1999 Annual Report
Vioxx: Our
biggest,
fastest and
best launch
ever
Brought to you by Global Reports
Contents
1 Financial Highlights
2 Chairman’s Message
4 Marketing: Global leadership
via global brands
5 Vioxx: biggest,
fastest and best
launch ever
6 Zocor: triple
power to
control
cholesterol
7 Cozaar and
Hyzaar: on top
of their class
8 Singulair: the world’s fastestgrowing asthma medication
9 Fosamax: investigational onceweekly “miracle of convenience”
10 Strong year for Proscar
10 Our HIV/AIDS medicines improve
the quality of life
11 Aggrastat helps block clots
11 Propecia moving to the top spot
11 Maxalt: a hit with patients and
physicians
12 Cosopt: the power of two with the
ease of one
12 Joint ventures continue to thrive
13 Vaccine team: focused, flexible,
responsive
14 Research: Providing the world
4
with the best medicines
15 New medicines for a new
millennium
16 New disease
targets for Vioxx
17 Building on
our vaccine
portfolio
17 Cancidas
should counter
deadly fungal
infections
18 Targeting
depression with a unique agent
18 Building a strong presence
in diabetes
19 Drug Metabolism helps hone
Merck’s competitive edge
20 MK-826: simple regimen for
a variety of infections
20 Help for chemotherapy patients
21 Product chart: offering the
14
best of medicines
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
Profile
Merck & Co., Inc. is a global, researchdriven pharmaceutical company that
discovers, develops, manufactures and
markets a broad range
try never to forget that mediof human and animal “We
cine is for the people. It is not
for the profits. The profits follow,
health products,
and if we have remembered that,
directly and through
they have never failed to appear.
The better we have remembered
its joint ventures,
that, the larger they have been.”
and provides
—George W. Merck, 1950
pharmaceutical
benefit services through
Merck-Medco Managed Care.
22 Special Report:
Value of pharmaceuticals
24 Merck-Medco:
Communication technologies
boost service
25 Solutions for
managing
pharmacy
benefits
26 “Pharmacy of
the future”
26 Meeting client
needs for care
and affordability
27 The clinical
difference
24
27 Focus on seniors
28 People: We do more than
discover medicines
30 Corporate Responsibility:
Initiatives for a healthier
world
31 Financial Section
59 Manufacturing: MMD’s
global strategy – its path
to excellence
60 Management Committee
61 Board of Directors
Corporate information
(back cover)
Cover:
Vioxx: Our biggest, fastest and best launch ever
Dennis Focas is a prime example of how Vioxx helps people with osteoarthritis gain “everyday victories,” the theme of Merck’s direct-to-consumer media campaign. The 75-year-old
Maryland resident couldn’t take ibuprofen or other nonsteroidal anti-inflammatory drugs.
“With Vioxx, I can firmly grip the club and also stroke a tough putt on the 18th hole”
(see page 5).
Financial Highlights
Merck & Co., Inc. and Subsidiaries
Percentage Change
from Preceding Year
Years Ended December 31
($ in millions except per share amounts)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per common share
assuming dilution . . . . . . . . . . . . . . . . . . . . .
Dividends paid per common share . . . . . . . . . . .
Average common shares outstanding
assuming dilution (millions) . . . . . . . . . . . . .
1999
1998
1997
1999
$32,714.0
2,068.3
5,890.5
$26,898.2
1,821.1
5,248.2
$23,636.9
1,683.7
4,614.1
+22%
+12%
+14%
$2.45
$2.15
$1.87
+14%
+15%
+16%
+12%
1
$1.10
$.94 ⁄2
1
$.84 ⁄2
2,404.6
2,441.1
2,469.5
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . .
Net income as a % of
average total assets . . . . . . . . . . . . . . . . . . . .
35,634.9
2,560.5
31,853.4
1,973.4
25,735.9
1,448.8
17.5%
18.2%
18.5%
Number of stockholders of record . . . . . . . . . . .
Number of employees . . . . . . . . . . . . . . . . . . . .
280,500
62,300
269,600
57,300
263,900
53,800
Earnings per Common Share
Assuming Dilution (2)
Consolidated Sales
$ in millions
Dividends Paid
per Common Share
$36,000
$2.60
$1.20
27,000
1.95
.90
18,000
1.30
.60
9,000
.65
.30
0
90
91
92
93(3) 94(2) 95
96
97
98(1) 99(1)
0
90
91
92 93(3) 94(2) 95
96
97
98
99
0
90
91
92
93
94
1998
+14%(1)
(1)
(2)
95
96
97
98
99
Sales growth for 1999 and 1998 includes a two and three point increase, respectively, attributable to supply sales to AstraZeneca LP, as a result
of the 1998 restructuring of Astra Merck Inc. Adjusting for the effects of the 1997 formation of an animal health joint venture with Rhône-Poulenc
and the sale of the crop protection business, 1998 sales growth would have been 16%.
(2)
Amounts for 1994 include a full year’s impact on results of operations of the Medco acquisition and the impact of the formation of a joint venture
with Astra in November 1994.
(3)
Amounts for 1993 include the impact of the Medco acquisition and a restructuring charge.
(1)
Merck & Co., Inc. 1999 Annual Report
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1
Chairman’s Message
We are looking forward to many years of growth
Dear Shareholders:
t Merck, our Strategy for Growth
is based on breakthrough research
and demonstrating the value
of our medicines. It’s straightforward
– it has stayed the same – and it works.
Since 1995, we have launched 15
innovative new medicines. Our newest
breakthrough, Vioxx, launched in May
1999, completes this package, which will
contribute to Merck’s future growth, as
should other products in our pipeline.
A
Breakthrough Medicines
Vioxx is the fastest growing prescription
arthritis medicine in the United States, and,
by the end of 1999, Merck had successfully launched Vioxx in nearly 50 nations.
We are currently evaluating Vioxx for the
treatment of rheumatoid arthritis, the prevention and treatment of Alzheimer’s
disease and the prevention of colon cancer.
We are confident and excited about
Vioxx – but we are not counting on one
product alone. The other 14 medicines
we introduced from 1995 to 1998 also are
recognized as unique-in-class products
and have demonstrated a solid performance since launch.
Singulair had the most successful
launch of any asthma medicine in history.
The medicine is approved for children
aged six and older, and we have filed an
application with the U.S. Food and Drug
Administration (FDA) to market a pediatric dosage form for children as young
as age 2.
Fosamax remains the only nonhormonal
medicine proven to treat osteoporosis
in postmenopausal women and to reduce
the incidence of hip fractures, the most
serious fractures related to osteoporosis.
We have submitted an application to the
FDA for approval of a new once-weekly
formulation of Fosamax.
Cozaar and Hyzaar are the world’s
most widely prescribed drugs in the angiotensin II antagonist class and sales continue to grow. We have a number of major
trials under way to investigate whether
Cozaar improves survival and reduces
disability associated with hypertension,
diabetic kidney disease and heart attacks.
Zocor remained the world’s leading
statin medicine in 1999 and continues to
2
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
show strong growth, thanks to its ability
to significantly lower LDL cholesterol
(“bad” cholesterol) and triglycerides.
Last year, Zocor became the first statin
indicated to increase HDL (“good” cholesterol) in those patients with high LDL.
Vioxx, Singulair, Fosamax, Zocor,
Cozaar and Hyzaar are positioned to be
important drivers of future growth for
Merck. Also contributing to growth will
be Crixivan for HIV/AIDS, Maxalt for
migraines, Propecia for male pattern hair
loss, Aggrastat for unstable angina,
Cosopt for glaucoma and our vaccines.
We’re also pleased with the progress
of the products in our research pipeline.
We’re in Phase II clinical trials with
a substance P antagonist for depression,
and we’re in Phase III with both our antifungal for certain life-threatening infections and our carbapenem antibiotic for
several strains of bacteria resistant
to other antibiotics.
We are also continuing our pioneering work with vaccines. We are in early
clinical trials with important new vaccines
targeting human papillomavirus and
rotavirus.
We are on the cutting edge of gene
therapy and genomics research and
we continue to explore other innovative
breakthroughs that hold promise
to treat diabetes, asthma and other
diseases.
Our track record over the past five
years and the productivity of our research
indicates that we can deliver on the
promise of our pipeline. We spent
close to $2.1 billion on research in
1999, and in 2000 we expect to spend
about $2.4 billion, representing
an increase of about 15 percent.
Challenges … and Opportunities
Merck today faces three major
challenges as we pursue our strategy:
• patent expirations of several
major medicines
• an increasingly competitive
environment
• cost containment in health care.
Raymond V. Gilmartin
Chairman, President and CEO
First, several of our medicines –
Vasotec, Mevacor, Pepcid, Prinivil and
Prilosec (which we manufacture and supply to AstraZeneca LP for the U.S. market) – are going off patent between 2000
and 2001. But thanks to the productivity
of our research and the continued success
of our new medicines, we are confident
in our ability to deliver earnings growth
that is competitive with the other leading
health care companies during this time.
