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 2017 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, everyone. Welcome to Merck's Third Quarter 2017 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 Laboratories. 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 have also provided a table in our press release to help you understand the sales in the quarter for the business units and products. I would like to remind you that some of the statements that we make during today's call may be considered forward-looking statements within the meetings 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 1A in the 2016…

Certainly. Your first question is from Andrew Baum with Citi.

Thank you. Couple of questions, please. Roger, could you comment on any differential activity you've seen in KEYNOTE-021G with patients with high versus low baseline TMB [tumor mutational burden]? And whether TMB forms part of the primary endpoint of your recently initiated ipi/pembro [ipilimumab/pembrolizumab] trial? And then second, the market is currently viewing your recent LYNPARZA deal as a play on ovarian and breast cancer. What opportunity do you see significantly beyond that? Both in patients with germline DNA repair mutations, given the prevalence in refractory cancers, as well as in combination with KEYTRUDA? Thank you. Roger M. Perlmutter - Merck & Co., Inc.: Right, Andrew, okay. So first of all, the question is differential activity in KEYNOTE-021G as a function of tumor mutational burden. We don't really have those kinds of data specifically. We've done a lot of work on tumor mutational burden in all of our studies. But those we're not – in response to your second question. We're not including tumor mutational burden as an explicit endpoint within KEYNOTE-189 in part because of course one has to define cut points for tumor mutational burden. That is, at what point within each tumor type does a tumor mutational burden rise to the point where you believe that's meaningful? And we have a lot of data of course from this from looking at MSI-high populations. And as you know we have a broad label for patients who have MSI-high tumors. And we can see the magnitude of the tumor mutational burden in that population, where response rates are quite good. And we can look at tumor mutational burden in other populations and stratify. But there's still work to be done to define what those cut points actually are. So that's not part of the KEYNOTE-189 program. Specifically with regard to LYNPARZA, the opportunities are really quite broad. We have, together with our colleagues at AstraZeneca, more than a dozen potential registration-enabling studies covering a broad range of tumor types. One of the things that excited us, of course, relevant to the tumor mutational burden question, is that by virtue of the fact that PARP inhibitors have an effect on the salvage mechanism for DNA repair, the accumulation of mutations that could encode neo-androgens might be expected to increase. And those could provide acceptable targets for T lymphocytes that would be unleashed in the presence of KEYTRUDA. So the combination of KEYTRUDA therapy and LYNPARZA is something that we're really very excited about. Of course preliminary data along those lines has been generated with niraparib in combination with KEYTRUDA as part of our collaboration with TESARO. And we continue to pursue those studies as well. Teri Loxam - Merck & Co., Inc.: Thanks, Roger. We'll move on to the next question, please?

It's from Tim Anderson from Sanford Bernstein. Alexander Man - Sanford C. Bernstein & Co. LLC: Hi. This is Alex Man on for Tim. Thanks for taking my questions. I have two here, please. First, a high level question. So you guys have threaded the I-O needle very well throughout 2017, yet your stock hasn't done too much. One of the reasons for this is that investors are nervous that I-O is the only growth driver and sometimes surprises can happen. When you think forward over the next two years to three years, what else outside of I-O can you point to as a potential source of revenue and earnings growth? And then second, on ECHO-305, one of your two newly-posted Phase III IDO combos in first-line lung, this trial only recruits high expressers. Publicly, we've only seen early clinical data in small sample sets with this combo in lung and not much in first-line patients exclusively. So what drove the rationale to pursue the combo in high expressers only? And is the hypothesis that you really need chemotherapy to unlock IDO combo's potential in all expressers like ECHO-306? Thank you. Kenneth C. Frazier - Merck & Co., Inc.: Let me start with the first question about our portfolio. So first of all, as a company we believe that a broad and balanced portfolio capitalizes on our strength and best positions the company for long term success. We are committed to making the necessary investments to optimize KEYTRUDA and LYNPARZA, as you've already heard, in addition to our many other early-stage assets in oncology. At the same time, we have a number of clinical programs across our portfolio outside oncology that we believe will be meaningful growth fillers for the company long term. For example, we're moving into Phase III…

It's from Chris Schott with JPMorgan.

