Merck's (MRK) Ken Frazier Hosts Annual Shareholder Meeting (Transcript)

 |  About: Merck & Co Inc. (MRK)
by: SA Transcripts

Ken Frazier - Chairman, President and Chief Executive Officer

Good morning, ladies and gentlemen and welcome to Merck’s 2014 Annual Meeting of Shareholders. It is now 09:00 AM, the official time to start our meeting. I am Ken Frazier, Chairman of the Board and Chief Executive Officer. And it’s my pleasure to now call this meeting to order.

On the stage with me is the company’s Senior Vice President, Secretary and Assistant General Counsel, Geralyn S. Ritter who will serve as Secretary of today’s meeting. Ms. Ritter has informed me that we have a quorum. I direct your attention to today’s agenda which we plan to follow as closely as possible. The audit committee of the Board of Directors has appointed PricewaterhouseCoopers LLP as the independent registered public accounting firm for Merck for 2014 subject to shareholder ratification at this meeting. Representing PricewaterhouseCoopers today are Mike Bronstein, Joe Herron, and Sonia Luaces. Welcome and thank you for joining us.

Now, I will introduce Merck’s Board of Directors. I ask the board members to rise and remain standing as I read your names. And may I ask the shareholders to hold your applause until all are introduced?

Leslie A. Brun, Chairman and Chief Executive Officer, Sarr Group, LLC; Dr. Thomas R. Cech, Investigator at Howard Hughes Medical Institute and Distinguished Professor at the University of Colorado; Thomas H. Glocer, retired Chief Executive Officer of Thomson Reuters Corporation; C. Robert Kidde, former Chairman and Chief Executive Officer of 3Stone Advisors LLC; Rochelle B. Lazarus, Chairman Emeritus and former Chief Executive Officer of Ogilvy & Mather; Carlos E. Represas, retired Chairman of Nestlé Group Mexico; Patricia F. Russo, former Chief Executive Officer and Director of Alcatel-Lucent; Dr. Craig B. Thompson, President and Chief Executive Officer of the Memorial Sloan-Kettering Cancer Center; Wendell P. Weeks, Chairman, Chief Executive Officer and President of Corning Incorporated; and Peter C. Wendell, Managing Director of Sierra Ventures. William B. Harrison, Jr., Lead Director of the Merck Board and retired Chairman of the Board of JPMorgan Chase & Co. could not be with us today.

This superb Board of Directors represents a depth of experience in business, science and medicine and a broad range of global perspectives. Our company is fortunate to be served by people of such passion, commitment and wisdom. Thank you very much, ladies and gentlemen.

Now, I’d like to introduce the members of our senior leadership team. Please stand as I call your names. And again, I ask that you please hold your applause until all the members have been introduced.

First, I am delighted to introduce Robert M. Davis, Executive Vice President and Chief Financial Officer. Rob joined our team last month and we look forward to his future contributions. Willie A. Deese, Executive Vice President and President, Merck Manufacturing Division; Richard R. DeLuca Jr., Executive Vice President and President, Merck Animal Health; Clark Golestani, Executive Vice President and Chief Information Officer; Mirian M. Graddick-Weir, Executive Vice President, Human Resources; Michael J. Holston, Executive Vice President and Chief Ethics and Compliance Officer; Bruce N. Kuhlik, Executive Vice President and General Counsel; Roger M. Perlmutter, Executive Vice President and President, Merck Research Laboratories; Michael Rosenblatt, Executive Vice President and Chief Medical Officer; and Adam A. Schechter, Executive Vice President and President, Global Human Health. Bridgette P. Heller, Executive Vice President and President, Merck Consumer Care could not be with us today. And also joining us today are two other key members of senior management Adele Ambrose, Merck’s Chief Communications Officer and Rita Karachun, Merck’s Controller.

Ladies and gentlemen, please join me in recognizing the efforts of our talented management team. Thank you.

Before my business update, I’d like to share a video with you that highlights one of the many ways Merck remains deeply committed to reducing the burden of disease and improving quality of life around the world. You may recall that in 2011, the company announced our Merck for Mothers program. This initiative seeks to address one of the oldest and most preventable global health tragedies. Every two minutes, a woman somewhere in the world dies to complications from pregnancy or child birth. If nothing is done, an estimated 3 million women may die over the next 10 years. Beyond the heartbreaking loss of a mother’s life, there are multiple other negative ripple effects on the family. The woman’s new baby is more likely to die and her other children are more likely to leave school, suffer from poor health, and live the rest of their lives in poverty. Because reducing maternal mortality calls for a collaborative approach, we are working with 75 partners in more than 30 countries and also here in the United States. This video describes our sheer determination as well as our early progress.

(Video Presentation)

Thank you. Through the Merck for Mothers program, Merck colleagues are contributing their scientific and their business expertise and they are building on our company’s longstanding and unwavering dedication to our fundamental mission to save and improve lives around the world. As you know, Merck exists to discover, develop and provide innovative products and services that save and improve lives around the world. The main way we do this is by applying cutting-edge science to develop medicines and vaccines that make a meaningful difference to patients, healthcare providers and payers. By focusing our efforts in areas where unmet medical need and scientific opportunity intersect, Merck intends to remain one of the world’s leading research intensive biopharmaceutical companies.