Our second challenge is an increasingly competitive marketplace. But
we’re confident that even in highly
competitive markets, we’ll continue
to succeed by demonstrating the better
outcomes and the clinical and economic
value of our medicines.
Offsetting patent expirations and
meeting the challenges of the marketplace are not easy. At Merck, we
believe the best way to create value for
shareholders is to invest in internal
research, rather than to expand through
mergers and major acquisitions. But this
is only possible with the right kind of
pipeline – the kind that Merck has, and
is replenishing through our investments
and by taking advantage of new knowledge and new technologies.
We are complementing our internal
investments in research through initiatives
with biotechnology companies to ensure
that Merck is on the leading edge of select
therapeutic categories. We acquired SIBIA
Neurosciences, a California-based biotechnology firm, to strengthen our already
successful central nervous system research
facilities in the United Kingdom and
Canada. In addition, the recently announced
licensing agreement with Kyorin Pharmaceutical Co. Ltd. to develop and market
a compound for the treatment of diabetes
will complement our work in that arena.
In 1999, we invested $1.7 billion in
production capacity and research facilities throughout the world to support the
future growth we anticipate and to meet
increased global demand.
We also have significantly increased
our global sales force and marketing
capabilities over the past few years.
Our high standards of ethical marketing
help us create strong relationships with
patients, physicians, health care organizations, governments and regulators –
long-term relationships based on trust
and credibility.
Demonstrating Value
Such relationships prove particularly
critical to meeting our third challenge –
concern about rapidly rising health care
costs – as does our proven ability to
demonstrate the value of our medicines
to patients, health care providers, managed care organizations and governments. The landmark clinical trials we
conduct show how our innovative medicines save lives, reduce the burden of
disease and help replace more expensive
medical treatments.
We also are working with policymakers
and legislators in the United States,
Europe and Japan to help create a positive
environment for innovative pharmaceuticals and to better communicate the value
of our products. For example, in the
United States we have taken a leading role
in building pharmaceutical industry support for Medicare coverage of outpatient
prescription drugs through comprehensive
reform of Medicare based on the principles of competition and choice.
Our leadership in managed pharmaceutical care also continues. Merck-Medco
Managed Care is establishing innovative
solutions to improve health and control
costs. Merckmedco.com is the world’s
largest on-line pharmacy. In October
1999, we formed an alliance with CVS
Corporation, the No. 1 drugstore chain in
the United States, to allow Merck-Medco
members to buy over-the-counter medicines and general health products at
merckmedco.com.
Investment … and Results
Our investments in breakthrough
research, internal growth and managed
pharmaceutical care have paid off. We
have demonstrated consistent positive
results over the past five years: 1999
showed solid double-digit growth, earnings per share were up 14 percent over
1998, sales rose 22 percent, to $32.7 billion, and net income was up 12 percent
over 1998.
Building for the Future
Going forward, we will continue in the
same direction I have outlined to maintain our strong record of progress and
to meet the challenges and opportunities
ahead. Our success will be driven by:
• our 15 new medicines
• the strength of our breakthrough
research and our clinical studies that
prove that our medicines are safe,
effective and provide value
• our excellent capabilities in manufacturing and marketing and our relationships built on trust and credibility
• and Merck-Medco’s proven health
management solutions.
Finally, Merck’s success rests on the
abilities and dedication of our employees,
who are talented and deeply committed
to delivering our breakthrough medicines
to patients around the world. Their talent,
commitment and leadership, coupled
with that of our Board of Directors,
allows me to say with confidence that
we look forward to many years of
growth – growth that will deliver value
to shareholders and the best of medicine
to society.
Raymond V. Gilmartin
Chairman, President and
Chief Executive Officer
March 1, 2000
OUR STRATEGY
FOR GROWTH
• Discover important new
medicines through breakthrough
research
• Demonstrate the value of our
medicines to patients, payers
and providers
Our overriding financial goal
• To be a top-tier growth company
by performing over the long term
in the top quartile of leading
health care companies
Our three operating priorities
• Maximize revenue growth through
an unwavering commitment to
research, effective introduction
of new products and successful
marketing of existing products
• Achieve the full potential of
managed pharmaceutical care
• Preserve the profitability of our
core pharmaceutical business
through continuous improvements in productivity and
organizational effectiveness
1995
2%
1999
28%
98%
72%
New Products
Other Merck Products
New products driving growth
The new medicines and vaccines
we have introduced since 1995 now
account for about 28 percent of
worldwide human health sales, up
from 2 percent just four years earlier.
Merck & Co., Inc. 1999 Annual Report
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3
Our Marketed Products
Global Leadership
Via Global Brands
Merck’s marketing teams worldwide
excel at demonstrating the value
of our products to physicians, patients
and payers.
A daily dose of Vioxx helps Elsy Jucker-Bianchi,
79, of Ossingen, Switzerland enjoy an outing
with three of her great-grandchildren –
(left to right) Jeanine, Vanessa and Julia.
4
Merck & Co., Inc. 1999 Annual Report
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Our Marketed Products
Vioxx: Merck’s biggest, fastest
and best launch ever
More than 5 million prescriptions written in first seven months on the U.S. market
erck has launched one
successful product after
another in recent years:
Fosamax, Cozaar, Singulair and many
others. But Vioxx, our once-daily medicine for relief of the signs and symptoms of osteoarthritis and acute pain,
is the best launch yet in the United
States and many other countries. Since
its initial introduction in May, Vioxx has
enabled millions of people around the
world to perform the ordinary activities
that make life worth living – from
playing with a grandchild to making
that tough putt on the 18th for a win –
without pain.
Merck launched Vioxx in the United
States last May, more than a month
ahead of schedule, thanks largely to
efforts by our Regulatory Affairs team
in rapidly compiling the 500,000-page
application for the U.S. Food and Drug
Administration (FDA). Within days of
approval, professional sales representatives – including members of a specialty
sales force – fanned out to educate
doctors about Vioxx and to provide
them with samples.
Simultaneously, the Merck Manufacturing Division coordinated the
stocking of more than 40,000 pharmacies with Vioxx. “The swift and
efficient delivery of product and
prescribing information meant that
patients actually were able to start
taking the drug within days of FDA
approval,” said Charlotte McKines,
executive director in U.S. Marketing.
“This gave us a real competitive boost
in the market.”
M
Stomach Protection
Doctors and pharmacists learned
that Vioxx relieves pain by inhibiting
an enzyme called COX-2, which
triggers symptoms of pain and
inflammation
W HAT’S IT LIKE TO LOOK FORWARD TO THE FIRST
VIOXX IS HERE. 24- HOUR RELIEF FOR THE MOST
while sparing
FEW STEPS OF THE DAY ?
COMMON TYPE OF ARTHRITIS PAIN , OSTEOARTHRITIS.
the COX-1
enzyme, which
helps maintain
the stomach
lining. Thus
Vioxx works
differently
from ibuprofen
and other
nonsteroidal
anti-inflammatory
drugs (NSAIDs),
which inhibit
both enzymes,
an effect that may increase the risk
Heightening awareness
of damage to the stomach lining and
To support the continued growth of Vioxx,
Merck launched “For Everyday Victories,”
development of ulcers. In the United
a direct-to-consumer campaign of print
States alone, more than 16,500 people
and television ads, which are running in
die from NSAID-related bleeding
leading media in the United States.
every year.
In clinical studies, patients taking
Vioxx suffered significantly fewer endocontinues to exceed our objectives for
scopic ulcers than those taking ibuprofen.
that market. In Switzerland, it soared
by its already-launched competitor to
Convenient Once-a-Day Dosing
achieve market leadership in its class
Another powerful advantage is that
within just 17 weeks. Similar results
patients need only one small tablet
have been achieved in Sweden, Germany,
or liquid dose of Vioxx daily to relieve
Puerto Rico and Brazil. In all, Vioxx
the pain and stiffness associated with
is available in nearly 50 countries and
osteoarthritis for 24 hours.
more launches are expected in 2000.
Doctors found these facts convinc“This strong performance in earlying. In the product’s first seven months,
launch markets reflects a focused and
U.S. physicians wrote more than 5 milfinely tuned commercialization effort
lion prescriptions. That adds up to
worldwide,” said Tim Ruef, senior
a 44 percent share of the new U.S. predirector in Worldwide Marketing.
scriptions written in its class.
“We expect this trend to continue
as Vioxx is made available to millions
Leadership Worldwide
of additional patients.”
Vioxx is enjoying similar success
Some 80 million Americans and
outside the United States. It was the
Europeans suffer from osteoarthritis.
first drug in its class to be launched
Vioxx also is being studied in patients
in the United Kingdom. Vioxx quickly
suffering from rheumatoid arthritis,
became the most successful launch
colon cancer and Alzheimer’s disease
in the U.K. pharmaceutical industry and
(see page 16).
It isn’t about winning a marathon.
Or making you feel like a kid again.