Great. Thanks very much for the questions. First one is maybe a question for Ken. Just another one of your competitors announced that they are exploring strategic options for their Animal Health business. And I know there's been some debate over time in terms of how core Animal Health is to Merck and just how it fits in the overall portfolio. So can we just get your updated thoughts on just Animal Health, that business? How it fits within the broader Merck story? Just as we think about kind of different approaches to those franchises from some of your competitors? My second question was on the KEYNOTE-189 endpoint co-primary. Will we hear from the company on PFS prior to the overall study wrapping up? Or do we really need to wait for both endpoints to hit before we'll get any update from Merck? And then maybe more broadly as part of that discussion, can you just talk about just a little bit more on the confidence that you can show in OS benefit here despite the crossover? I know we had some encouraging data from KEYNOTE-021G. But just as you're adding that to the – as a primary here, just I guess a little bit more in terms of just your overall confidence on overall survival here. Thank you. Kenneth C. Frazier - Merck & Co., Inc.: Thanks for the question, Chris. So we are focused on driving long term growth through innovation generally. And we see Animal Health and the innovation that we can create through that portal as a pillar of growth for the company. As we noted this quarter, it surpassed $1 billion for the first time inside our portfolio, which is meaningful. And we continue to see it going forward as a key growth driver, because…

It's from David Risinger with Morgan Stanley. David R. Risinger - Morgan Stanley & Co. LLC: Thanks very much. So I wanted to follow up with questions on KEYNOTE-189 and the IDO Phase III trial. So with respect to KEYNOTE-189, Roger, the enrollment completed in February of 2017 according to clinicaltrials.gov. Just wondering why the primary completion would be two years later in February of 2019 for OS? And related to that, maybe that the event rate is low because the KEYTRUDA combo is keeping patients alive much longer. But based upon the event numbers that you have in hand, should we assume that the first interim timing is the first half of next year? Or is there any other color you can provide on the first interim look timing? And then separately with respect to the IDO Phase IIIs that have been posted, could you please provide a framework for them? And the expected timing of readouts? Thank you. Roger M. Perlmutter - Merck & Co., Inc.: Right, David. On KEYNOTE-189, yeah. The study completed a little bit later. I mean it completed enrollment a little bit later, I think in March. But the event rate – based on our prior experience and what we're seeing now, the event rate is low. And so we simply calculate, well, based on the power of the study and what we expect the hazard ratio to be, we simply calculate how long – how many events we will have, at which times, and how many events we need to see. And that's how we come up with the date. On the other hand, we're going to be following that event rate very closely. And so it can't have stabilized at this point. And so we do expect that there will be opportunities…

From Steve Scala with Cowen.

Well, thank you very much. Merck's KEYNOTE-189 and Roche's IMpower-150 had similar primary completions. But IMpower-150 will still read out PFS and OS this year. And then take another look at OS in the first half of next year. Could you perhaps compare and contrast what Merck is doing relative to PFS and OS readouts versus what Roche is doing? Specifically the simultaneous versus step-wide readouts? I'm not sure I understand why Roche can do a step-wide readout, and Merck believes simultaneous is the way to go. And secondly, consensus is looking for 7% EPS growth in 2018. Ken, any preliminary thoughts on the outlook for 2018? There are clearly opportunities for growth but also some risks. Any thoughts would be appreciated. Thank you. Roger M. Perlmutter - Merck & Co., Inc.: Right, Steve. So I can't really comment on IMpower of course and how they've designed their studies and what treatment effect they believe they're seeing. For us, we decided to revise our program in order to put more – to assign more of the study power to the overall survival endpoint. We have dual primary endpoints. And overall survival is clearly the important thing. KEYNOTE-021G gives us a lot of confidence we had anyway in terms of the improvement of PFS. The issue really is the OS data. That's the thing that's proved to be most important. And really to us, very impressive that overall survival is continuing to separate as we look further on in the KEYNOTE-021G study, despite the fact that the study is really comparing early versus late KEYTRUDA therapy. Remember, everybody gets chemotherapy and then they get KEYTRUDA. The crossover numbers are such that anybody who fails on chemotherapy then gets KEYTRUDA. And what that means is you either got KEYTRUDA at the beginning,…

It's from Alex Arfaei with BMO Capital Markets.

Okay. Good morning, folks. Thank you very much for taking the questions. Roger, first on KEYNOTE-189, I just want to make sure that I heard you correctly. Is everybody in the chemo arm, once they progress, will they all get KEYTRUDA? And the reason I ask that question is in KEYNOTE-021G with 60% to 70% crossover, you're clearly seeing the chemo arm being lifted and doing much better than traditionally expected. So with presumably 100% crossover, again I'm just trying to struggle how you're confident about hitting that OS endpoint, given that we know PD-1s are effective in a second-line setting. And my follow-up for Adam. Since you're basically going to have to promote KEYNOTE-021G for another 1.5 years, what's the feedback you're getting from physicians regarding the latest updates at ESMO? Are they believing your latest 19-month median PFS 70% 18-month OS rate, et cetera? Or are you still getting significant pushback? And could you give us an approximate breakdown of KEYTRUDA sales by indications, please? Thank you very much. Roger M. Perlmutter - Merck & Co., Inc.: So, Alex, no, there's no mandatory crossover. And you've hit the exact point, which was in response to a different question from (43:56), which is basically if we are – if we look at the study and we announce PFS. And the study is very positive in PFS at a time when overall survival is immature, the fact that that study behaves in that way will cause patients who are progressing to drop out. They will gain access, of course, to KEYTRUDA in second line. We've already demonstrated that KEYTRUDA is extremely effective in second-line therapy based on the KEYNOTE-010 data. And so in essence you're going to be looking at crossover. But the key thing we need to understand in…

It's from Gregg Gilbert with Deutsche Bank.

