., Inc.: Yeah, sure. Dave, let me start with GARDASIL. If you look at GARDASIL, there's a couple things to think about. First of all, we've had price increases similar to the price increases that we've had in the past so that you haven't seen any difference or acceleration per se. But you also have to realize that the 9-valent costs a bit more than the 4-valent. And most of the patients are moving to the 9-valent vaccine. So I'd net the price increase plus the difference in price between those two, the 4-valent and the 9-valent. The thing that is hard for us to understand right now is if you have two doses, will the doses be given in the same year? Or, for example, if a person presents themselves in August before back-to-school, do they get one dose next year in August? But they don't get the second dose until the following year in August. So there's still some things that we're going to have to wait to see in terms of how physicians treat those patients. Some might get the first dose in January, the second dose in July or August. Some might just get August dose, the one, and then the following year be the second dose. So there's certainly going to be an impact. The magnitude right now we can't be certain of. And if you look at the sales by indication, just to give you a rough amount, about 50% to 55% of our sales were melanoma. About 25% or so was in lung, 5% or so was in head and neck cancer. This is for the U.S. specifically, and then the rest was in all other. Teri Loxam - Merck & Co., Inc.: Great. We'll move on to the next question, please.

It's from Jami Rubin with Goldman Sachs. Jami Rubin - Goldman Sachs & Co.: Thank you. Just a couple of follow-up questions on issues that were already addressed. Again, Adam, in the biomarker testing process, I'm still unclear about something. You said that there's about 60% testing, but is that 60% including PD-1 or is that 60% testing in general for EGFR and ALK? And where are we with – in front-line, how many docs or how much of that testing is for PD-1? And again, I know we've been trying to get a sense for timeline, but can you elaborate a little bit longer on how long that's going to take for the market to be prepared for a large penetration of KEYTRUDA in front-line just given that PD-1 testing is probably in its early stages? But if you can elaborate on that. And also, Roger, just on the compendia listing issue for KEYNOTE-021 which we learned was rejected, there was a lot of enthusiasm expressed about that at ESMO. What is the process now? Do you have another opportunity to get that on the compendia listing? Or do we need to wait for the full Phase III trials? Thanks very much. Adam H. Schechter - Merck & Co., Inc.: First – so Jami, this is Adam. First of all, I want to be clear on the 60% number that I provided. What I said was approximately 60% of U.S. physicians are testing for PD-L1, not that 60% of patients are being tested. So right now if you look at physicians across the U.S. that treat lung cancer, we believe about 60% of them test at least sometimes for PD-L1. We also believe that about 40% of non-small cell lung cancer new patients are being tested for PD-L1. So…

It's from John Boris with SunTrust.

Thanks for taking the questions. Just one related to pricing for Ken. Just on Proposition 61, Ken, which will be on the November 8 ballot in California as a proposed statute, just your thoughts on that proposal since it would create possibly a price ceiling on prescription drug cost paid by state programs, predominantly Medicaid. And can you just remind us what percent of your business is in Medicaid? Second question relates to the one asked by Jami. Can we just get an update on where you are on enrollment on KEYNOTE-189 and any thoughts on interim analyses on that program? Thanks. Kenneth C. Frazier - Merck & Co., Inc.: So let me start with Proposition 61. So first of all, we don't break out our sales by channel, but I will say as an overall comment, we have very serious concerns about this measure and its potential impact on patients. And that's why we're part of a growing coalition of groups that are actively opposing that ballot measure in California, because we think it will negatively impact millions of California patients. So we're very active in opposing it. Roger M. Perlmutter - Merck & Co., Inc.: And John, on KEYNOTE-189 as I said, the thing to think about is the ClinicalTrials.gov date of September of next year is about the time one should expect a data readout. We're not anticipating that we'll have anything before then. Teri Loxam - Merck & Co., Inc.: Next question, please, Darla.

It's from Chris Schott with JPMorgan.