It’s about controlling the pain that
keeps you from doing everyday
things. And VIOXX may help. VIOXX
is a prescription medicine for
osteoarthritis, the most common
type of arthritis.
ONE PILL— ALL DAY AND
ALL NIGHT RELIEF.
You take VIOXX only once a day. Just
one little pill can relieve your pain all
day and all night for a full 24 hours.
VIOXX EFFECTIVELY REDUCED
PAIN AND STIFFNESS.
In clinical studies, once-daily
VIOXX effectively reduced pain and
stiffness. So VIOXX can help make it
easier for you to do the things you
want to do. Like bending down to
build sand castles with your child.
IMPORTANT INFORMATION
ABOUT VIOXX.
In rare cases, serious stomach
problems, such as bleeding, can occur
without warning. People with
allergic reactions, such as asthma,
to aspirin or other arthritis medicines
should not take VIOXX.
Tell your doctor if you have liver or
kidney problems, or are pregnant.
Also, VIOXX should not be used by
women in late pregnancy.
VIOXX has been extensively studied
in large clinical trials. Commonly
reported side effects included upper
respiratory infection, diarrhea,
nausea and high blood pressure.
Report any unusual symptoms to
your doctor.
TAKE WITH OR WITHOUT FOOD.
ASK YOUR DOCTOR OR
HEALTHCARE PROFESSIONAL
ABOUT VIOXX.
VIOXX doesn’t need to be taken
with food. So, you don’t have to
worry about scheduling VIOXX
around meals.
Call 1-800-350-9799 for more
information, or visit www.vioxx.com.
Please see important additional
information on the next page.
© 1999 Merck & Co., Inc. All rights reserved. 995265(3)(900)-VIO-CON
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
5
Our Marketed Products
Zocor: triple power
to control cholesterol
Helping More People
Merck medicine manages all key lipids to save lives
n late 1998, Dan Reeves, head coach
of a U.S. professional football team,
felt a strange pain in his chest. The
diagnosis was serious heart disease.
Two weeks later, Mr. Reeves underwent a quadruple bypass surgery. Four
weeks later, taking Zocor with diet and
exercise to keep his cholesterol levels
under control, he coached his team in
the biggest football championship game
of the year in the United States.
The experience prompted Mr. Reeves
to become the leading American public
spokesman for Zocor. The coach currently is featured in a national advertising campaign promoting the drug.
I
Strong Around the World
These, and other programs, helped
Zocor enjoy a strong year. It is the topselling cholesterol-modifying drug in the
large and important European market
and sales remain strong worldwide.
Dan’s a Winner for Zocor
The campaign is proving a winner.
Tens of millions of Americans have seen
his ads for Zocor.
This is just one of Merck’s outreach
efforts to consumers. Another highly
successful program is the “Get-to-Goal
Guarantee.” “Merck is so confident
that patients can reach cholesterol goals
with Zocor that we began
offering a money-back
guarantee if patients failed
to reach cholesterol targets
set by their physicians
while taking the 80 mg
dose of Zocor,” said Jerry
Wisler, executive director
in U.S. Marketing.
Speaking out on cholesterol
Coach Dan Reeves visited several major hospitals to support the HeartCare Partnership
that Merck established to help ensure heart
disease patients are treated according
to NCEP guidelines.
In the United States, the FDA in
August approved Zocor as the first
statin indicated to raise levels of
“good” cholesterol (high density
lipoproteins, or HDL) in people with
high levels of “bad” cholesterol (low
density lipoproteins, or LDL).
The potential for continued growth
is enormous. The existing market hardly
has been tapped. In the United States,
only four of ten heart disease patients
with LDL levels of 130 mg/dl or higher
– the danger area according to the
National Cholesterol Education
Program (NCEP) – take a prescribed
cholesterol-lowering medication. The
proven ability of Zocor to lower LDL
is tailor-made for this untapped market.
Zocor is also indicated to reduce the
risk of first stroke or transient
ischemic attack (TIA or ministroke) in people with high
cholesterol and coronary
heart disease.
The importance of raising
HDL-cholesterol levels in
people with high LDL levels
increasingly is recognized,
evidenced by the FDA’s
approval of Zocor as the first
statin drug indicated to do
just that. Other studies reveal
that Zocor reduces triglyceride
levels. It has not been shown
that either increasing HDL
or lowering triglycerides alone decreases
the risk of heart disease and death.
These new HDL and triglyceride
data prompt an enthusiastic response
from Guy Eiferman, executive director
in Worldwide Marketing. “These
studies favorably differentiate Zocor
from competitive medicines, leading
us to believe that sales will continue
to grow based on the number of
patients still untreated and the continued flow of new data showing additional benefits.”
CHOLESTEROL: THE GOOD AND THE BAD
ipids, more popularly known as fats, serve as a major
source of fuel for the metabolic processes of the
human body.
Cholesterol is one of these lipids. Ferried around the body
by particles in the bloodstream called lipoproteins, cholesterol
makes hormones, builds cell walls and digests dietary fats. But
cholesterol can become something of a mixed blessing because
there are two types of lipoproteins – the low density type (LDL)
that creates “bad” cholesterol and the high density (HDL) that
leads to “good” cholesterol.
LDL carries cholesterol into the bloodstream where it can
accumulate in blood vessels and artery linings to the degree that
L
6
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
it causes a blockage. This blockage can cut off the supply of
oxygen-rich blood to the heart and bring on a heart attack. The
higher one’s LDL reading, the greater the danger of heart disease.
HDL, on the other hand, shuttles blood cholesterol back to
the liver, where it can be eliminated from the body. The higher
the level of one’s HDL, the lower the risk of heart disease.
The other important lipid in the body is triglyceride. Though
scientists long downplayed its role, growing evidence suggests that
high triglyceride levels play a detrimental role in heart disease.
Zocor, which elevates HDL levels and lowers both LDL and
triglyceride levels, is the first statin indicated to manage all three
key lipids (see above).
Our Marketed Products
Cozaar and Hyzaar: on top of their class
Merck antihypertensives continue to lead the worldwide market
ozaar and its companion agent,
Hyzaar, are among the bestperforming products in Merck’s
line. The two reached $1 billion in combined annual global sales just four years
after launch.
That growth has come in the face
of heavy competition. There were
50 companies promoting more than
100 brands of antihypertensives when
Merck introduced Cozaar and Hyzaar
to Americans in 1995. True, Cozaar
was the first of the angiotensin II antagonist (AIIA) class, but that advantage
lasted only a year. Now, five additional
AIIAs compete in this market.
C
Beating Back the Competition
Despite such stiff competition, Cozaar
and Hyzaar remain No. 1 in the global
AIIA market with about a 50 percent
share. They gained the No. 4 spot
in the overall global antihypertensive
market, moving up a notch from 1998.
Cozaar is approved in more than
90 countries, Hyzaar in more than 70.
“Several factors work in favor
of Cozaar and Hyzaar,” said William
Westrick, vice president in Worldwide
Marketing. “But the most important are
the benefits provided by the medicines
themselves. With proven tolerability
and effectiveness, physicians have come
to know Cozaar and Hyzaar and have
prescribed them for more than 7 million
patients worldwide.” In fact, the World
Health Organization (WHO) and the
International Society of Hypertension
(ISH) in 1999 proclaimed AIIAs as
first-line therapy for the treatment of
high blood pressure in their prestigious
hypertension guidelines. They cited
AIIAs for their excellent tolerability
profile which, as various studies show,
encourages patients to stay on therapy.
States, for example, the marketing group
knew Cozaar worked so well that it confidently established a “Get-to-Goal
Guarantee.” Patients on Cozaar who fail
to reach blood pressure goals set by their
physicians are reimbursed by Merck for
up to six months’ worth of treatment.
The excellence of our marketing and
sales teams worldwide and their ability to
create strong relationships with our customers – patients, physicians and payers
alike – have helped boost sales of Cozaar
and Hyzaar by an impressive 31 percent
in 1999. In the United States, that level
of marketing performance has helped
Cozaar obtain a place on more than
90 percent of managed care formularies.
This is just the beginning for Cozaar.
Merck is running three extensive multinational trials designed to determine
whether Cozaar improves survival
and reduces disability associated with
hypertension (LIFE study), diabetic
kidney disease (RENAAL study), and
recent heart attacks (OPTIMAAL study).
Global Mega-trials Under Way
“The ongoing mega-trials with
Cozaar represent the most comprehensive program of clinical trials ever
undertaken in the cardiovascular area
by Merck to demonstrate a potential
therapeutic benefit on outcomes,” said
Lucine Beauchard, executive director
in U.S. Marketing.
Merck executives see these comprehensive studies blazing new trails for
Cozaar and Hyzaar. “They will help
ensure that Cozaar and Hyzaar maintain their global leadership in the AIIA
class,” Mr. Westrick said.
Strength Across the
Hypertensive Board
While Cozaar and Hyzaar are now
the essential drivers of growth in Merck’s
antihypertensive armamentarium,
established medicines such as Vasotec
and Prinivil continue to perform well.