As I travel around the world representing the company, I meet with and hear from a wide range of stakeholders who interact with healthcare systems, including ministers of health, patients, customers, and payers. All of us in healthcare are seeing three fundamental forces at play in the industry right now. First, there are significant scientific advances that are illuminating the fundamental mechanisms of disease. Second, while there is much to be hopeful even exhilarated about in terms of possible new treatments, at the same time, our industry is dealing with familiar and new challenges. Despite our best efforts, the burden of disease remains high. Alzheimer’s disease and type 2 diabetes, for example, affect tens of millions of people around the world. And third, there is what most people and most governments regard as unsustainable growth in healthcare costs.

Despite this challenging and fast changing global healthcare environment, we at Merck remain deeply committed to our mission. Further, we believe it is imperative that Merck has the right strategy as well as the right scientific and technical capabilities to continue bringing life saving innovations to the patients who desperately need them. So, we can continue creating value for society and shareholders. Far into the future last October, we announced a strategic initiative to sharpen our research and development and commercial focus, redesign our operating model and future reduce our cost structure. Specifically, we are taking decisive action to revitalize our research and development, strengthen our pipeline of medically important products and allocate resources to our most promising clinical candidates.

In a few moments, Dr. Roger Perlmutter, Executive Vice President and President of Merck Research Laboratories will provide more information on our R&D priorities and programs. As you will hear from Roger, Merck’s steadfast commitment to scientific excellence continues unabated. Among other developments, last year, the U.S. Food and Drug Administration granted breakthrough therapy designation to two Merck investigational drugs. The FDA’s breakthrough therapy designation helps expedite an investigational drugs development and review when preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies.

We have received breakthrough therapy designation for MK-3475 for advanced malignant melanoma, the most dangerous type of skin cancer and also the combination of MK-5172 and MK-8742 for the treatment of chronic hepatitis C. And in addition to many other important clinical trials that are underway, our colleagues in the Merck Research Laboratories continue to conduct Phase 3 trials for our base inhibitor for the treatment of Alzheimer’s disease. As you know, this disease could have a devastating effect on patients and their families. It is also a major economic burden on societies around the world.

Throughout Merck, at the same time, we are sharpening our R&D and commercial focus we are also enhancing productivity and reducing costs. Last fall, we announced we would reduce our cost base by an additional $2.5 billion by the end of 2015, which is over and above the $3.5 billion in merger synergies we achieved previously. As CEO, the decisions I most regret having to make are the ones that will affect the jobs of Merck people and their families. While these decisions are painful, I believe they are absolutely essential to ensuring that Merck is here in the future to continue saving improving lives around the world. Our goal is to produce disciplined, profitable growth which benefits customers, shareholders and employees.

In 2013, we also said we were evaluating Merck Consumer Care and Merck Animal Health to determine whether these businesses would deliver more value over the long-term as part of Merck or as part of another company. As you know, earlier this month, we announced an agreement to sell our Consumer Care business to Bayer for $14.2 billion. Bayer provides an excellent platform for Merck Consumer Care’s products and people because of Bayer’s global presence and capabilities.

We are very strong in the U.S. and they are very strong outside the U.S. Bayer welcomes Merck Consumer Care’s complementary geographic reach and its portfolio of leading product brands such as Claritin, Afrin, Dr. Scholl’s, and Coppertone. The sale of our consumer business helps ensure that assets within our portfolio align with our core strategy that they have industry leading potential and can generate long-term shareholder value. Unlocking the value in Merck Consumer Care better enables us to make targeted investments that strengthen our product portfolio and enhance our pipeline. As part of the agreement with Bayer, we and Bayer also announced that we will collaborate to market and develop novel therapies for cardiovascular disease globally. This includes Bayer’s Adempas, which is approved to treat pulmonary arterial hypertension and it’s the first and only drug treatment approved for patients with chronic thromboembolic pulmonary hypertension.

Turning to Merck Animal Health, we believe this business which already is an industry leader can continue helping us generate long-term shareholder value. This is based on a favorable macroeconomic outlook and growth profile and a pipeline of innovative products that are coming. We will continue to evaluate strategic options for augmenting this business.

2013 was an important transitional year for Merck. While our business performance reflected many of the challenges of the global healthcare marketplace, last year we took the critically important step of establishing the clear priorities I mentioned earlier. We are deeply focused on making the right investment decisions across the company for the future, advancing our pipeline, driving growth, increasing productivity and aggressively managing costs. Taking together, these initiatives enabled us to deliver non-GAAP earnings per share of $3.49 last year.

Full year worldwide sales were $44 billion, a decrease of 7% from 2012 reflecting unfavorable impact of patent expiries, particularly for SINGULAIR and a 2% negative impact from foreign exchange. In our global human health business, full year pharmaceutical sales declined 8% to $37.4 billion, including a 3% negative impact due to foreign exchange. On a constant currency basis and excluding the recent patent expiries, our underlying portfolio of key medicines and vaccines actually grew 4% in 2013.

We saw strong full year sales growth for Gardasil, a vaccine that help prevent certain diseases caused by four types of human papillomavirus. Remicade and Simponi are treatments for inflammatory diseases. ISENTRESS, an HIV integrase inhibitor for the use in combination with other antiretroviral agents for the treatment of HIV-1 infection. Zostavax, a vaccine for the prevention of herpes zoster commonly known as shingles. And the diabetes franchise including Januvia and Janumet medicines that help lower blood sugar levels in adults with type 2 diabetes.

For our animal health business, global sales for 2013 were $3.4 billion a decline of 1% including a 2% negative impact from foreign exchange. For our consumer care business full year 2013 sales were $1.9 billion, a 3% decrease compared to full year 2012 including a 1% negative impact due to foreign exchange. Also in fiscal 2013 we returned $11 billion to shareholders through dividends and share repurchases making Merck one of the top performers in the industry in returning cash to you, our shareholders.

