Good morning. My name is Jerome and I will be your conference operator today. At this time, I would like to welcome everyone to the Merck & Company’s First Quarter 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. [Operator Instructions]. Thank you. I would now like to turn the call over to Peter Dannenbaum, Vice President of Investor Relations. Please go ahead.

Thank you, Jerome, good morning. Welcome to Merck's first quarter 2020 conference call. Today, I'm joined by Ken Frazier, our Chairman and Chief Executive Officer; Rob Davis, our Chief Financial Officer; Dr. Roger Perlmutter, President of Merck Research Labs; Frank Clyburn, our Chief Commercial Officer; and Mike Nally, Chief Marketing Officer. 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've excluded these from our non-GAAP results and provide a reconciliation 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'd 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 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 2018 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 of our forward-looking statements made this morning. Merck undertakes no obligation to publicly update any forward-looking statements. Our SEC filings, today's earnings release and an investor presentation with some highlights of our results are all posted on merck.com. With that, I'd like to turn the call over to Ken.

Thank you, Peter. Good morning and thank you all for joining today's call. In this challenging and unprecedented time, our first quarter performance reflects strong demand for our portfolio of innovative products, continued commercial and clinical execution and the dedication and resilience of our employees around the world. The fundamentals of our business remain strong. The COVID-19 global pandemic poses extraordinary challenges to all of us including serious threats to the health of people, businesses, and economies around the world. Without question, our industry and our company have a unique ability and responsibility to help the world respond to this global pandemic by working collaboratively to deliver solutions to coronavirus infection, while also maintaining the supply of medically important products to those who need them. Amidst this crisis, we at Merck are focused on protecting the health and safety of our employees and their families, while also ensuring that our essential medicines and vaccines continue to reach the patients we serve. Importantly, the majority of Merck's manufacturing plants and clinical supply sites remain fully operational. And we have seen little impact to the production, supply, or distribution of our medicines, vaccines, and Animal Health products. In many markets around the world, including the U.S., while our offices and laboratories remain open, our colleagues are primarily working from home. And for patients currently enrolled in our clinical trials, we're making every effort to ensure that patients in affected areas are able to continue their treatment and receive appropriate care and monitoring. Conditions are fluid and evolving. But as conditions allow, we are enrolling patients in ongoing studies, and we're starting new studies. Of course, there is great interest in what we're doing to address COVID-19 from a scientific perspective. Roger Perlmutter will speak to the totality of our efforts in more…

Thanks, Ken, and good morning, everyone. As Ken stated, while we are operating in a challenging time, our first quarter results demonstrate the strong underlying fundamentals of our business, as well as successful planning and execution that is allowing us to maintain continuous supply of our medicines and vaccines to the patients we serve. We remain confident in our long-term growth prospects, driven by the strong underlying demand for our products. So we are now seeing the COVID-19 will impact our near-term results, due mostly to patient access challenges. In this environment, our strong financial position and conservatively positioned balance sheet is allowing us to maintain strong liquidity and very healthy access to the capital markets and our capital allocation priorities remain largely uninterrupted. Now turning to our first quarter results. Total company revenues were $12.1 billion, an increase of 11% year-over-year or 13% excluding the negative impact from foreign currency. Both our Human Health and Animal Health businesses contributed to the growth this quarter. COVID-19 had an immaterial impact on our business in the first quarter with both pushes and pulls across our divisions and regions. The remainder of my comments pertaining to sales will be on an ex-exchange basis. Our Human Health revenues grew 12% led by key products in our oncology, vaccines and hospital businesses. In oncology, KEYTRUDA sales increased 46% year-over-year, reaching $3.3 billion. In the United States growth was driven by all key tumor types. And we continue to strengthen our overall leadership position in the I/O market, including across indications for lung, bladder and head and neck cancers. Our launches in renal cell carcinoma and endometrial and first-line head and neck cancers continue to feel momentum. And we are excited about the prospects for our application for a six week dosing regimen across all…