Strong volume gains by Prinivil
helped contribute to Merck’s earnings
performance, notably in the United
States, where the drug offers a key
competitive advantage of convenient
once-daily dosing for hypertension,
heart failure and acute myocardial
infarction. Vasotec remains a worldwide
market leader in its class and is the
only angiotensin converting enzyme
inhibitor indicated for high blood pressure, asymptomatic left ventricular
dysfunction and heart failure.
Top scientific data boost
Cozaar and Hyzaar
Merck makes sure that our
highly trained professional
representatives worldwide
have the best scientific information
available to give
to physicians. The
studies showcased
in our marketing
materials demonstrate the tolerability
and effectiveness of
Cozaar and Hyzaar.
Good Marketing Based on Good Science
The high quality of the scientific
information on Cozaar and Hyzaar permits Merck to promote these products
with great confidence. In the United
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
7
Our Marketed Products
Singulair: the world’s fastest-
growing asthma medication
About 2 million patients in 71 countries are breathing easier
att Strong has fought severe
asthma since he was age 2.
Only steroids and inhaler
medicines kept him living something
close to a normal life. Even then, asthma
asthma,” said 61-year-old Anne Giordano
of Bowie, Md. “It is a breath saver.”
According to the Centers for Disease
Control and Prevention, almost 6 percent of U.S. children under age 5 had
asthma in 1994, a
160 percent increase
since 1980. Good
news for these children is coming.
Merck has asked
the FDA to approve
a new strength of
Singulair for children in the 2-to-5year age group.
Beyond the
physical implications, the economic
impact of asthma
is enormous. In
the United States,
according to the
National Institute
of Allergy and
Infectious Diseases,
Fewer worries
asthmatic children
“It was scary not being able to breathe,” said Matt Strong, 10, who
miss more than
says use of Singulair “allows me to be with friends, doing what they
10 million school
do, and not having to worry about catching my breath.”
days each
year. That leads to a $1 billion
attacks sent him to hospital emergency
annual loss in workplace
rooms from time to time. That all
changed a year ago when Matt started
taking Singulair. The Long Island, N.Y.,
10-year-old has not been to an emergency room since, has reduced his
steroid use and barely uses the inhaler.
Matt’s experience is hardly unique.
Merck launched Singulair just two years
ago for adults and children age 6 and
above. Already some 2 million people
in 71 countries around the world have
taken the medicine to treat chronic
asthma. That makes Singulair by far the
best seller in a new class of medications
known as leukotriene receptor antagonists. “Singulair has proven the most
effective weapon in controlling my
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productivity caused by parents taking
time off to care for their children.
That’s just in the United States.
Studies show that 1 in every 15 people
is now diagnosed as suffering from
the disease, which means that as the
world’s population rises, so will the
number of people that suffer from
asthma. Singulair will be there.
In January 2000, we filed for
regulatory approval to sell the drug
in Japan, one of the world’s largest
asthma markets.
To further broaden the reach of
Singulair, Merck researchers are conducting a number of new clinical studies
and programs. These include trials
to test the effectiveness of the medicine
in combating allergic rhinitis and as
an intravenous treatment for acute
asthma sufferers.
A leap across the pond
Merck’s Hong Kong marketing team imported
Zabet the Frog from Merck Frosst Canada,
where he was created to boost asthma
awareness and as a symbol that children
would enjoy.
Our Marketed Products
“Miracle of convenience,”
“ said Financial Times
of investigational onceweekly Fosamax
Greater convenience for this bone-building innovation expected to hold mass appeal
f you could choose to take a medicine daily or weekly, which would
you choose? Weekly, of course.
Good news. A new Merck study
showed that an alternate dosage regimen of 70 mg of Fosamax administered
once-weekly worked just as well in
building bone as the once-daily dose
of 10 mg in treating postmenopausal
osteoporosis. And it was well tolerated.
The media reported extensively on
the study results. When announced
in November, Europe’s Financial
Times characterized the product
as a “miracle of convenience and
a wonder formula.”
Merck has asked the FDA for
approval of the formulation change.
Fosamax is a big success
in its present formulation.
Now administered once
daily for the prevention
(5 mg) and treatment
(10 mg) of postmenopausal osteoporosis,
I
the nonhormonal medicine is the
only therapy proven to consistently
increase bone mineral density and
reduce the incidence of spine and hip
fractures, often within the first 12 to
18 months of treatment, respectively.
These facts support why Fosamax was
among Merck’s fastest-growing products this year.
Compliance via Convenience
The idea of multiplying the daily
dose by seven to arrive at a onceweekly formulation was simple
enough in hindsight. That it would
work was less so.
Here’s why. Drugs for chronic
conditions like high blood pressure
and high cholesterol normally
are taken once a day because
such a regimen is considered
the minimum necessary to maintain
a constant level
of medicine in the
Riding safely
Patty McCarthy of Danbury,
Conn., was afraid to ride her
horse after learning she suffered from severe osteoporosis.
Since taking Fosamax,
she’s gained bone mass
and the confidence to
ride again.
blood. That was initially thought
to be the case for osteoporosis medicines as well. But Fosamax binds
specifically to the bone, a trait that
made the more convenient weekly
dosage feasible.
This matters because the absorption
of bisphosphonates, such as Fosamax,
is greatly reduced if taken with food.
Patients taking the medicines must
do so on an empty stomach and then
remain upright for half an hour.
The expectation is that once the
new dosage becomes available most
patients will welcome taking four
tablets each month as opposed to 30.
More than 3 million postmenopausal
women worldwide have already taken
Fosamax. But another 40 million-plus
suffer from osteoporosis, the majority
of them undiagnosed and untreated.
To reach that untapped market, Merck
continues to help educate both physicians and patients on the importance
of diagnosing and treating osteoporosis.
Broader Applications in the Wings
Merck also is working to expand
the range of therapeutic indications
for Fosamax. It is the first agent
to gain FDA approval for the treatment of glucocorticoid-induced
osteoporosis in both men and women,
having received regulatory approval
in 22 countries for this indication.
Glucocorticoids (more popularly
known as steroids) prescribed to
counter chronic inflammatory diseases
may contribute to osteoporotic fractures
in up to half of those treated.
Men are being targeted, too. One
in five people affected with osteoporosis is a man and some 30 percent of
the hip fractures associated with the
condition occur in men. A recently
completed clinical study showed that
Fosamax increases bone density and
decreases height loss in men with
osteoporosis. Merck plans to seek
regulatory approval to treat this oftenforgotten population.
Through our investigational work
with the once-weekly regimen and
new indications, Merck strives to
broaden the appeal of Fosamax and
its use in the millions who suffer
from osteoporosis.
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
9
Our Marketed Products
STRONG
YEAR FOR
PROSCAR
Tighter market focus boosts sales
ed by solid growth in the
United States and the United
Kingdom, sales of Proscar
increased for the second year
in a row.
Proscar is the first and only
medicine capable of dramatically
shrinking the prostate gland in a
condition known as benign prostatic
hyperplasia (BPH).
Sales began climbing in 1998
once regulatory agencies around
the world approved Proscar to
relieve the symptoms of BPH while
reducing the risk of acute urinary
retention and the possible need for
BPH-related surgery. These latter
indications stemmed from the
results of the four-year Proscar
Long Term Efficacy and Safety
Study (PLESS) begun in 1990.
L
Targeting Appropriate Patients
Through clinical studies, Merck
learned that Proscar works particularly well in relieving the symptoms of BPH in men with enlarged
prostates of 40 cc – about the size
of a golf ball – and above. This
patient group – symptomatic men
with enlarged prostate glands –
runs the greatest risk of facing
subsequent acute urinary retention
and surgery. Merck repositioned
Proscar to focus precisely upon
the needs of this higher-risk group.
Merck then established specialty
sales forces in key markets around
the world whose sole job was to
deliver this important new information to the attention of physicians,
especially urologists who specialize
in prostate disorders. Armed with
this new input, doctors have been
more readily identifying patients
for whom Proscar is most appropriate to reduce the risk of BPHrelated surgery and other adverse
outcomes.
10
Merck & Co., Inc. 1999 Annual Report
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Our HIV/AIDS medicines
improve the quality of life
We’re building global relationships to help patients gain access to care and treatment
ince 1986, Merck has strived
Medicine demonstrated that Stocrin,
to advance the treatment of
when taken in combination with two
HIV/AIDS. With Crixivan and
non-nucleoside reverse transcriptase
Stocrin, Merck not only has helped
inhibitors or Crixivan, was very effecto extend lives, but today is exploring
tive in reducing the amount of HIV
ways to help patients with HIV better
in the blood to undetectable levels,”
manage their lives.
said Guy Macdonald, executive director in Worldwide Marketing.