Thanks. Have a vaccine question for you. We noticed you were trying to IPR some Prevnar patents. And was curious how that relates to your pneumococcal vaccine and its status? And when you could take that one into Phase III? And then for Roger, on your pembro/ipi study that was recently posted, have you designed that to answer any questions that will not be answered by [CheckMate] 227 from Bristol, other than the obvious fact that the PD-1 agents are different? Thanks. Roger M. Perlmutter - Merck & Co., Inc.: Right, Gregg. So the first question is with respect to our pneumococcal conjugate vaccine program. We have a very broad program in pneumococcal conjugate vaccines. We are looking at mechanisms whereby we can expand the set of carbohydrate specificities in order to improve vaccination, improve resistance to invasive pneumococcal disease. We believe that we have freedom to operate in this area. We've always believed that. And we are moving forward with the first of these opportunities, V-114, which will be advancing into Phase III very shortly. With respect to the combination of ipilimumab with KEYTRUDA, the study is designed to look to see whether those two agents when combined together really offer meaningful advantage as opposed to KEYTRUDA alone. I think that comparison, the randomized comparison of the combination of those two agents versus KEYTRUDA alone is a critical one, because of course you do add very substantial toxicity when you add ipilimumab to the therapeutic regimen. And of course we've already demonstrated the impressive results that one gets in combination with chemotherapy. So that's the comparison that ultimately needs to be made. Teri Loxam - Merck & Co., Inc.: Great. Thanks. We'll move on to the next question, please.

It's from Vamil Divan with Credit Suisse. Vamil K. Divan - Credit Suisse Securities (USA) LLC: Hi. Great. Thanks for taking the question. Maybe just shifting a little bit to the diabetes side. And you mentioned you feel that portfolio is stable. We obviously have JANUVIA LOE coming in a few years. You have (48:42) in the glargine biosimilar. But just curious given what JANUVIA is going to face a few years from now and also the decision on anacetrapib, is that maybe an area that you've looked to sort of boost through business development to kind of have multiple portfolio down the road? Or maybe just more broadly beyond oncology, what areas are you focused on in terms of business development? And then one question, a follow-up just on the oncology side with the MSI-high indication. Just curious how that's going from a commercial perspective in terms of obviously there's no MSI-high doctors out there. So how you're approaching that from a commercial perspective? And what sort of traction you're getting in people using that biomarker? Thanks. Kenneth C. Frazier - Merck & Co., Inc.: Okay. Well, thanks, Vamil, for the question. As it relates to our business development strategy, what we're looking for is the opportunity to find the best scientific innovations that will enhance our overall pipeline and help our patients live healthier lives. Diabetes is a very important category for us. And therefore we will continue to look for opportunities to provide a benefit to diabetic patients. But I think overall, I think the key here is we are agnostic, pretty much, to the therapeutic category. We like the work that we're doing in oncology. But we'll look beyond oncology to find other partnerships and collaborations and acquisitions that actually provide differentiated drug, regardless of therapeutic area. So I think we have a strong series of opportunities to grow our pillars our Vaccines and oncology and Animal Health. Diabetes remains important to us. And we'll look for those opportunities in diabetes and elsewhere. Roger M. Perlmutter - Merck & Co., Inc.: And with regard to MSI-high, obviously having a multitude of indications is very helpful. And it helped establish KEYTRUDA as a new standard of care in oncology. What we're doing right now is working to increase awareness of MSI-high testing and the value of KEYTRUDA across other tumor types. As you know MSI-high is an established biomarker, but it's primarily used in colorectal cancer or endometrial cancer. Right now if you think about MSI-high, it's available across a wide spectrum of cancers, some that are common like I just mentioned. Others that are uncommon. So it really is a lot of education in the marketplace. So I do believe over time it will be a meaningful opportunity. But in the short term, it's going to take some time for education as the market will evolve. Teri Loxam - Merck & Co., Inc.: Great. We'll move on to the next question, please.

It's from Geoff Meacham with Barclays.