Thanks, Rob, and good morning, everyone. As you heard from Ken and Rob, the impact to our business from the ongoing pandemic is largely driven by a reduction in healthcare provider and patient interactions, as hospitals redirect resources toward COVID-19 and patients avoid healthcare facility visits, and postpone preventive care. To better understand the impact to Merck, it is important to highlight that our portfolio is heavily weighted towards products administered by a physician. In fact, roughly two-thirds of our global Human Health revenue is comprised of physician administered products. Taking this a level deeper, we've seen updated guidelines and recommendations from the CDC and various professional associations, further enforced social distancing measures via delays in wellness visits and the postponement of treatment. For example, based on recommendations from the American Academy of Pediatrics and CDC, most pediatricians have pushed out the routine immunization of all children, except for those under 24 months in the United States. And in the United States physician office visits across various areas of medicine are currently running down in the neighborhoods of 70% versus pre-COVID-19 levels. As a result of these measures, we are seeing impacts to our vaccine portfolio, including the GARDASIL, PNEUMOVAX and our pediatric vaccines and to our Women's Health products in both our fertility medicines, as well as IMPLANON/NEXPLANON of physician administered implantable. Non-urgent elective procedures have also been postponed or cancelled in most major markets in order to slow the spread of disease and enable hospital prioritization of COVID-19 patients. Many sources are reporting current declines in elective procedures of over 70% with urgent procedure volumes also being affected, though to a much lesser degree. These declines impact a product like BRIDION, which is used across many surgery settings. And even oncologists are delaying appointments and procedures as they prioritize patients based on severity and the immediate needs of different tumor types, resulting in extended dosing schedules for existing patients, as well as delays in the start of therapy for newly diagnosed patients. As Rob will outline in a minute, however, based on our overall assumption with respect to the timeline for return to a more normal environment, as well as our experience in China, a market which was impacted earlier by the pandemic, but which is now recovering, we expect to be most heavily impacted in the second quarter. Most importantly, we believe the underlying demand for our portfolio of products remains strong based on the substantial medical benefits they bring to patients. As the peak of the pandemic passes, we believe providers and patients will move quickly to find ways to safely provide and seek treatment. And as a more normal environment for patient access is reestablished, we believe our portfolio will be -- will again be well positioned to achieve strong long-term growth. With that, I will turn it back to Rob.

Thanks, Ken. Now turning to guidance. We expect decreased volumes due to the reduced access and social distancing impacts that Frank described, particularly in the second quarter, which we assume is the peak of the virus in the United States and Europe. We expect to begin to see this dynamic subside as hospitals begin to normalize through the third quarter and as social distancing measures begin to lift across geographies at which point we would expect a phased return to more normal levels of volumes, unencumbered by access concerns. While we do expect to progress to normal pre-COVID-19 volumes by the beginning of the fourth quarter, a large portion of the impact in Q2 will carry to the full year. In Animal Health, we expect to experience a more protracted recovery timeline, given decreased demand for milk and protein due to the shutdown of restaurants and schools, reduced visits to veterinarians and the impact of reduced employment and incomes. Of course, our actual results could vary based on how the disease progresses, and how various countries respond. We now expect revenues of $46.1 billion to $48.1 billion, which reflects a decrease of $2.5 billion from our previous midpoint. This difference is comprised of approximately $2.1 billion of negative impact due to COVID-19 on an ex-exchange basis, made up of approximately $1.7 billion from Human Health and $400 million in Animal Health. We also now assume a negative impact from foreign exchange of roughly $750 million, or 2.5 percentage points using mid-April rates. Finally, Human Health operational strength of roughly $300 million partially offsets the negative COVID-19 and foreign exchange impacts. We now expect gross margin to be roughly 75%. Operating expenses are expected to decline at a low-single-digit rate driven by lower SG&A. Our updated assumption anticipates lower promotional and…

Thanks, Rob. I will divide my commentary on our first quarter results into three parts. First, I will describe the current operational status of Merck Research Laboratories, focusing in particular on clinical research and our interactions with regulatory agencies. Second, I will highlight some of the important results that we achieved during the first quarter and will outline some of what we hope to achieve as the year progresses. Finally, I will comment specifically on the actions that we hope and what we have taken to help address the COVID-19 pandemic. So let me begin with our operational status. As an early point, our global clinical operations team recognized the importance of the SARS-CoV-2 infections that were reported in Wuhan, China, and made advanced preparations to manage what became the COVID-19 pandemic. These preparations included prepositioning clinical supplies, strengthening our clinical supplies network, putting in place processes to enable virtual monitoring and over time developing processes for home deliveries, investigational agents, including in some cases, developing alternative infusion sites. Operating virtually the clinical operations team, including data management and our quality organization has been able to maintain our overall clinical trial schedule. We have in some cases reduced enrollment in certain jurisdictions. But we have not halted enrollment and are continuing to launch new clinical trials across most jurisdictions. As examples, our team processed 36 database logs in the month of March, and enrolled more than 700 new patients across our Europe, Middle East, Africa sites. These numbers provide substantial reassurance that our clinical programs are moving forward. Indeed, although I cannot predict what the course of the pandemic will be in the future, for now, our 2020 MRL objectives are not in jeopardy. This progress is owed entirely to the extraordinary work of teams across our organizations spanning five…