For example, complicated dosing
schedules can significantly affect quality
Building Partnerships
of life. The standard regimen for Crixivan
Rounding out our commitment to
– every eight hours without food – is not
HIV/AIDS is a close and long-standing
for all patients. “Merck has been workrelationship with the HIV treatment
ing to find ways to provide greater conadvocacy community – which provides
venience for patients by investigating
valuable input into new research and
simpler regimens,” said Diana Scott,
executive director in U.S.
Marketing.
In clinical studies
extending more than three
years, Crixivan, in combination with other HIV/
AIDS medicines, has
been shown to reduce
dramatically viral levels
in a majority of patients.
These findings demonstrate that Crixivan is
among the most effective
and durable protease
inhibitors on the market.
Today, Crixivan is available in more than 80
countries and is the most
Advanced technology keeps packaging lines at top speed
widely used protease
Quality assurance analyst Jill Rinaca inspects bottles filled with
inhibitor in the world.
S
capsules of Crixivan at our Elkton, Va., manufacturing site.
New Treatment
Stocrin (efavirenz), a potent new addition to the HIV antiviral drug class known
as non-nucleoside reverse transcriptase
inhibitors, was approved in 31 countries
in 1999. Efavirenz was discovered by
Merck scientists in 1992 and licensed to
The DuPont Merck Pharmaceutical Co.
(now DuPont Pharmaceuticals Company)
in 1994 for development and marketing
in certain countries. Efavirenz is marketed in certain countries by Merck
as Stocrin and in others by DuPont
as Sustiva (see page 21).
“A key study recently published
in the New England Journal of
consumer education programs. One
example of a global partnership is our
1999 $1 million donation to the
Romanian government to help establish
a new network of regional AIDS treatment centers throughout the country.
Thousands of HIV-positive Romanians
will receive, for the first time, consistent
monitoring of their condition in line
with current international standards
of care. Another global effort is the
Harvard-based “Enhancing Care
Initiative” (see page 30), which will
help to provide access to HIV care
around the world.
Our Marketed Products
Aggrastat helps block clots
New Merck drug reduces heart attack risk
he crushing pain coursing down
his chest and left arm following
an hour of snowblowing one
January afternoon told the 57-year-old
that something was seriously wrong.
Paramedics rushed the retired policeman
to the local hospital.
When symptoms and tests indicated
he was suffering from unstable angina and
at serious risk for possible heart attack, he
was put on Aggrastat along with therapies
such as heparin and nitrates. Based on
recent research, medical experts agree
that patients with this vulnerable profile
will derive significant additional benefit
from treatment with Aggrastat. The
patient’s pain subsided, all symptoms
improved, and he quickly stabilized.
Such are the stories emerging about
Aggrastat, a member of a new class
of drugs known as glycoprotein IIb/IIIa
antagonists used to treat acute coronary
syndrome, including patients with
T
unstable angina and patients with nonQ-wave myocardial infarction who are
managed medically as well as those
undergoing procedures such as angioplasty or cardiac catheterization. Aggrastat
reduces the risk of heart attack by 47 percent within seven days of treatment and
by 30 percent within the first month.
Merck introduced Aggrastat in
1998. It works by blocking the body’s
blood clotting mechanism, which
scientists believe is a key player
in causing heart attacks.
In its first year on the market,
Aggrastat gained steadily on the IIb/IIIa
market leader. “One reason for this
growth is that the vast majority of U.S.
hospitals treating patients with acute
coronary syndrome have realized the
critical importance of Aggrastat and
have added our drug to their formularies,” said Arthur Hiller, vice president
in Worldwide Marketing.
Propecia moving to the top spot
Innovative marketing keeps product high in consumer awareness
n the United States, where Propecia
first came on the market in 1998,
about 600,000 men have taken it for
male pattern hair loss. In the 37 nations
where Propecia now is sold, more than
1 million men have started therapy.
Those numbers are expected to keep
growing because Merck researchers
have proven that Propecia works for
most men. It stops further hair loss in
about five out of six men and regrows
natural hair in about two out of three.
To keep Propecia on the minds of
potential customers, Merck uses a number of creative approaches. In the United
States and New Zealand, for example,
direct-to-consumer (DTC) advertising
on commercial TV and in popular publications is employed extensively.
Advertising is just one approach.
In the United States, seven professional U.S. baseball players are competing to grow the most hair while
taking Propecia. Merck will donate
I
Charity Challenge contest
The seven U.S. professional players are,
from left: Walt Weiss and John Smoltz,
Atlanta Braves; Gary Gaetti, Boston
Red Sox; Todd Greene, Anaheim Angels;
Stan Javier, Seattle Mariners; Sandy
Alomar, Jr., Cleveland Indians; and Bret
Saberhagen, Boston Red Sox.
$25,000 to the charity of each player’s
choice and an additional $25,000 to
the winner’s charity (see photo).
The Internet is also proving a useful
and cost-effective method for reaching
MAXALT 10 MG
A HIT WITH
PATIENTS AND
PHYSICIANS
igraine sufferers
increasingly are using
a powerful new class
of medicines – oral triptans –
as treatment for their often debilitating condition. This is why Maxalt
10 mg, a member of this class,
enjoyed solid sales in its first full
year on the market.
In 1999, Maxalt 10 mg was the
fastest-growing oral migraine medication in the United States and
Europe with sales in 25 countries.
“Merck laid the foundation for
success by educating physicians
about the benefits of Maxalt 10 mg,
which acts selectively on the receptors responsible for migraine
attacks,” said Ken Holland, senior
director in Worldwide Marketing.
But success is coming largely
because Maxalt 10 mg performs as
promised. Clinical studies showed
that for some patients,
relief arrives in as
little as 30 minutes.
In all, 69 to 72 percent of patients
experienced relief
in two hours.
Merck also offers
Maxalt in a wafer
form that dissolves
within seconds on
the tongue, “offering
convenience for people on the
move and giving them greater
control over their daily lives,” said
Tim Sleeth, executive director
in U.S. Marketing.
M
appropriate audiences. Through all
these innovative approaches, Merck is
letting men know that hair loss doesn’t
have to be inevitable and that Propecia
offers a real choice for many.
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
11
Our Marketed Products
Cosopt offers the power of two with the ease of one
Sales of this Merck ophthalmic product quadrupled during 1999
fter two years on global markets, Cosopt has soared to the
No. 1 spot among combination
products that treat glaucoma. The
medicine reduces intraocular pressure
in patients with open-angle glaucoma
– a disease that can lead to blindness.
The product’s key selling point: the
combining of powerful, proven, agents
from two other Merck drugs, Timoptic
and Trusopt, in one product that offers
A
a convenient twice-a-day regimen.
Cosopt is gaining such physician
and patient acceptance that sales have
quadrupled in the 30 nations where
it is sold, despite intense competition.
Because of its efficacy, established
safety profile and patient benefits,
Cosopt will continue to receive the
greatest marketing focus in
Merck’s ophthalmic franchise.
Other medications in this franchise
include Trusopt, Timoptic and
Timoptic-XE. Their success, combined
with that of Cosopt, makes Merck
No. 1 in the global anti-glaucoma
market. Timoptic-XE remains the
most frequently prescribed initial
glaucoma therapy in the United States.
Trusopt and Timoptic-XE were
successfully launched this year in
Japan, the world’s second-largest
national market.
Products Marketed Through Joint Ventures
Merck joint ventures continue to thrive
When one and one make more than two
Introducing
the
CONSUMER PHARMACEUTICALS CO.
Before Dinner Mint.
Introducing the first
and only chewable
that stops heartburn
erck values joint venture
businesses as a sound way
to develop attractive market
opportunities around the world.
In 1999, one of those businesses –
Johnson & Johnson • Merck Consumer
Pharmaceuticals Co. – celebrated
its 10th anniversary, a rare event
in an industry where joint ventures
have a relatively short shelf-life.
“The strong relationship and trust that
exist between Merck and Johnson &
Johnson have been major contributors
to the success of our joint venture,”
said Merck Chief Financial Officer
Judy Lewent, who is responsible for
Merck’s joint venture interests.
Indeed, Johnson & Johnson • Merck
is recognized as one of the industry’s
most successful joint ventures and
a leader in the Rx-to-OTC (prescriptionto-over-the-counter) “switch” arena.
Pepcid AC, the joint venture’s first
switch product, is the No. 1 OTC
remedy in the acid relief market in
the United States and the No. 3 bestselling OTC brand in any category.
In September 1999, Pepcid AC added
M
12
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
before it starts.
gelcaps to its tablet and
chewable forms.
Individually wrapped
with a great minty taste.
For a free sample call
1-800-4-PEPCID or
visit www.pepcidac.com
Focus on Animal Health
Another 50-50 global
joint venture, Merial, formed
two-and-a-half years ago
with Rhône-Poulenc (now
Aventis*), also shows great
promise in its field of animal
health and poultry genetics. Merial
is committed to providing the industry’s
broadest line of products and services for
the prevention and treatment of diseases
in livestock, poultry and companion animals (cats, dogs and horses). Merial’s
biggest success to date has been Frontline
for controlling ticks and fleas in dogs
and cats. In an increasingly competitive
environment, Frontline grew its share
of the U.S. market in 1999 to 32 percent,
up from 27 percent in the prior year.