Looking to 2014 performance, in April we announced that Merck delivered a solid operational first quarter with growth in several key products and disciplined cost management. In particular, sales increased for REMICADE, SIMPONI, ISENTRESS and our diabetes and vaccines franchises. As we adapt our company to address new challenges and opportunities, our commercial organization has sharpened its focus on the markets, customers and therapeutic areas that provide the best opportunities for our business while delivering the greatest value to our customers.

In our global human health business we are focusing on our top four therapeutic areas. Our top 10 markets around the world and our top customers globally and in every country. We are focusing on four therapeutic areas diabetes, vaccines, acute care in the hospital setting and oncology where we have a leadership position today or expect to have one in the near future. We believe there are significant unmet needs in each of these areas and that payers will recognize and be willing to pay for innovation that treats or prevents disease.

In addition, we are focusing on 10 markets or countries that represent about 70% of our global revenue. These are a mix of large mature markets and also some of the fastest growing markets in the world. Further as one Merck working collaboratively across the company and the globe, we are focusing on our top 50 customers, so we can better meet and anticipate their needs and those are the patients they serve. We anticipate that these 50 customers will either directly purchase or influence more than half of our business by 2016.

Our global human health business under the leader ship of Adam Schechter has been working more closely than even with Roger Perlmutter and his Merck research Laboratories colleagues to make certain that prospectus from customers and patients as well as developments in the scientific realm are shared broadly throughout the company. These more unified and symbiotic relationships are central for our future success.

Before I invite Roger to the stage allow me to personally assure you that Merck’s leadership remains firmly committed to building on our strong legacy of scientific innovation. As some of you may know the Prix Galien is the highest accolade for pharmaceutical research and development. In 2013 Merck’s Zostavax vaccine was awarded the Prix Galien USA award for best biotechnology product. Although the past few years we have won more USA Prix Galien awards six in total than any other company as well as more international Prix Galien awards 36 in total, that is more than any other pharmaceutical industry peer. Also last year nine Merck chemists current and former were recognized by the American Chemical Society. They received Heroes of Chemistry awards for their work in the development of ISENTRESS for the treatment of HIV. Discovery research and clinical development have always been central to Merck’s mission and that is why it is a special pleasure for me to turn the podium over to Roger Perlmutter, our head of Merck Research Laboratories. Roger?

Dr. Roger Perlmutter - Executive Vice President and President, Merck Research Laboratories

Thank you very much Ken. Good morning. As Ken mentioned at Merck Research Laboratories we have a clear understanding of our mission. Our goal is to translate breakthrough research into meaningful clinical advances that make a substance of difference for patients suffering from grievous illness, that’s our goal. Our aspiration is to be the premier research intensive biopharmaceutical organization in the world. We aspire to be that.

Our legacy matters and Ken recited some aspects of that legacy. And during the past year we have made substantial progress in putting paid to our mission and our aspiration. In 2014, it is very likely that we will register more new products, new molecular entities, new chemistry, never before seen on this earth in the United States than at any time in the past decade. Our new products include for example two new drugs, immunomodulators designed to reduce signs and symptoms of allergic rhinitis both of which have been approved. We also have gained approval for vorapaxar known now as ZONTIVITY, which is the only drug that can be used in combination with traditional measures like aspirin and for example clopidogrel to reduce the risk of heart attacks in patients who have suffered a previous heart attack and are at high risk for future events. The risk reduction in our 26,000 patients study with combined use of ZONTIVITY, aspirin and clopidogrel was nearly 20%, a very dramatic improvement in the risk profile for patients who have fixed coronary lesions.

In addition we have a number of other drugs that are currently under review and for which approval is expected some time this year. Among those is MK-3475, which Ken mentioned to you. I am sorry MK-3475 – is the microphone working? Okay. Thank you. MK-3475 represents a completely new approach to the treatment of malignant disease. And during the past several years, we and our colleagues have learned that it is possible to manipulate the human immune system in such a way that immune cells will actually act to destroy a preexisting tumor. And I am going to show you something about that, but first let me say a word about cancer in general.

The global burden of cancer is substantial as each and every one of you appreciate. Cancer is a disease that will affect 14 million people in the world this year, 8 million will die. Each and every one of us knows the horrific impact of this disease. It affects our friends, it affects our families, it affects ourselves. And we at Merck are trying to do something to improve care for cancer patients by harnessing the immune system to actually destroy tumors. And I am going to show you an example of that.

This is a patient with malignant melanoma. It is as Ken mentioned the most aggressive and the most lethal skin cancer. Patients with malignant melanoma typically are identified and treated with surgery. If the disease recurs, treatment options are quite limited. And once those few treatment options have been exhausted, supportive care is all that’s left. We have developed MK-3475 in part to address the burden of metastatic malignant melanoma in patients who have failed all other therapies.

This man as you can see has undergone a resection of a melanoma that appeared on the left side of his skull. The melanoma recurred locally and has invaded the area of the left eye, in such a way that you can no longer see the left eye at all and it actually is being pushed outward by the growth of the tumor. This man 76-years-old and otherwise in good health has exhausted all therapeutic options. Administration of MK-3475 as a monotherapy and its given once every three weeks had a remarkable affect. In just the first cycle as you can see there is already substantial evidence of tumor shrinkage. That tumor shrinkage is occurring not because of the drug actually directly kills the tumor cells, but because it releases the brakes if you will on an immune response that is able to recognize and remove the tumor. And progress continues with subsequent therapy (indiscernible) once again revealed. And in fact this man continues to have a durable response.