Thank you, Roger. Jerome, while you line up the queue, I just want to remind everybody. Our front comments went a bit longer than normal today. We're prepared to go past 09:00 o'clock. But we do ask that you limit yourself to one or two questions so we can get as many questioners in as possible. So, thank you. Jerome, if you can line up the queue, please.

[Operator Instructions]. Our first question comes from the line of Terence Flynn with Goldman Sachs. You may now ask your question.

Maybe two for me. Just wondering, I know you commented a little bit on this. But in terms of the environment, and your approach to capital allocation, I know you've called out no further share repurchases. So can you just give us any more detail, the main driver there, is that you see an increasing number of M&A or BD opportunities now in this environment? And the second, I was just wondering with respect to the pharma guidance, specifically, the new guidance. Can you give us any more detail on the pacing of the impact? I'm assuming the majority of that's going to occur in the second quarter. And then can you break that down by product meaning how much was KEYTRUDA versus GARDASIL versus other? Thank you.

With regard to maybe the second question first, the pharma guidance is, the majority of that will hit in the second quarter and the majority of it is in the United States. And maybe I'll turn it over to Frank to give you some of the more specifics on product detail before coming back to the first question.

Yes. So, in the second quarter, we do anticipate vaccines, in particular. It's important to note that we have a very broad vaccine portfolio that ranges from infants, all the way to older adults. And we do anticipate that based on well visits being down approximately 70% that, that will impact our vaccine portfolio. Also in the hospital specialty area, BRIDION, as I mentioned, elective surgeries are down approximately 70%. So we do see an impact there. It's important to note, we have a significant product IMPLANON/NEXPLANON, which requires physician administration. We think there'll be an impact during the second quarter. And then as far as oncology goes, overall, we believe that oncology is pretty resilient. We are seeing new patient visits decline by approximately 10% to 20%, depending on the indication, and we think that will have a slight impact in the quarter from a new patient perspective, but feel very confident as we move into the third and fourth quarter for not only oncology, but for the rest of our portfolio. Rob?

Thank you, Frank. And then on your question about share repurchase program, just to be clear, and I had it in the prepared remarks, but it's worth reinforcing. We really decided to temporarily stop the share repurchase program predominantly out of an abundance of caution. Our financial position continues to be strong. And as we said, it really was to make sure that we can continue to do all of the investments we want to do in R&D and CapEx to support our future growth, and in business development, as you asked. So it's really across all those areas that we want to make sure we can prioritize investment. And we will continue to look at it and very well could reinstate the share repurchase as we see the situation evolve in the marketplace.

Thank you. Next question?

Your next question comes from the line of Chris Schott with JPMorgan. You may now ask your question.

Just to follow up on the vaccine commentary, can you just talk a little bit more about how you see that business normalizing. This sounds like clearly the 2Q trends are going to be depressed. So should we think about a catch up in 3Q and 4Q as wellness visits return or is it just more like normalized volumes, and we shouldn't expect as much of a catch up I guess, specifically on that line? The second question which is a bigger picture question about we're clearly seeing high unemployment rates, and what more broadly does that mean for Merck's business? Should we be thinking about lower price and adverse payer mix as representing a headwind to your business as we look beyond some of these near term COVID disruptions, or is that a manageable kind of dynamic as we think about the longer term business? Thank you very much.