Use only as directed. © Johnson & Johnson • Merck 1999
®
Start living heartburn free with Pepcid AC…Chewables.
No. 1 in its field
Strong media campaigns focusing on the
effectiveness and convenience of Pepcid AC
have helped maintain public awareness
of this over-the-counter medicine sold
by Johnson & Johnson • Merck.
Vaccines in Europe
expanded sales of Merck vaccines and
encouraged the broader use of preventive medicine. Aventis Pasteur MSD
does business in 19 countries, working
to provide new products, including the
increasingly important combination
vaccines for children.
Aventis Pasteur MSD (formerly
Pasteur Mérieux MSD*) remains the
sole representative of Merck vaccines
in Europe. In its first five years of
operation, the venture significantly has
*In December 1999, Rhône-Poulenc S.A.’s
interest in Merial and Pasteur Mérieux MSD
was acquired by Aventis S.A., a corporation
formed by the merger of Rhône-Poulenc S.A.
and Hoechst A.G.
Our Marketed Products
Merck vaccine team:
focused, flexible,
responsive
In the face of challenges from competitors, the team has strengthened
its commitment to preventive health care
hen Adel Mahmoud, M.D.,
Ph.D., became president
of Merck Vaccines on May 1,
1999, he moved quickly to reinforce
the mission of the division and to prepare for the technical, political and competitive issues of the new millennium.
“We are striving through partnerships
with others to increase the understanding of the value of vaccines to global
health and economic development,
while contributing to Merck’s financial
growth,” he said.
The smooth transition to a new leadership team and the close collaboration
among vaccine marketing, manufacturing and research areas have further
positioned Merck as an effective
competitor in the vaccine market.
W
Collaboration Speeds Results
“When government and industry
collaborate in the interest of public
trust,” Dr. Mahmoud said, “our nation’s
children are the winners.” That kind
of close cooperation was key in meeting
last summer’s challenge on thimerosal,
a preservative used widely in vaccines.
On Aug. 27, following efforts from the
vaccine manufacturing team, Merck
received approval from the FDA for
preservative-free Recombivax HB. The
new product meets public health guidelines (published Sept. 9) recommending
the use of preservative-free hepatitis B
vaccine for all newborns.
Prior to the availability of the new
vaccine, Merck was able to meet the
demands for a thimerosal-free product
by increasing sales of Comvax,
a hepatitis B/Haemophilus influenzae
type B combination vaccine that already
was preservative-free and approved
for children as young as 2 months.
State Partnerships Boost
Inoculation Rates
The Merck Vaccine Division also
worked with state public health officials
to help prevent chickenpox among U.S.
children. In 1999, many U.S. states
added varicella vaccine to their childcare
and elementary school requirements,
extending chickenpox vaccination
requirements to cover more than 50 percent of children.
Teenagers are
at high risk for
contracting hepatitis B, and studies
have shown that
many teenagers fail
to complete the
hepatitis B threedose vaccination
series. To help
address this challenge, the vaccine
team developed
a two-dose series
of Recombivax HB
for children between
the ages of 11 and 15. With this twodose regimen, Merck worked with state
agencies on a flexible, semester-based
inoculation program that has been recommended by the Advisory Committee
on Immunization Practices in the
United States. The program is being
extended to previously overlooked
teens in sexually transmitted disease
clinics and juvenile detention centers.
Business Solutions Expand
Opportunities
Through its efforts to help customers find a “friendlier” interface, the
division created VaccinesbyNet.com,
an innovative business solution that
“OUR LIVES
ARE INSPIRED
BY THE PEOPLE
OF MERCK”
arlos Flores, president of
the Republic of Honduras,
thanked Merck, on behalf of
the Honduran people “for providing
a brighter and healthier future for all
our citizens through the donation of
vaccines during the aftermath of the
national disaster caused by Hurricane Mitch … and through the contribution of 333,000 doses of M-M-R
II for our national week of vaccination.” The M-M-R II donation will
help Honduras meet its goal of eradicating measles in the 21st century.
C
Vaccines play vital role in
protecting children’s health
Even 5-year-old Danielle Moran recognizes
how vaccines help her stay healthy. She
drew this poster as part of a Merck art
contest for employees’ children.
uses the Internet for both communications and commercial transactions.
Internationally the Merck Vaccine
Division continues to demonstrate
growth, launching Varivax in Canada
and establishing business organizations
in Hungary, Turkey, Poland and other
countries. In addition, the division
responded quickly to Honduras’ plea
for help in the aftermath of a devastating hurricane (see sidebar above).
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
13
Research
Providing the World
with the Best of
Medicines
Merck blends scientific advances
with sophisticated technology to
discover and develop well tolerated,
highly effective products.
14
Merck & Co., Inc. 1999 Annual Report
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Scott Reines, M.D., Ph.D., a Merck vice president in
Clinical Research, oversees clinical trials designed
to determine if Vioxx can help treat or even prevent
Alzheimer’s disease. Here, he reviews brain scans at
The Taub Institute, Columbia-Presbyterian Medical
Center in New York City with Mary Sano, Ph.D., who
is a principal consultant for the program.
Research
New medicines for a new millennium
Merck has doubled its basic research capacity
he past five years have been
incredibly productive for the
Merck Research Laboratories
(MRL). It has developed 15 drugs and
vaccines, many of them breakthrough
medicines well on their way to becoming new staples of formularies and pharmacies around the world. Merck’s new
and established medicines are enjoying
strong global growth, despite strong
competitive pressures and challenging
regulatory environments.
The latest of these, Vioxx, for the
treatment of osteoarthritis and acute pain,
is the biggest, fastest, and best U.S. prescription drug launch in Merck history.
Little wonder our new drugs already
account for 28 percent of the Company’s
human health business. Five products –
Vioxx, Singulair, Fosamax, Zocor and
Cozaar – are strong drivers of growth.
MRL’s vibrant productivity continues. More candidates for pioneering
medicines already are in the pipeline,
while others are in the basic research
stage. To help assure a continued
stream of breakthroughs, we have
enlarged our basic research capacity
by 50 percent since 1995. Last year alone,
Merck invested $1.7 billion in worldwide research facilities and production
capacity. And we are not stopping
there. Our $2.4 billion R&D budget for
2000 exceeds 1999 spending by 15 percent. Some of that money will be spent
investigating the potential of the new
frontier sciences.
T
osteoporosis and are seeking approval
of a more convenient once-a-week
dosage. We have a number of global
clinical trials under way to expand the
populations served by Cozaar and
Hyzaar, including diabetics and patients
who have suffered heart attacks.
R&D Expenditures
$ in millions
$2,200
1,650
Pipeline to Tomorrow
1,100
550
0
90
91
92
93
94
95
96
97
98
99
Research: the cornerstone of our
Strategy for Growth
We plan to increase our research investment
to about $2.4 billion in 2000, 15 percent
over 1999.
with external alliances, initiatives and
collaborations.
Merck entered two such notable
agreements in 1999. In November,
we acquired SIBIA Neurosciences
of San Diego to enhance our research
efforts in neurology, a growing field.
And in December, we announced
a licensing agreement with Kyorin
Pharmaceutical Co. Ltd. of Japan
to develop and market an insulinsensitizing diabetes drug.
Surveying the External Environment
Merck is justifiably proud of its
internal R&D capabilities. But no company, no matter how good its research,
advanced its technology, or brilliant
and dedicated its people, can hope to
discover everything in-house. Merck
is no exception. To name one example,
the compound that became Fosamax,
our highly successful medicine for
osteoporosis, came to us from an
Italian company, though it was fully
developed by MRL. This is why Merck
continues to look for appropriate
opportunities to complement our hallmark internal research capabilities
Research Does Not Stop
on Existing Products
In addition to moving into new
therapeutic areas, Merck continues
to investigate new uses for our alreadymarketed products so that we can bring
the full benefits of these medicines
to new and larger patient populations.
We have filed an application with
the FDA to market a pediatric dosage
form of Singulair for children as
young as age 2, and we are in clinical
trials for several additional uses of
the medicine. We are about to file for
an indication for Fosamax for male
The pipeline is equally encouraging,
with promising medicines in various
stages of development designed to
broaden our range of therapeutic categories. We are in Phase IIb trials with
a substance P antagonist for depression
and anxiety. Other encouraging
developments include:
• MK-869, a substance P antagonist
for cancer chemotherapy-induced
emesis (vomiting)
• Cancidas, an intravenous antifungal drug
• MK-826, a long-acting carbapenem
antibiotic with activity against a wide
range of bacteria
• MK-663, a potentially more selective COX-2 inhibitor than Vioxx
Merck also has several vaccines
in clinical development:
• The rotavirus vaccine is under
evaluation for the prevention of infant
diarrhea and dehydration. We are
completing dose-ranging studies
and we plan to initiate a large safety
and effectiveness study in 2000.