It’s a remarkable finding for MK-3475 an immunomodulatory agent which we believe will be active in a variety of different tumors and for which we have filed for approval in the setting of malignant melanoma for patients who have exhausted all other therapeutic regimens. Our view is that these kinds of therapies will prove to be enormously durable and that’s based on clinical evidence that you see here. What is plotted in this graph which is a swim lane plot, it shows you individual patients and their evaluation over time from left to right. And in this set of patients with metastatic malignant melanoma, you can see that at the time of tumor assessment at 12 weeks already there is a substantial number of responses which is shown by the pale triangles.

But the most important point is that the vast majority of individuals who experienced responses, and that’s a substantial majority of all of the patients continue to respond four weeks, four months in many cases for more than a year. And in the data that we presented at the Society for Melanoma Research last fall 81% of patients whom we treated, 81% of responders remained alive at the end of the first year. That’s a substantial improvement over existing therapies for malignant melanoma and represents exactly the kind of work that we at Merck Research Laboratories can pursue, because our goal is to change survival for patients with disseminated malignant disease.

In the past individuals who were treated with standard chemotherapy might gain some weeks or months, in some cases of improved life and even survival, with immunotherapy we believe that we are going to be able to provide durable responses for a large fraction of patients. And our view is that the combination of such therapies with traditional agents can improve matters still further such that over time a significant majority of patients actually will gain durable responses that persist and hence enable their survival over a much longer term. To generate these kinds of advances requires the best efforts of scientists, engineers and clinicians working across our laboratories and working together with us around the world. It’s a remarkable set of discoveries. We believe there is tremendous potential for immunomodulatory therapies for malignant disease and is just one example of what we at Merck Research Laboratories can do. Thank you.

Ken Frazier - Chairman, President and Chief Executive Officer

Thank you, Roger. I hope you understand the basis of our excitement. As you can see Merck remains focused on and committed to building upon our heritage of scientific excellence. And as Roger just showed you, we are delivering the benefits of breakthrough research and developments to patients and their families right now and we intend to do so for many years to come. Merck also remains deeply committed to upholding the highest standards of ethics and integrity in all that we do.

Our values are woven into every aspect of our business, that’s why we were gratified to have earned again recognition for our political disclosure and accountability policies and practices. We have been ranked number one for three consecutive years by the Center for Political Accountability in conjunction with the Zicklin Center for Business Ethics Research at the Wharton School of the University of Pennsylvania. In summary, Merck intends to remain true to who we are and who we have always been a research intensive biopharmaceutical company that seeks to make a real difference in the world through scientific innovation.

Merck has always been at its best when it is inventing new therapies, path breaking therapies like our anti-PD1 investigation immunotherapy to fight cancer. At the same time we are looking for new and better ways to work with our most important customers around the world to help them deliver more cost effective healthcare and better patient outcomes. In recent months, we have fundamentally changed our operating model to drive additional productivity and to become an even more focused and agile company. We have successfully maintained our competitive position with key brands and we brought novel medicines and vaccines to regulatory authorities around the world.

All of these actions have allowed us to generate strong operating cash flow and return industry leading amounts of cash to you, our shareholders. The best way for Merck to continue driving value over the long-term for all our stakeholders including patients, customers and shareholders is to continue innovating throughout our business. We plan to deliver superior results through disciplined and profitable growth and through innovation that saves, improves and extends lives around the world.

Merck’s people are deeply committed to our mission and our future and we thank you for your support. Continuing now with the meeting I know for the record that Bruce Kuhlik, Geralyn Ritter and I are members of the proxy committee and now I ask Ms. Ritter as Secretary to report on our quorum and other matters.

Geralyn Ritter - Senior Vice President, Secretary and Assistant General Counsel

Mr. Chairman, proxies have been received totaling 2,495,072,000 votes or 85.17% of the total votes entitled to be cast. This substantially exceeds the majority required for a quorum. This meeting is held pursuant to the notice of annual meeting that we began mailing on April 14, 2014 to all shareholders of record on March 31, 2014.

Ken Frazier - Chairman, President and Chief Executive Officer

In accordance with the resolution of the Board dated March 25, 2014, Michael J. Barbara and William Marsh of IVS Associates Inc. are appointed as inspectors for this meeting and have executed in oath of office to conduct the voting and canvas and received the ballots. In the interest of time we will dispense with the reading of the minutes of our previous meeting, but the minutes are available to anyone who wishes to see them. The proposals will be presented in the order outlined in the proxy statement. There will be an opportunity for questions on each proposal to give everyone the chance to participate we ask that any questions pertaining to the proposals be no longer than three minutes. At this time, I would ask that you please limit your questions to the specific proposal on the floor. There will be time for general questions later in the meeting. If you have a question, please raise your hand and wait to be recognized. When it is your turn, the microphone in front of you will be on and ready for use. Please speak into the microphone, identify yourself, and spell your name before asking your question. If you have already mailed in your proxy or voted by telephone or by the internet, you do not need to vote in person unless you wish to change your vote today. Please raise your hand so that ballots maybe distributed to you.

If your shares are held in street name and you have a legal proxy from your broker to vote your share, you will need to take a ballot. We ask you to mark the appropriate part of your ballot after each item is presented. The inspectors will collect the ballots and legal proxies when all voting is completed. I declare the polls officially open.