Hi, Chris, it's Frank. Thanks for the question. I'll take your second question first on payer mix and impact. And I'll give some color into our mix in the U.S. It breaks out approximately, Chris, the commercial business represents about a third of our business from a mix perspective. We have about 17% of our mix, it’s important to note, is in vaccine private pay because of the significant size of our vaccine portfolio as we've been discussing. Government represents about half of our overall payer mix. But also important to note, half of that or approximately 26%, 27% is KEYTRUDA related because of Medicare Part B. So we've talked about, as KEYTRUDA continues to grow we anticipate that will grow over time. Medicaid Part -- or Medicare, I should say, Part D is a small percent, approximately 7%. And then we have very small percentage of our business in Medicaid. And then the rest is pretty much other with regards to federal and some other parts of our payer mix. But if you look at our portfolio, Medicaid is very small. We're clearly looking at unemployment rates, and we'll have to monitor that as it goes forward. I think it's too early to assume anything at this point in time. However, we have taken into our guidance different scenarios as we possibly will see increased unemployment. But for us, in particular, Medicaid is a small portion of our business. Shifting to vaccines, just to give you a little bit more insight, we expect as you come into -- or towards the end of the second quarter, into the third quarter, we expect that the infants and young children who have missed their vaccines during COVID-19 will be prioritized first. We then expect that we'll see the adult pneumococcal vaccines come back strongly as we head into the flu season. And then we expect adolescents and young adults will probably come back a little bit slower, Chris, as patients are able to engage with the healthcare systems.

Great. Next question, please?

Your next question comes from the line if Tim Anderson with Wolfe Research. You may now ask your question.

Yes, thank you. So I'm sure it does not go unnoticed by you that Merck so far is the only company to lower guidance, but we're maybe only halfway through. We saw companies reporting. And I'm just really trying to tease out what else beyond product mix could be driving that. Is that you guys running your supply chain narrower or you're less able to kind of manage business from a work-from-home environment. Could it be that you’re possibly more conservative, for example, you're pausing share buybacks. In Merck, I think there's been a pretty strong cash position. You have slowdown in brands, but I would think also you have slowdown in spending that you could find as an offset kind of again mirroring what other companies are seeming to be able to pull off in their guidance. So, I don't know if there's anything else that you can add beyond what you said, but it just strikes me as odd. Second question, is on KEYTRUDA and a big industry overhang is data from Roche, a good oncology company, it's randomized Phase 2, its first-line lung that’s coming up here at ASCO most likely, and we know they're pushing into Phase 3. And so I'm wondering, how is this not going to be a continual variable for American investors? As part of that, if you can just update us on your own TIGIT program which I know is earlier.

I think we'll start with Rob and then turn it over to Roger for TIGIT.

Thanks, Tim, for your question. So if you look at why we lowered guidance, and understand, again, the profile of our business, and I think it's really important that we just really hit this home, it is the fact that we are seeing reduced access is what's driving the reduction in guidance. Because of the fact as Frank said two-thirds of our products are physician administered and that is probably somewhat unique and is causing the impact. And as we said, while we expect to get back to normal by the time we get to the fourth quarter, because we're going to see a large impact mainly in the second quarter, a little bit in the third, that second quarter impact largely carries to the year and it's really what's driving it. The other thing to point out is our Human Health reduction is only a little over half of what's driving the reduction in our guidance. It's actually almost half of it is coming from foreign currency, and the fact that we have the impact in Animal Health. And if you look at it, the impact in Animal Health is actually more significant than it is in the Human Health business. So that is also a little bit of a differentiation relative to some of our peers. And if you look then at how does that translate down to the bottom-line, what you see is actually for the full year, we're actually bringing down OpEx more than what is the impact of just COVID-19 reductions in spend. Some of that is also due to the way currency is flowing through our operating expense line, but then there is a little bit of incremental savings we also were assuming. I would say we didn't go harder at OpEx primarily because we don't see this as a demand driven issue and we want to be in a position that as the market normalizes we can come back fully with our products. So we're expecting to continue to invest in research and development, R&D will continue to grow and we will continue to make selective investments to be prepared to come back strong, as we see the market normalize. And that's why we've not pulled down OpEx further. But you shouldn't read anything more into this than the mix of our business and the fact that the access is impacting our ability to deliver what we originally expected for the year. Roger on TIGIT?

Right. Let me speak more generally to the combinations with KEYTRUDA. And it is the case that really since we began -- since I began working with the KEYTRUDA program back in 2013, we have been exploring a whole variety of different combinations with various agents and that's what led us of course to partner with AstraZeneca and Lynparza and partner with Eisai and Lenvima, and has led us to develop a whole set of programs internally that we are using in combination with KEYTRUDA in various clinical studies, including TIGIT, and numerous other biologicals that are well advanced in our program. I've indicated before that we have really quite impressive data in some of these combinations. Most importantly, of course, in our Lenvima combination where we have registration in endometrial cancer and have already presented data for the combination in renal cell carcinoma. But beyond that with the biologicals as well, we are looking for effects that are really meaningful and that will make a big difference from an efficacy standpoint, while preserving the very favorable profile that KEYTRUDA has already demonstrated. So we are making good progress. We're looking forward to developing some of these agents assuming that these play out. And of course, we'll be watching what others do. I think we're in a very good place.