• A human papillomavirus vaccine is
under assessment to prevent cervical cancer and to prevent and treat genital warts.
• After 16 years of effort, we have an
HIV vaccine in early clinical development.
“We are proud of our past successes,
which, in large measure, are due to the
skills and dedication of our people,”
said Edward Scolnick, M.D., MRL
president and executive vice president,
science and technology. “We believe,
however, that moving forward, we can
match or, perhaps, even exceed our present success. We base this on the quality
of our senior leadership, our practice of
adding only the best and brightest to our
research team, and our ability to exploit
fully the exciting advances in science
and technology.”
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
15
Research
Research suggests new
disease targets for Vioxx
Rheumatoid arthritis, colon cancer and Alzheimer’s disease are likely candidates
erck researchers knew they
had a winner in Vioxx. The
results proved them right.
Since its launch last year, Vioxx has
brought immense relief to people suffering from osteoarthritis and, in countries
where it is prescribed for this use, acute
pain. Now, these same researchers hope
their studies of the effect of this breakthrough medicine on rheumatoid arthritis, colon cancer and Alzheimer’s
disease will bring even more victories
to patients worldwide.
For more than a century, doctors
have prescribed nonsteroidal antiinflammatory drugs (NSAIDs), such
as aspirin and more recently ibuprofen,
for patients suffering from osteoarthritis
and pain. NSAIDs inhibit cyclooxygenase-1 (COX-1) and cyclooxygenase-2
(COX-2), the two enzymes largely
responsible for producing the molecular
messengers that help regulate the activity of the body’s 100 trillion cells.
COX-1 helps regulate normal cell
function in the stomach, blood and
other organs, while COX-2 appears
to play a role in causing pain and
inflammation. NSAIDs inhibit both
enzymes. Vioxx, however, generally
spares COX-1 even as it blocks
COX-2, thus providing a specific
pathway to pain relief.
Merck researchers hope this novel
mechanism of Vioxx can benefit patients
with other conditions in addition
to those with osteoarthritis.
M
Merck’s second COX-2 inhibitor,
MK-663, is in Phase III clinical trials
for osteoarthritis, rheumatoid
arthritis and acute pain. It is the
most selective COX-2 inhibitor
known in clinical development.
The cause of rheumatoid arthritis
is not known. Nor is there a cure.
Doctors primarily treat it with NSAIDs
to reduce joint inflammation and pain.
Given the GI side effects of NSAIDs
already enumerated, Vioxx is being
studied to determine if it is a safer
alternative for some patients.
Colon Polyps and Cancer
Another target for Vioxx is colon
cancer. This cancer kills approximately
48,000 Americans every year, surpassed
by only lung cancer. Last year, Merck
began a clinical study of Vioxx
in patients with spontaneously occurring colon polyps – a broad population
at risk of developing colon cancer.
Fewer patients treated with Vioxx used
medications for upper GI discomfort
Percent of patients using
medications to prevent
14.3%
or treat upper GI
discomfort.
6.8%
5.9%
Rheumatoid Arthritis
One of these conditions is rheumatoid arthritis. Although less common
than osteoarthritis, rheumatoid arthritis
can be far more crippling. Joints, usually
in the hands and feet, inflame symmetrically and result in swelling and pain.
In severe cases, the disease may cause
the destruction of joints, cartilage, bones
and ligaments, leading to deformity,
disability and loss of mobility.
16
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
VIOXX
Placebo
NSAIDs
Treatment Group
In studies lasting up to four months,
patients who took Vioxx needed significantly fewer remedies to prevent or treat
upper GI discomfort, such as heartburn,
nausea or vomiting, compared with other
NSAIDs, such as ibuprofen.
Removing or reducing the number of
these polyps may reduce the incidence
of colon cancer.
This study evolves from an understanding of the evidence that NSAIDs
may play a role in reducing the size
and number of colon polyps. Epidemiological studies suggest that
people who take aspirin and other
NSAIDs suffer less colon cancer
than the rest of the population. Again,
however, there is the possibility of
severe GI side effects. Vioxx could
reduce that risk.
Merck scientists also are studying
Vioxx in patients with familial adenomatous polyposis, a rare and inheritable
disease characterized by the development of hundreds to thousands of polyps
in the colon. Left untreated, these polyps
invariably progress to colon cancer.
Alzheimer’s Disease
Finally, there is Alzheimer’s disease,
the most common cause of dementia
in people over the age of 65. Memory
loss is the most common symptom,
followed by language difficulties. But
behavioral abnormalities such as depression, agitation and even hallucinations
also are observed.
Nobody knows exactly what causes
Alzheimer’s disease. Genetic factors
play a role and, in rare cases, the disease is associated with specific gene
abnormalities. But scientists tackling
the problem have some promising
leads. COX-2-related inflammatory
processes have been reported in people
suffering from Alzheimer’s disease.
And epidemiological studies suggest
that people taking NSAIDs have
a lower risk of developing Alzheimer’s
disease. This information led Merck
to study Vioxx as a possible candidate
for reducing the chances of people
developing Alzheimer’s disease and/or
slowing the progression of the disease
if it is already present.
Research
Building on our
vaccine portfolio
Solid prospects for novel vaccines and new vaccine technologies
hen the time capsule unveiled
by President and Mrs. Clinton
on Dec. 31, 1999, is opened
in 2999 it will reveal telling artifacts
of the 20th century. Among them will
be a block of six Merck vaccines, symbolic of the Company’s long-running
leadership in this field.
If our scientists can continue to discover vaccines in the future that are
as innovative as those developed in our
past, then people 1,000 years from now
will not be a bit surprised that these
Merck products were singled out. Our
scientists are building on that tradition
(see page 21 for a list of Merck vaccines) by breakthrough science and
technology to defeat or prevent diseases
that have long plagued humankind.
“Vaccines represent the most effective
means of essentially eliminating or
greatly reducing specific infectious
diseases from human populations
worldwide,” says Emilio Emini, Ph.D.,
vice president for
Antiviral and
Vaccine Research.
Merck is working
on several new
vaccines to tackle
infectious diseases.
W
Rotavirus
Rotavirus infection is the most common cause of severe diarrhea in infants
and children. In developing countries,
rotaviruses prompt the substantial
majority of diarrhea-associated visits
to hospital emergency rooms. In the
underdeveloped world, where supportive
therapy is not readily available, rotaviral
diarrhea is a significant cause of infant
death. This candidate vaccine is in
Phase II studies.
HIV/AIDS
Merck has a number of vaccine
programs in early basic and clinical
research. Of particular public interest
is one dedicated to developing a vaccine
to protect against AIDS, the disease
caused by infection with HIV. AIDS
causes more deaths worldwide than any
other viral infection – 2.5 million per
year. Merck’s investigational HIV vaccine is in early clinical studies.
Human Papillomavirus
Sexually transmitted
human papillomaviruses (HPV) are
responsible for the
large majority of
cervical cancers that
occur in women and
for genital warts in
both men and women.
A vaccine would
reduce dramatically
the number of women
who develop cervical
cancer each year –
about 470,000 worldwide. Merck’s vaccine
candidate is in Phase II
clinical trials.
Tackling a monumental
worldwide disease
Kathrin Jansen, Ph.D.,
director in Vaccine
Research, is part of the
Merck team developing a vaccine that
may help prevent
cervical cancer
and genital warts.
Above is a computer-enhanced
magnification of
an immunogenic
HPV particle.
CANCIDAS
SHOULD COUNTER
DEADLY FUNGAL
INFECTIONS
Developed from a natural product
erck scientists are wrapping up late-stage clinical
trials on Cancidas, an
exciting new medicine that combats
a wider range of deadly fungi than
currently available treatments.
Belonging to a new class of compounds called glucan synthase
inhibitors – the first class of medicines in nearly 40 years effective
against candida and aspergillus –
Cancidas interferes with the process
by which the fungus builds its cell
wall. Without that protective wall,
the fungus cannot survive.
Clinical trials have demonstrated
the efficacy of Cancidas against
fungal infections caused by candida
and aspergillus. Both of these organisms can live normally on body
surfaces or in the intestines or
lungs without causing much harm
to people whose immune systems
are functioning normally. But they
can turn deadly in patients with
suppressed immune systems.
Indeed, the number of serious
infections caused by these organisms increased 11-fold during the
1980s as HIV/AIDS and aggressive treatments for malignancies
compromised the immune systems
of individuals. Some 30 percent
of patients die from candida
bloodstream infections despite
receiving treatment with
existing antifungal agents.
Treatment with Cancidas
has the potential to lower
that death rate.
It has shown a good
efficacy and safety profile to date. For use
in hospitals, Cancidas
is expected to be used
intravenously once
a day.
M
Merck & Co., Inc.