The first item of business is the election of directors. The Boards nominees are Leslie A. Baun, Thomas R. Cech, Kenneth C. Frazier, Thomas H. Glocer, William B. Harrison, Jr., C. Robert Kidder, Rochelle B. Lazarus, Carlos E. Represas, Patricia F. Russo, Craig M. Thompson, Wendell P. Weeks, and Peter C. Wendell for terms expiring in 2015. I note for the record that no nomination for Director has been properly made in advance of this meeting by any shareholder of the company. Are there any questions? There is a question here.

Irenej Krayewsky

Good morning, Mr. Frazier. My name is Irenej Krayewsky. I am an adjunct faculty at the Kent University and in Union County College for Economics and Mathematics. I would like to know if any of the directors on the board of other drug companies that create what’s called (indiscernible) which is actually violation of the antitrust rule. Thank you.

Ken Frazier

The answer to that is no. Is there a question over here?

Andrew Weinstein

Hi. My name is Andrew Weinstein. I own 11,810 shares and I would like to say a few words concerning one of Merck’s directors. Patricia Russo at one time was on board of the phone company, which is no longer in existence. Then she was an officer at Lucent Corporation, now defunct. She then was on Schering-Plough’s Board of Directors out of business. Now, Patricia Russo is on the board of General Motors and we all know the trouble that General Motors is in. I believe she should not be on the Board of Directors at Merck and I urge all stockholders to vote against Patricia Russo.

Ken Frazier

I appreciate your comment. Any other comments? Those shareholders voting in person should now mark their ballots for directors. We now turn to a proposal to approve by a non-binding advisory vote, the compensation of our named executive officers. The Board of Directors recommends a vote for this proposal. Are there any questions on this proposal? If you are voting in person, please mark your ballots with respect to this proposal.

The next item of business is a proposal to ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for 2014 as set forth in the proxy statement. The Board of Directors recommends a vote for this proposal. Are there any questions on this proposal? If you are voting in person, please mark your ballots with respect to this proposal.

We now come to the shareholder proposals. The first shareholder proposal is from Mr. William Steiner and concerns shareholders’ right to act by written consent. Is Mr. William Steiner or an authorized representative here to introduce this proposal?

Unidentified Company Speaker

Proposal four, shareholders proposal concerning shareholders’ right to act by written consent sponsored by William Steiner of Piermont, New York resolved shareholders’ request that our Board of Directors undertake such steps as maybe necessary to prevent written consent by shareholders entitled to cast the minimum number of votes that will be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present in voting. This written consent is to be consistent with giving shareholders the fullest power to act by written consent in accordance with applicable law. This includes shareholders’ ability to initiate any topic for written consent consistent with applicable law. This proposal topic also won majority shareholders support at 13 major companies in a single year. This included 67% support at both Allstate and Sprint. This proposal empowers shareholders by giving them the ability to affect, change without being made to wait until the annual meeting. Shareholders action by written consent can save Merck the cost of holding a shareholders’ meeting between annual meetings to consider urgent matters. Please vote to enhance shareholders value right to act by written consent proposal four.

Ken Frazier

I appreciate your comment. Although the Board of Directors does not support the ability of shareholders to act by consent without a meeting, the Board has sought to afford shareholders with a greater ability to call and express their views at special shareholders meetings. In that connection after substantial company outreach to shareholders and consideration of feedback received from them, the board recently amended the Bylaws’ of the company to allow holders of as little as 15% of the company stock to call for a special shareholder meeting. In addition, under New Jersey Corporate Law, holders of 10% or more of the company’s stock may submit to the New Jersey Superior Court a request for a special shareholder meeting, which the court may order upon a showing of good cause.

The restated certificate of incorporation of the company requires that all shareholder actions be taken at an annual or special meeting to which all shareholders are invited rather than by written consent. This is to ensure that all shareholders have a voice in critical matters affecting the company as well as a meaningful and structured opportunity to exchange views with the board before acting. If a subset of the company’s shareholders could act by written consent without a meeting, amendments to the company’s Bylaws and other corporate actions could be taken without all shareholders having an opportunity to provide their input on the decision. Moreover, allowing shareholders to act by written consent can potentially expose the company to numerous consent solicitations, which would force the company to incur significant expense and could cause disruptions to its operations.

The Board of Directors believes that the limitation on shareholders’ ability to act by written consent coupled with the ability of shareholders to call a special meeting at a relatively low threshold protects the overall interest of the company and its shareholders in a fair and balanced manner. The Board of Directors recommends a vote against this proposal. Are there any questions on this proposal? If you are voting in person, kindly mark your ballots with respect to this shareholder proposal.

The last item of business is the shareholder proposal again from Mr. Kenneth Steiner concerning special shareholder meetings. Is Mr. Kenneth Steiner an authorized representative here to introduce this proposal? I think, yes. Thank you.

Unidentified Company Speaker

Proposal five, shareholders proposal concerning special shareowner meetings sponsored by Kenneth Steiner of Great Neck, New York, resolved, shareowners ask our Board to take the steps necessary unilaterally to the fullest extent permitted by law to amend our Bylaws’ and each of appropriate governing document to give holders in the aggregate a 15% of our outstanding common power to call the special shareowners meeting. This includes that such bylaw and/or charter text will not have any exclusionary or prohibitive language in regard to calling a special meeting that apply only to shareowners, but not to management and/or the Board to the fullest extent permitted by law. This proposal does not impact our Board’s current power to call a special meeting. Special meetings allow shareholders – excuse me, shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. Shareowners’ input on the timing of shareowners meetings is especially important when events unfold quickly and issues may become moot by the next annual meeting. This proposal topic won more than 70% support at Edwards Lifesciences and Sunedison in 2013. Please vote to enhance shareholders value special shareowner meeting, proposal five.