Next question please?

Your next question comes from the line of Mara Goldstein from Mizuho Securities. You may now ask your question.

Just a little bit more on currency, if you don't mind. And I'm just curious as you think to how you made these adjustments for currency, can you possibly give us some more granularity on what is a contracted issue versus what is actually a country-by-country swing in currency? And then secondarily, can you just confirm the timing of the split off given everything that's going on from a COVID perspective?

So on a currency basis, if you look at what is driving the reduction, it is entirely just due to change in where we see rates as of mid-April. So basically, we took the mid-April exchange rates and assumed those held for the full year. And as a result of the fact that what you're seeing is that really versus almost every currency, the dollar has strengthened as there has been a flight back to the dollar -- as soon -- as the quality currency and as a defensive measure, that is impacting us. It's hitting us across all of our currencies. But importantly, what's happening as well -- and we're not able to hedge as much as we normally would is because we're also seeing a material impact in the emerging market currencies as well, where we don't hedge today. So it's really that is what's driving entirely the $750 million reduction that we talked about in our guidance. And then on your second question on the timing of the spin out. As Ken noted in his prepared remarks, we continue to expect to have the spin out completed in the first half of 2021. That is consistent with where we guided last quarter.

Great. Next question please?

Your next question comes from the line of Navin Jacob with UBS. You may now ask your question.

Navin from UBS. Roger, a question for you on your COVID-19 vaccine program. It's just -- it was interesting that you mentioned or highlighted that you've chosen to go with proven platforms. Wondering your thoughts on some of the more novel platforms such as mRNA why perhaps you may or may not be looking at some of those more novel platforms? Sort of associated with that also, would love your thoughts on neutralizing antibodies as a method for either treatment or prophylactic treatment. And then a separate to that but along the same lines, wondering how you're thinking about whether mutations around the spike protein could create selective pressure and how you think about items such as that or whether it's antibodies defendant enhancements that may be putting some -- maybe affecting how you're thinking about proven platforms versus for novel platforms? Thank you very much.

Right. Well, thanks. Thanks very much for the question. So first of all, we are interested in any and all approaches that could be helpful in reducing the impact of the COVID-19 pandemic. And we've been in discussion with most all of the organizations that are trying to do this in various different ways, whether that's using passive immunization with antibodies or trying to use alternative methods of active immunization that are -- can more rapidly be brought into the clinic like nucleic acids, mRNA in particular. And of course, we have a long history of collaboration with people who have done that kind of work. Our sense, though, is that -- the task before us is one that requires a vaccine that will be quite stimulatory and that will yield neutralizing antibodies ideally with a single immunization. Of course, it must first be safe because you're talking about a vaccine that would in principle be given to much of the world's population in order to protect the world's population. And since we believe that virtually everyone is susceptible, these are all high bars. And that makes us want to return to proven platforms that have these kinds of characteristics. And that's where we have put our focus. My expectation is that over time, we will need more than one vaccine in order to actually protect the human population from SARS-CoV-2. So that's sort of thing that we've looked at. Specifically with respect to the neutralizing antibodies being administered as passive vaccination, we've looked at a number of those. In the near term that may turn out to be a useful approach for individuals who -- perhaps in the treatment context and also for individuals who are at extraordinarily high risk and have a great susceptibility because of age and comorbidities. But it's a broadly based method to protect the human population I think, probably less likely to be used just for logistical reasons. That doesn't mean that we wouldn't be willing to work with others to help develop that if that proved to be the near term -- the most important thing that one could do. Finally, I would say that just to put the cart back behind the horse, and the issue of selective pressure and mutation, we should recognize that while right now we're not seeing an enormous amount of variation in the SARS-CoV-2 virus, when we put selective pressure on the virus either with an antiviral drug and some of those do indeed look fairly promising early on or with a vaccine it is possible that we will see variants emerge and those variants can prove to be important. And that's something else that we're paying quite a bit of attention to.

Thank you. Next question please?