Great. Thanks very much. First one here just following up on John's question, more broadly on drug pricing and public scrutiny. Just seems like there's a lot more focus on drug pricing than any time in recent memory, whether it's Prop 61, the EpiPen hearings, et cetera. So maybe just a question for Ken. Just how do you see this playing out for the industry? Are you guys thinking about price differently than in the past? Should we be thinking about a more challenging pricing environment going forward? Would love to just hear your thoughts on that topic. And then a second one just coming back to some of the business development priorities, I know the focus is on bolt-ons, but when we're thinking about larger details specifically, would Merck be willing to take on single program or product risk in a larger deal? As we're thinking about those, if a sizeable component evaluation were tied to one or two core programs, is that something that fits what Merck's looking for? Or should we be thinking about more diversified assets as we think about things that are beyond bolt-ons? Thanks very much. Kenneth C. Frazier - Merck & Co., Inc.: Let me start with the business development question. I would start by saying that I think we will look at each deal based on its particular merits, and so I don't think there is a way for me to respond to that. I think what our past experience has been is we've tried to look for those deals where we believe we're going to get scientific assets going forward, and if we can get good assets that are in the marketplace now, that's something that we would be willing to do. But I don't think I can say categorically that we wouldn't take the kind of deal that has a concentration in one product versus another. Obviously concentration is one of the factors that you weigh when you think about the risk inherent in the deal. As it relates to pricing, we also are very concerned about the whole issue of pricing and affordability for patients. It's a significant one. It's been amplified in this year's political season. We find it unfortunate that a lot of times the focus is on affordability and pricing rather than the long term benefit that these therapies provide. So from our perspective, we think that going forward we don't think these environmental pricing pressures will ease, and that's why we continue to focus on our strategy of investing in innovative R&D for products like KEYTRUDA because we think those are the kinds of products that will help Merck weather some of the pricing risks and pricing pressures that we will be facing as an industry going forward. Teri Loxam - Merck & Co., Inc.: Thanks. We're going to try to squeeze in one last question, Darla.

It's from Tony Butler with Guggenheim Partners.

Yes. Thank you very much. Roger, just a very quick question on 189, 407. As patients move over or change overall therapy, those from chemo onto pembro [pembrolizumab] plus chemo – and this question I think is really important because there may be a hypothesis around duration, and I'm curious if you think that's possible. That is, the longer we look, we actually don't see – even if patients cross over, on the other side of that crossover they may not totally separate. And I'm just wondering if you think that's a possibility. Thanks very much for your time, and also congrats on a good roll you're on. Roger M. Perlmutter - Merck & Co., Inc.: Well thanks, Tony. I do think again as I said, at the limit if the crossover occurs early, I mean, you're just comparing a single chemotherapy regimen to chemotherapy plus KEYTRUDA given earlier lay. If they're only weeks apart, I don't see how, under those circumstances, how overall survival would separate. And of course that's a traditional problem in the development of chemotherapeutic agents and the reason why progression-free survival has been accepted as an endpoint in a variety of different tumor types. On the other hand, chemotherapy is active, and for individuals whose disease is controlled by chemotherapy, then the crossover will inherently occur later. Because we believe that KEYTRUDA provides a more durable benefit to patients with lung cancer, and the data from that are clear across a variety of tumor types, under those circumstances, I would expect separation for overall survival. And as I indicated, it's a fairly complicated set of equations to try and estimate what that's going to look like. I think we probably have to wait for the data. Kenneth C. Frazier - Merck & Co., Inc.: Let me close by saying this was a very strong quarter for Merck. As we look to the future we're very excited by the launch opportunities that we have in front of us: KEYTRUDA, ZEPATIER, BRIDION as examples. We think those building on the firm foundation we have with products like JANUVIA and our vaccines give us a great opportunity in the long term. We know that we're facing some headwinds from loss of exclusivity in the next year, but we continue to be confident in our ability to actually invest in some of these high-potential programs going forward. And you should know that we will continue to look for ways to help offset some of the incremental spend that we'll have to make in order to support a product like KEYTRUDA to ensure that this company provides the best short and long term proposition for its shareholders. Thank you very much.

And, ladies and gentlemen, this concludes today's conference call. You may now disconnect.