Ken Frazier

I appreciate your comment. As I mentioned earlier, after substantial company outreach to shareholders and consideration of the feedback received from them, the Board recently amended the Bylaws of the company to require the Board to call a special meeting of shareholders at the request of the holders of 15% or more of the company’s stock rather than 25% as it was previously. The Board also amended the special meeting section of the Bylaws to better define the procedural steps for calling such a meeting. Therefore, the company believes that this proposal is now moved. The new Bylaw provision establishes a 15% ownership threshold for calling a special meeting imposes only reasonable restrictions on the timing of such meetings and establishes no further restrictions on the matters that maybe presented at a special meeting.

Furthermore, shareholders have additional rights to be heard on critical matters under New Jersey corporate law holders of 10% or more of the company stock may submit to the New Jersey Superior Court a request for a special shareholders meeting which the Court may order upon a showing of good cause. The good cause requirement protects the interest of all shareholders by allowing the holders of 10% or more of the company stock to request a special meeting for legitimate purposes including important matters that are raised between annual meetings while shielding shareholders and the company from abuse of this right.

The Board of Directors recommends a vote against this proposal. Are there any questions on this proposal? It’s there, okay. There seems to be one, I am sorry.

Irenej Krayewsky

Good morning again Mr. Frazier. This is Profesor Krayewsky. Are you referring to take 10% of outstanding shares or individual share that people owns?

Ken Frazier

Outstanding sir.

Irenej Krayewsky

Thank you.

Ken Frazier

If you are voting in person, please mark your ballots with respect to this stockholder proposal. Since this completes the voting, the inspectors may now collect the ballots and legal proxies and tabulate the votes. I declare the polls officially closed.

Now, I will be pleased to answer any questions you may have this morning. Please raise your hand and wait to be recognized. I will try to answer as many questions as possible, but in order to do so I must remind you that we will limit each question to a maximum of three minutes. When you are recognized, please speak into the microphone and identify yourself before asking your question. And we have a question over here.

Question-and-Answer Session

Andrew Weinstein

My name is Andrew Weinstein. I just want to mention that when I got the information about the stockholders meeting all the directions came from the north some of us come in the other direction and it’s very difficult to find. Please include directions from other areas rather than just from the north when you send out future information. Thank you.

Ken Frazier

Thank you, Ms. Weinstein. We will try to be more comprehensive. And let me just say in response to your earlier question now that we are in the open session. I just want to say from my perspective and I know the view was shared by many on the board that Pat Russo has been fine, in fact, an exemplary director, who has made substantial contributions to our Board. So, I just like to say that publicly in response to your earlier comment.

Unidentified Analyst

I am your public speaker at the Merck meeting. One issue I would like present is in the 10-K you have listed that Merck has a joint venture with AstraZeneca company for marketed drugs. And also you noticed that a lot in the media, they talk about the Pfizer actually want to acquire AstraZeneca to merger, would that have an impact on Merck with the joint venture or actually with the joint venture terminated or the merger would actually have another reestablished joint venture possibly in the Pfizer in the future given the merger that take place?

Ken Frazier

Thank you for your question. The operational joint venture between Merck and Astra changed a number of years ago. So, Astra now runs the business that was formerly run by Astra Merck joint venture. We do have a partnership with Astra. And as far as we can say any potential deal between Astra and Pfizer or any other company for that matter would not affect our rights under the partnership.

Justin Danhof

Good morning. I am Justin Danhof, General Counsel with the National Center for Public Policy Research for a free market think tank and a company’s shareholder. Mr. Frazer, this morning I want to ask you about specialty pharmaceuticals and specifically the political class reaction to their price and availability. The issue was thrust into the international spotlight over the pricing of Gilead Sciences’ drug, SOVALDI, which the FDA approved last December for the treatment of chronic hepatitis C. A dose of SOVALDI can cost $1,000 per day as you know totaling $84,000 over the full 12-week treatment. Well, once the media reported and focused primarily on those prices in March representative Henry Waxman, the ranking member on the U.S. House Energy and Commerce Committee wrote a public letter to Gilead Sciences’ CEO and demanded a justification of the company’s pricing among other increase.

The day after that letter went public according to the New York Times “Gilead’s stock fell 4.6% and nervous investors took down the shares of some other big biotechnology companies as well worried that pressure on drug prices would increase.” And according to an article in the Life Science Leader, Express Scripts “urged its insurance and employer clients to join a coalition to stop prescribing SOVALDI altogether once competitor products hit the market unless Gilead drop its price.” So, our concern is that the actions by some in the media and those in Congress could hamper innovation and move the U.S. towards a more government negotiated European pricing model for pharmaceuticals. Gilead developed a groundbreaking treatment and established a market price and now the political class is trying to interfere in the marketplace.

In conclusion, considering that President Obama backed the Dual-Eligibles Rebate Plan that you and I discussed last year and as 2013 State of the Union addressed. And now we have a ranking member of Congress openly attacking a life saving drug over its pricing. Do you think enough is being done in Washington DC to foster an environment for drug innovation here in the United States and what more would you like to see down to promote specialty pharmaceuticals specifically and drug innovation generally? Thank you.