Your next question comes from the line of David Risinger with Morgan Stanley. You may ask your question.

Yes, thanks very much. I have two questions for Roger please. To follow on to your remarks regarding COVID, could you please comment on the potential to; one, inject disinfectants; and two, to use UV rays inside the body to cure COVID. No, I'm just kidding, I'm sorry. So on a more serious note, could you discuss Merck's novel I/O agent readouts to watch in 2020? And second, could you discuss your conviction in the profile of Merck's 15-valent pneumococcal conjugate vaccine and your disclosure in adult filing plans? Thank you.

Yes, David. So with respect to novel immuno-oncology agents, I mean I've mentioned some of this before in response to a prior question, but we have a stable of them. We're of course looking at our own CTLA-4 molecule, have been for some time in combination with KEYTRUDA. We are also looking at LAG-3, TIGIT and a whole variety of others. We have 20 or so agents that we have tested in the clinic and all of these are being tested versus monotherapy and thereafter as combination with KEYTRUDA. But I should emphasize that KEYTRUDA really is quite special. We've not seen anything of course that has characteristics that are like KEYTRUDA. If we did, that would be a very different story. And it's no surprise because we and many other investigators, university-based investigators, myself included, looked for these kinds of things for decades and never found anything that looked like KEYTRUDA. It's unlikely we're just going to kick one over now when we didn't have those in the past. That doesn't mean though that those things in combination with KEYTRUDA couldn't be beneficial and we're seeing some early signs that suggest that's possible and we'll have quite a lot more to say about that during the coming year. And the second question had to do with our conviction with respect to our 15-valent molecule V114 for invasive pneumococcal disease. We have a lot of conviction behind it. I think we've already reported our Phase 2 data that everyone has had a chance to see. The Phase 3 data will be available to us very, very soon. And as soon as those data become available, assuming the data Phase 3 recapitulate what we saw in Phase 2, which is certainly our hope and expectation, those -- the top-line of those data will be announced of course and we'll at that point provide more clarity with respect to our filing plans. But our expectation would be that filing could occur not long thereafter. So we're really very enthusiastic about this vaccine because of the important new serotypes in it and also the balance with respect to the immune response that we saw in our V114 studies in Phase 2.

Thank you. Next question please.

Your next question comes from the line of Steve Scala with Cowen. You may now ask your question.

I have two questions. As has been stated clearly Q1 beat but full-year guidance was lowered. We are now about a third of the way through Q2, in the month of April, which could be the peak of the pandemic. You must be seeing a major impact on oncology, vaccines, hospital and Animal Health. Is that a reasonable conjecture? And secondly, Roger, many investors were underwhelmed by the data on vericiguat and gefapixant. What in your view are investors missing? Thank you.

Alright, start with Frank.

So Steve, I'll start. So to answer your question, yes, Steve, as I mentioned in my prepared remarks, with regards to vaccines, we are seeing an impact due to the reduction in patients and well visits. We are seeing a reduction in our hospital specialty area in particular BRIDION with the reduction in elective surgeries as well as Women's Health. So we are seeing that in Q2, which is why we've updated our guidance and we also want to reiterate though we do see, as we are seeing in China, as we get through this period, we believe things will come back gradually in Q3. And then as we get into Q4, we'll return to normal operations. And I just want to continue to echo that we're very confident in the overall portfolio and in the demand trends that we see.

And I would just add on the Animal Health front. It's a similar situation to Human Health. We are seeing the impact now in the quarter and we do expect that the second quarter will be the vast majority of the impact driving what is the full-year reduction. So it definitely will be most acute in the second quarter, but it will continue a little bit into the third and fourth and be a little bit more prolongated than what we expect from the Human Health business, driving a larger downside impact to our Animal Health business than it's having to our Human Health business.

Great, Roger?