Morning, guys. Thanks for the question. Roger, on the recent ECHO-202 data in melanoma, can you talk a little bit about the PD-L1 negative cohort? I'm just trying to reconcile what we could see in melanoma in Phase III, versus the lung opportunity. And then on Adam – for Adam, ahead of the potential KEYNOTE-021G approval in Europe, what's your early read on the risk/benefit perceptions from EU docs, versus what you've seen or heard so far in the U.S.? And do you think that the reimbursement or uptake will be influenced by whether or not you have the KEYNOTE-189 data? Thank you. Roger M. Perlmutter - Merck & Co., Inc.: So, Geoff, on ECHO data, let me just say that we do not have sufficient information at the present time to know whether the combination of IDO1 antagonist and KEYTRUDA actually provides meaningful benefit. We continue to accrue data that is intriguing, that says that there is an improvement in response rate. And as I've said before, that that relates to both breadth and depth of response. We are hopeful that that will translate in Phase III studies into something really very meaningful. But at the moment we don't have those data in hand. We're pursuing that through a very broad Phase III program, as you know. Adam H. Schechter - Merck & Co., Inc.: And with regard to lung, we continue to see good progress. And in the EU, we've worked really hard to increase the number of patients being tested for PD-L1 status. And as you look across the various countries, we're seeing the pickup very significantly. So in Germany, it's over 60% already. In the UK, it's greater than 90%. Our focus right now is really continuing to work through the reimbursement process for first-line and second-line lung. And each and every month, we have new countries that are coming on. And we're getting more and more reimbursement. We'll have to wait ultimately to see more about KEYNOTE-021G before we can comment. Teri Loxam - Merck & Co., Inc.: Go on to the next question, please?

It's from Umer Raffat with Evercore.

Hi. Thanks so much for taking my question. So I have a three – I have one question but with three parts. And I want to focus specifically on the new first-line lung trial of KEYTRUDA plus epacadostat, ECHO-306. And here's what I find interesting. The comparator arm in this ECHO-306 is KEYTRUDA plus chemo. So that's the highest bar we've ever seen in first-line lung to-date. So here's my three-part question. One, can you confirm you were actively involved in the trial design? Two, I'm just curious how you're thinking about pitting pembro plus IDO versus this KEYTRUDA plus chemo comp? And then finally, the fact that you have this KEYTRUDA plus chemo comp in this trial, is this a further validation of your confidence in this combo, especially as we head into KEYNOTE-189? Thank you. Roger M. Perlmutter - Merck & Co., Inc.: So, Umer, first of all, the – we are actively involved with our colleagues at [BioPharm] Insight in designing all of these studies. These are not things that are being pursued independently by them. Secondly, the study design – and we've gone through many, many iterations on study design – we chose this particular study design because we are eager to see the contribution both in terms of efficacy as well as safety. Epacadostat in combination with KEYTRUDA compared to what we now regard as a standard in the non-small cell lung cancer setting. It is a high bar as you say, because the results of that, as demonstrated by KEYNOTE-021G and some other information we previously reported, are very impressive. And as I've said I think repeatedly on this call, I just want to make plain, we're doing these Phase III studies because we do not have randomized data that tell us that the combination of KEYTUDA plus epacadostat provides meaningful benefit. We have single-arm data that are very intriguing, because they imply that we have improved response rates, both breadth and depth. And that may translate into improvements in PFS and overall survival versus monotherapy, or in this case the combination. But it is – we do not have that information. That's the reason we're doing these studies. And we're optimistic that we will see the benefit that we believe we've seen in single-arm studies. But we just don't know. Teri Loxam - Merck & Co., Inc.: All right. We'll take another question. We're running out of time. We're going to try to get through one more at least, and if we can, one other.

And your next question is from Jami Rubin with Goldman Sachs. Jami Rubin - Goldman Sachs & Co. LLC: Thank you very much. Ken, a question for you. Just reading the company's press release, you do mention very early on in your prepared remarks that BD is expected to be an important growth driver, or you're looking to BD as an important growth driver. We hadn't seen that in previous press releases before. I'm just wondering if you could talk to that, just the importance of business development as the company sort of moves into the next decade with the JANUVIA patent expiration. What you think is that – do you think of a large scale acquisition as something that you think will be necessary going forward? And, Rob, you did a really helpful job talking about 2018 without giving guidance. Can you be a little bit more specific on operating expenses? Clearly R&D is going up, but what about SG&A? Should we assume operating expenses can be maintained next year? Or should we assume that they will be up? And just lastly, Roger, for you on KEYNOTE-189, how will you allocate the statistical analysis between PFS and OS? Thanks very much. Kenneth C. Frazier - Merck & Co., Inc.: Well, good morning, Jami. Let me first of all say that I'd have to go back and look at the other press releases, because we've tried to talk about the importance of business development consistently. And what I would say is that our perspective on business development is unchanged. And that is that it is an important priority for the company. We're very actively engaged and looking for the best scientific innovations to enhance our long term growth in our pipeline. As it relates to large transactions, what we've said…

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