Ken Frazier

Thank you for your question. And I also recognize that there is increased attention not only in Washington, but as you mentioned also by some of the private PBMs into drug pricing and it’s a substantial issue that’s really going to be important to a company like Merck that remains committed to long-term R&D expenditures with the hope of coming up with important drugs like the PD1 drug. So, our view has always been that we are responsible when it comes to our pricing practices. We want to support access and also it’s critical to support the need to invest in innovation long-term. And that means from our perspective, we will continue to work in Washington and elsewhere to create an environment, where there is a free market and competition for drugs that are being developed.

Our view is that as long as we maintain a free market, where there is competition in terms of drug pricing in a free market we think we can sustain the kind of research that’s necessary in order for us to come up with these kinds of medicines. But my short answer is I share your concerns when we have people saying that there ought to be some outside influence on drug pricing and with respect to the particular drug that you mentioned although that’s not our drug, it should be noted that, that drug actually increases the cure rate and lowers or shortens the duration of the treatment. So, it is a really important innovation. Of course, we continue to look forward to come forward with a drug that would even be better than that drug. So, stay tuned. Thank you.

Jim White

Good morning, Mr. Frazier. My name is Jim White, a shareholder. And God bless you for the great research you have done on MK-3475, I think that’s a spectacular…

Ken Frazier

That’s kind of you to say, but it’s those researchers.

Jim White

Well, it’s a great team that you have built and compliments also to your supply chain team from Willie Deese, Quentin Roach, and Bob Purnell, they are real pros and real pleasure to deal with.

Ken Frazier

Thank you.

Jim White

I have dealt with some from my company, JJ White. The question I have had after your tremendous stewardship of navigating the company through tumultuous times and seeing tremendous financial results last year. The tax liability one of the pre-tax and forgive me if this has been addressed in different forms, but I just was trying to find out the nature of the rise that we experienced in 2013 on taxes, because your pre-tax 2013 and 2012 was up $1.4 billion and that’s a tremendous uplift, but then looks like that taxman took a nice slice of that. So thank you very much. God bless you.

Ken Frazier

Thank you. Thank you very much for your comments and for your support. The changes in our tax rate vary based on the mix of products that we have. And sometimes you will have a product that’s manufactured in a tax advantage situation, let’s say, SINGULAIR and it goes off patent. And then you lose the benefit of that particular supply chain, which is actually consistent with lowering taxes. So over time, Merck’s taxes will fluctuate depending on the mix of products that are sold, where the IP is held and how the supply chains are constructed. I will say that there has been a lot in the newspapers about people seeking to incorporate outside the United States for the purpose of lowering their tax rates consistent with the comment that was made over here about the conditions for innovation. I think it’s really important as a matter of public policy that we level the playing field for U.S. based companies like Merck that are competing on a global stage for customers and for technology. It is very hard for us to compete against European and Japanese companies that have in effect tax arbitrage when it comes to buying U.S. intellectual property assets. So I wasn’t directly your question but the real issue is that we have to have a system that has more of a globally competitive rate 35% marginal rate is very high rate and also we need to have a tax system that doesn’t tax us for revenues that are being generated outside the United States. Thank you.

Mohindar Puar

Good morning. This is Dr. Puar. I came through Sherry Incorporation. I have two very simple questions. One is lot of people shareholders depend upon the dividends and I like you to keep it up along the line I know we are reaching very high limit along the line between earnings and the dividends we are being given. The second thing I would like to know is that local newspapers commented on property deal on that we had at Schering Corporation near Kent University. I also got interested while teaching at Kent University as to their interest trying to get that property back, which was leased to Schering Corporation, what is your view on that point as well as on dividends please?

Ken Frazier

Thank you for you questions. On the dividend, we understand how important the dividend is to our shareholders and we are intending to do everything in our power to protect that dividend we understand that it’s an important issue for our investors. As you said – as we said earlier, we have been at the leading edge of shareholder returns in this industry that shows our commitment to our shareholders and we want to continue along those lines. On the cairn situation, I can’t comment on the specifics of any property issue or discussions that we maybe having. Obviously, we are reorienting ourselves as we go through the kinds of changes that I discussed earlier in terms of the employee headcount and the focus that we have on certain plant sites, but I thank you for your perspective and your interest and we will continue to try to do best that we can with our property. There is a lady right here.

Natalie Hockstein

I would like to know – my name is Natalie Hockstein. I would like to know the extent of your relationship with Bayer and also with that relationship is there an expiration date?

Ken Frazier

Okay. So, we have twofold relationship with Bayer right now. Obviously, we are in the process of conveying our consumer business to them, which will take a number of months before the closing of that sale. The second thing is we have decided to have a partnership in cardiovascular and I mentioned that in my speech around certain new molecules for a specialty hypertension and we don’t have an expiration date for that. But we have high hopes that the medicines that are in the market and are in development would be important contributors to the cardiovascular health of people (indiscernible). Thank you. There is one here.

Jeannette Brown

Hi. My name is Jeannette Brown. I am a patient advocate at the Leukemia & Lymphoma Society. And I am wondering if you are working on blood cancers, I find out that there is a new pill that I can take if my chronic lymphocytic leukemia comes back, so that I don’t have to spend a $1,000 for RITUXAN. Although as Merck working on that, that seems like the drug that you have for chronic melanoma might be one that would work, because you are working on the immune system? I am a retired chemist.

Ken Frazier

Thank you. Good to see you. Roger, do you want to take that one?

Dr. Roger Perlmutter

Yes. We have some activity in trying to address blood cancers and Roy Baynes who heads of clinical development program has been intimately involved in this over he is a hematologist oncologist and has been intimately involved in treating these over a period of many years and worked to develop the latest innovation in this area when he was employed at Gilead. So we have lot of expertise one of the things that we are doing is testing MK-3475 in the setting of hematologic malignancies but thus far we have no answers we don’t know whether or not it will work but we remain very interested in anything that we can do to help patients who are suffering from malignant diseases of all kinds.