Yes, Steve. Thanks for the question. So first of all on vericiguat and the VICTORIA study, so the VICTORIA study address a patient population that typically is excluded from most studies and these are patients who have had a recent de-compensation in their status. These are patients with reduced ejection fraction, heart failure, who have typically undergone heart failure hospitalization as a result of some deterioration. And hence, this is a very brittle population if you looked at the data that were published. But what you saw with it was that these patients were really quite ill and had indices of heart failure, of heart stress that were much, much higher than what is typically found in a heart failure population. So the reason why the paper was published in the New England Journal of Medicine, the reason why it was -- there was a plenary presentation at the American College of Cardiology on these results is precisely because this is a very different population, the therapy is given as add-on to existing heart failure therapies and improves outcomes. And so, that's a pretty important result and I think there is a lot of enthusiasm for it within the cardiovascular community and amongst those physicians who treat heart failure. So I think that's really important to recognize. This is really a -- quite a change in terms of how we think about these patients and it's an important patient population to treat. And then with respect to the gefapixant, well of course, we haven't presented the gefapixant data. We'll have a chance to do that. I think everyone should recognize two things; the first is that chronic cough is an extremely common complaint in the general population. So physicians are often called upon to try and help people who are interrupted by chronic cough and in our Phase 3 studies we had some individuals who have had chronic cough complaints, continuous chronic cough complaints for more -- for decades. So this is a pretty significant interruption in their lives. On the other hand, I don't want to dismiss the difficulty of going into a completely new area, because there are no -- there hasn't been no drug registered for chronic cough. There's been no study of this kind previously. It's a completely novel area. It will take some time for this to develop and for people to understand it.

Great. Next question please.

Your next question comes from the line of Louise Chen with Cantor. You may now ask your question.

So my first question is on the TMB-High opportunity here. What is that for Merck? And is there any off-label usage of KEYTRUDA in that population already, and if so, how much? And then second question is, if you could provide more color on your Taiho-Astex KRAS opportunity and when we can start to see data from that pipeline asset? Thank you.

First question on TMB-High. Roger, would you like to speak to TMB-High please and also the second question?

Right, Okay. For TMB-High, so this -- the basis for seeking registration is a study done in a variety of different tumor types, the KEYNOTE-158 study in which their responses at the moment are currently inadequate. And so the goal was to look and see, well was there anything that we could do in these tumor types in which we could demonstrate that KEYTRUDA had an effect in certain patients, and we looked at a variety of different markers so that we could use. It turned out for us that a tumor mutational burden marker at greater than 10 mutations per megabase was associated with an improved overall response in certain of these tumors and that's what we've sought registration for and we are in the midst of having those discussions with the agency. So we'll see what happens. I frankly am not aware of off-label use and we wouldn't necessarily know anything about that in that population. And with regard to our KRAS program, it's actually quite a broad program looking at both GDP and GTP bound forms of KRAS and looking at the mutations beyond the cysteine mutation, codon 12 mutation, veiled cyst mutation which occurs in a fraction of patients, but there of course are many other mutations, aspartic acid substitution, valiant substitution et cetera. So we're looking quite broadly, but it will be a while before we have the opportunity to bring the first of those compounds into the clinic.

Great, thank you. We have a number of questioners still in the queue. We're going to stop at 9:15, but we're going to keep going for now. Next question please?

Your next question comes from the line of Andrew Baum with Citi. You may now ask your question.

So a question for Roger on TIGIT, you've clearly seen efficacy signals from your trial activity. Genentech has noted is seeing strong efficacy signals in a PD-L1 High. So is the central reason before accelerating any Phase 3 program, whether TIGIT is additive or synergistic the chemo in patients with low PD-L1 expressing tumors or is there some other hurdle which is holding you back? And on the same note, I mean how do you view the commercial risk/reward of taking further time optimizing the patient population at the expense of potentially disadvantaging yourself by giving Roche more lead time should that Phase 3 program in first-line non-small cell lung in combination with chemo pans out. That's first question. And the second question very quickly to Frank, you've discussed the fairly obvious impact of delayed presentation to healthcare providers for third party-administered pharmaceutical. Could you talk to how you think about in the U.S., the commercial impact associated with rising insurance rates associated with unemployment? I realize that you have far less exposure than some of your peers, but I'm interested in your thoughts generally, but obviously it does relate to things such as Diovan as well, which, tell you have commercial exposure. Thank you.

Great. Roger, first on TIGIT and then we'll turn it to Frank.

Well Andrew, thank you -- thanks for the question. Again on TIGIT, different companies will have different perspectives on this. Our view really is still quite simple and it's not -- I wouldn't over think this. What we want to see is sufficient evidence of benefit in combination which is -- where you can unambiguously say that both elements, that is KEYTRUDA in our case and the anti-TIGIT antibody, both elements and that same is true for LAG-3 or CTLA-4 or any others are each contributing and so that there is at least additive effect and ideally better than that if one could get it. And so, we want to be absolutely sure of that and we want to be absolutely sure that we're addressing the right patient populations and of course we want to be sure that there is no deterioration in the favorable adverse experience profile of KEYTRUDA. So it's just a matter of reaching a conclusion about that. We could eventually reach the conclusion that you know we don't actually think it's good enough and there could be a whole variety of reasons for that or we could reach the conclusion, yes, we think this is really important, let's move forward. There are a number of programs in which we are sort of looking at that and we are going to find some data that's intriguing, but we just don't have enough data yet to make us feel comfortable about it. Other people might look at that data and say we need to go immediately. We are doing what we think is the right thing in that regard.

Great, Frank?

And Andrew, I think we're all concerned obviously what we're seeing in the U.S. with regards to rising unemployment. As I mentioned earlier, for us, we'll have to see the shift potentially from our commercial business over to higher discounted segments like Medicaid. But just to reiterate again, Medicaid is a very small portion of our business currently and as we look going forward, our business and payer mix is more geared toward Medicare and in particular, Part B Medicare.

Great. Next question please.

Your next question comes from the line of Seamus Fernandez with Guggenheim. You may now ask your question.

Great, thanks so much for the question. So, just a couple here. Could you guys comment -- I know we'd commented on the Medicaid side of things, but 340B expansion could be a meaningful threat to the industry overall. Just trying to get a better understanding of what Merck's 340B exposure is currently since that's a hospital-based program than then could shift to Medicaid-based pricing. So just love to get a better understanding of your thoughts there on exposure. And then, for Roger, can you just help us understand what's unique or special about Lenvima that has Merck pursuing such a broad effort where others with similar type TKIs certainly not, and I think this is where I'd love for you to comment on the differentiation have not pursued that. And I think this is particularly interesting in the context of the relatively limited patent life for Lenvima. Thank so much.

Frank, then Roger.

Yes, Seamus, so just -- if you look at 340B, the majority of the exposure really is for products like JANUVIA and also KEYTRUDA. For KEYTRUDA, approximately a third is within that 340B segment today. It has been growing slightly year-on-year and we'll have to see how, as I mentioned, things continue to unfold with regards to what's happening in the environment and it's obviously something that we're closely monitoring.

Great, Roger, on Lenvima?

Right. So Seamus that the -- we're quite data driven on this. We were enthusiastic about Lenvima initially from the monotherapy data that our colleagues at Eisai had obtained and we thought there was a chance that that could prove to be a good combination with KEYTRUDA. We had -- we did some experiments like that with them and then we signed our agreement with them. And when we signed our agreement, we thought let's do a signal detection study looking across a broad set of tumors. And as we've done that, we've seen a lot of really quite interesting signals. Those of course weren't the only combinations with multi-kinase inhibitors that we tried, but we've seen impressive signals in combination with KEYTRUDA. And as you know, every multi-kinase inhibitor is different. Each one hits a different range of molecules and their effects are different. So it's quite hard to describe why that's true and whether that reflects VEGF receptor-antagonism in the context of FGF receptor or whatever. But what you can say is that they're all different and the results that we've obtained with Lenvima have been very promising. So we are quite enthusiastic, obviously, first of all in endometrial, in other tumors, the data we presented for renal and there are many others besides. So we're moving forward with that program.

Great. Thank you all for your questions and apologies to those we didn't get to. I'm going to turn it over to Ken for closing remarks.

Thank you everyone for joining us today. Our mission of save and improve lives will continue to drive the Company in the coming days and months in the midst of the coronavirus pandemic. Merck is committedly doing everything in its power to ensure our medicines and vaccines reach patients around the world and we expect to contribute to the global pandemic response efforts today and also to prepare for the next potential crisis. The underlying demand for our product remain strong and our fundamentals remain very sound. In the near-term, we -- I reiterate, our portfolio is different, and as a result, our near-term guidance takes into consideration what's really happening in the outside world in an attempt to be realistic about physicians and their ability to access patient. But in the final analysis, we believe that our underlying business fundamentals are very sound going forward and we look forward to providing updates on the business as we continue to navigate through these challenging times. And until then, we hope that you and your families, all safe and healthy. Thank you.

Thank you.

Thank you, presenters. And thank you, ladies and gentlemen, for joining Merck & Company first quarter sales and earnings conference call. That concludes this conference. Thanks all for joining. You may now disconnect.