Ken Frazier

There is a question back there.

Vince Blazovic

Good morning, excuse me good morning. My name Vince Blazovic and I am wondering why you see to be the impact of the affordable care act otherwise known as Obamacare on the clinical and financial aspects of the Merck business? Thank you.

Ken Frazier

Thank you for your question. So we are very early in the actual implementation particularly we are very early in the implementation of the exchanges at the federal and the state level and we are continuing to be very active to advocate for the right kinds of coverage in the exchanges so we will be watching implementation closely and we want to ensure that the policies and the coverage that are made available under the state and federal exchanges provide the appropriate access to all medical treatment including pharmaceuticals so that’s a little early to say because we are early in the implementation but our principle is that we support broad access and we want to improve the quality and the access to full care.

Madelyn Etzold

My name is Madelyn Etzold, retiree from Merck. I have a question that’s in line with this Obamacare business. You advised us back at the end of 2012 that Merck was changing our supplemental coverage, which will allow Merck to take advantage of favorable funding from the federal government and pharmaceutical companies as a result of healthcare reform legislation. Well, I don’t know if the executives have the same coverage choices that we do, but my Blue Cross Blue Shield coverage has dropped drastically. I have my latest ELB they paid the doctor $0.01, $0.48, $0.08, $0.22 that was after Medicare’s payment. So, they made a payment of $0.79 and I am paying $49.14. I had to have, excuse me, I got all these papers here, I had to have a stress test, just part of my normal cardiology program and it will only get to maybe every three years or so, Blue Cross paid nothing, I paid $387.22. I have torn rotator cuffs. Blue Cross Blue Shield paid $0.95, I am paying $58.49. So, I am just wondering if you executives have the same choice of supplemental coverage as we do or if you have whereas our legislators in Trenton and Washington if you have exempted yourself from what the rest of us have.

Ken Frazier

Thank you for your questions. It’s a totally fair thing to ask. Let me tell you though the plans for current Merck employees including executives and Merck retirees are essentially same. The rising cost of healthcare affects all of us. What we have tried to do around Merck is to have a retirement benefits program that is competitive with our pharmaceutical peers and is competitive among the other Fortune 100 companies. So, I can assure you the challenges that you are talking about with respect to your rising healthcare co-pays are being experienced by everyone. It is the suicidal challenge that we have of trying to provide people access to good care at a reasonable price. We bring employee benefits experts in to look at our policies to ensure that we are getting the most for our money, because that allows us to give you the most for your money in turn. So, we always seek to minimize the impact of any changes on employees and retirees, but I have to say again, the challenge that we face is the challenge of rising healthcare costs and our job is to ensure that we provide benefits that are competitive with what other companies are providing. So, thank you again for your questions. I think we have time for about one more. Would you take this one right here?

Gilbert Lachow

My name is Gilbert Lachow. I am also a retiree after 34 years at Merck having had a very pleasant experience. However, I have to agree the young lady back there, because when I get my results from my Blue Cross Blue Shield payments which are pennies and at one time we had a great retirement benefits plan and now I don’t see really the benefits of the Blue Cross Blue Shield part of the plan at all, I don’t think it’s fair.

Ken Frazier

Again, we have employee benefits experts here if you would like to follow up with that after the meeting, but my answer still stands the challenge we face is, rising healthcare costs and our desire to provide both our employees and our retirees with a competitive set of benefit options. So, if either of you would like to have a specific follow-up with our benefits people after the meeting, they will be here.

Okay, let us proceed with the rest of the meeting. Thank you for your questions. The final report of the Inspectors of Election will not be available today. We do however have a Preliminary Report, which I now ask Ms. Ritter to present.

Geralyn Ritter - Senior Vice President, Secretary and Assistant General Counsel

The Inspectors of Election have presented their Preliminary Report. They have determined that each of the 12 directors nominated by the Board has been elected by a majority of the votes cast and the Audit Committee’s request for ratification of PricewaterhouseCoopers LLP as the independent registered public accounting firm has been approved. Shareholders approved by a nonbinding advisory vote the 2013 compensation of our named executive officers.

The proposal received an affirmative vote of 95.8% of the total votes cast. A majority of the votes cast was required for this proposal to be approved. The inspectors have also determined that the shareholder proposal concerning shareholders right to act by written consent has received an affirmative vote of 40.4% of the total votes cast. And the shareholder proposal concerning special shareholder meetings has received an affirmative vote of 30.6% of the total votes cast.

The final results will be available Friday on the company’s toll free telephone number 1-800-225-5675 and also on the company’s website under Investors along with an achieved webcast of this meeting. We also intend to disclose the final voting results on Form 8-K within four business days of the meeting. Thank you.

Ken Frazier - Chairman, President and Chief Executive Officer

Let me say before concluding the business of this meeting that on behalf of the board and the management team, we greatly appreciate your interest in the company as manifested by showing up this morning. I also want to say especially to the Merck retirees who are out there, we are very respectful and thankful for the years of service that you did, so that we can build on the legacy that you have provided. And you should know that we are committed to having this company be a great company as Roger said when it comes to making a difference to the health of people around the world. So, the business of the meeting has now been completed. The final matter before you is to conclude the meeting. All those in favor say, yes. Those oppose say, no. I declare that this meeting is concluded. Travel safe and we look forward to seeing you next year.

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