Brought to you by Global Reports
17
Research
Targeting depression
with a unique agent
Experimental medicine may bring new hope in the treatment
of mental illness
he recent U.S. Surgeon
General’s Report on Mental
Health carried some startling
news: Mental illness trails only cardiovascular disease as a cause of lost years
of healthy life in developed nations;
one in five Americans has a mental
disorder; and disability due to mental
illness is becoming a public health
crisis as populations age. In the United
States alone, the cost of treating depression totals about $40 billion per year.
Merck hopes that a potential breakthrough compound now in Phase II clinical trials will help brighten this picture.
Data from these trials will be available
later this year. This compound belongs
to a novel new class of drugs known as
substance P antagonists. These work by
blocking the primary receptor in the
brain for substance P, a neurotransmitter
T
that appears to contribute to
a range of mental disorders,
including depression.
What’s new and different
about substance P antagonists is that they possess
a different mechanism of
action from the older tricyclic
antidepressants as well as the
selective serotonin reuptake
inhibitors (SSRIs), which
have been the standard of
care for more than a decade.
That difference gives substance P antagonists the
potential to be effective
without such troublesome
side effects as the sexual
dysfunction, nausea and
gastrointestinal disorders
associated with SSRIs.
Unraveling the mysteries of the brain
Research fellow Eileen Seward, Ph.D., is one of 300
scientists working at our neurosciences research center
in Terlings Park, U.K. The acquisition in November
of SIBIA Neurosciences, San Diego, Calif., will help
enhance our excellent basic research capability in the
field of central nervous system disorders.
Building a strong presence in diabetes
erck moved to lay the foundation of a strong diabetes
franchise last year. And
several studies are exploring the possibility that both Zocor and Cozaar may
have a role in controlling risk factors
for heart disease associated with this
complex disease. One novel compound was licensed in from Japan.
Even with medical advances, diabetes remains undertreated and underdiagnosed. In the United States alone,
only two-thirds of an estimated 15.7 million people who suffer from the disease
have been diagnosed. The incidence
of cardiovascular disease is two to four
times higher in patients with diabetes
and about 80 percent die from cardiovascular complications.
M
and to raise good cholesterol position
it as a potentially useful agent in
patients with diabetes and high cholesterol. An analysis of data from the landmark Scandinavian Simvastatin Survival
Study (4S) revealed that a subgroup of
patients with diabetes, high cholesterol
and heart disease reduced their risk
of heart attack with Zocor.
A Merck trial known as RENAAL
is exploring the effects of our antihypertensive Cozaar in preventing the
progression of kidney disease in patients
with diabetes. Kidney disease is often
a serious medical complication in such
patients. In addition, the trial will evaluate the effect of Cozaar on cardiovascular outcomes, such as heart attack.
New Work
Existing Knowledge
The proven abilities of Zocor to
lower bad cholesterol and triglycerides
18
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
Merck is buttressing its diabetesrelated work with a potentially important new addition to our pipeline. In
December, we licensed a PPAR gamma
alpha agonist from Kyorin Pharmaceutical Co. Ltd., a Japanese pharmaceutical company.
PPARs belong to a hormone receptor family involved in the regulation
of both lipid and glucose metabolism.
What makes the new compound, code
named KRP-297, so unique is that
it does double-duty: The dual effect
improves both insulin sensitivity
(thus helping to control glucose
levels in patients with diabetes) and
the lipid and lipoprotein profile. Both
of these may have profound effects
in treating cardiovascular disease
in people with diabetes.
“This is the first time a single
agent has both properties,” explains
Michele Mercuri, M.D., Ph.D.,
director, Endocrinology and Metabolism. Clinical trials are currently
under way.
Research
Drug Metabolism helps hone
Merck’s competitive edge
This group picks winners and drops losers by studying what the human body does to drugs
wo brand new buildings
sprouted in a distant corner of our West Point, Pa.,
facility in 1999. This addition
houses the headquarters – and
much of the strikingly innovative
equipment – of the fast-growing
Drug Metabolism arm of Merck
Research Laboratories.
Not long ago, Drug Metabolism was a relatively small
operation at Merck. But recent
breakthroughs in scientific
knowledge and technological
hardware are moving the department far beyond its traditional
job of supporting drug development. “Our work now starts
with basic research scientists
in drug discovery at one end
of the Merck chain and stretches
all the way through post-launch
trials for line extensions
of marketed products,” said
Thomas Baillie, Ph.D., D.Sc.,
head of the department.
The prime task of Dr. Baillie’s
department is to use that new
knowledge and technology to
identify more quickly which of the
millions of compounds screened every
year have a fighting chance of becoming a commercial drug. The earlier
losers are weeded out, the less time and
money is wasted chasing down blind
scientific alleys. In an era when it takes
10 to 15 years and nearly $500 million
to create one new drug, speed and
accuracy are vital.
T
They Call It Pharmacokinetics
Drug Metabolism scientists diverge
from most of their counterparts
at Merck in that they study what the
body does to a drug rather than what
a drug does to the body. Called
pharmacokinetics, this approach
examines how well the human body
absorbs drugs into the bloodstream,
distributes them to desired targets,
Leading technologies produce leading results
Research chemist Xiao Yu, West Point, Pa., uses a $400,000 instrument that couples liquid
chromatography to mass spectrometry to enable scientists to identify and quantify molecules
down to parts per billion. These machines – Drug Metabolism owns 30 of them – have helped
speed development of promising compounds.
metabolizes and then eliminates them
from the body.
In search of this information,
Drug Metabolism breaks new ground
all the time. Molecular biologists
uncover the secrets of enzymes and
proteins responsible for metabolism
within the body and clone them for
testing needs. These scientific brains
are complemented by the brawn
of some very expensive laboratory
instruments. One striking example
is a $400,000 machine that couples
liquid chromatography to mass spectometry (LC/MS). The LC separates
molecules in such fluids as plasma, bile
and urine, while the MS identifies and
quantifies the separated molecules
down to parts per billion.
Brains Plus Brawn Equals Efficiency
So how is this hefty investment
in brains and brawn working out?
In the pharmaceutical industry as
a whole, 40 percent of all compounds
that reach the development stage
don’t make the final cut. At Merck,
the figure is significantly lower.
In an industry growing more competitive by the year, Drug Metabolism
plays an expanding role in keeping
Merck on the cutting edge.
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
19
Research
HELP FOR
CHEMOTHERAPY
PATIENTS
New medicine may help counter
chemotherapy-induced vomiting
compound bearing the
Merck code number
MK-869 may provide
many cancer patients with relief
from chemotherapy-induced emesis
(vomiting and nausea).
“This is an area of real medical
need,” said Barry Gertz, M.D.,
vice president in Clinical Sciences.
“Despite advances in treating the
nausea and vomiting that accompany many types of chemotherapy,
a significant number of patients,
perhaps as many as 50 percent,
suffer these debilitating side effects.”
In clinical trials conducted so
far, MK-869 has been well tolerated.
The compound has worked well
in protecting patients from delayed
nausea and vomiting occurring two
to five days after chemotherapy,
where other drugs are less effective.
MK-869 also provided additional
protection for acute use (day one)
of chemotherapy when used in combination with standard therapy.
A
Battling antibiotic-resistant bacteria
Microbiologist Deborah Suber’s work on our antibiotic MK-826 is helping clinicians
determine how well the experimental medicine battles a wide range of common and
antibiotic-resistant bacteria.
MK-826: simple regimen
for a variety of infections
Investigational antibiotic may be used in many different treatment settings
istorically, people with infections requiring administration
of injectable antibiotics were
treated mostly in hospitals or occasionally at their doctor’s office. These
days, they are treated in a variety
of places, including nursing homes,
outpatient clinics and even at home.
Merck has clinical trials under way
to determine if a new once-a-day
injectable antibiotic, MK-826, may
H
20
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
offer advantages over existing products
and be easy to use in such diverse
treatment settings.
Many existing antibiotics require
three or four doses a day. Based
on available data, MK-826’s simplicity,
efficacy and safety should prove
especially important to patients who
develop community-acquired bacterial
infections, such as patients whose
immune systems are compromised
by cancer treatments or HIV/AIDS.
Health care providers also are very
concerned that bacteria are increasingly
resistant to such widely prescribed
antibiotics as penicillins, cephalosporins and fluoroquinolones. Merck
hopes that MK-826 will help address
that concern.
If clinical trials prove successful,
MK-826, dosed intravenously
or intramuscularly, will be able
to be used in a number of important
indications, such as communityacquired pneumonia (for example,
in hospitals and nursing homes) and
infections of the abdomen, genitourinary tract and skin as well as obstetric
and gynecologic infections.
Our Products: Those on the market and under development*
Offering the best of medicines
Merck excels in developing highly potent, highly selective, generally well-tolerated medicines
Cardiovascular
Aggrastat®
Cozaar®
Hyzaar®
Vasotec®
Zocor ®
(tirofiban hydrochloride)
(losartan potassium)
(losartan potassium
and hydrochlorothiazide)
(lovastatin)
(lisinopril)**
(lisinopril and
hydrochlorothiazide)**
(enalapril maleate and
hydrochlorothiazide)
(enalapril maleate)
(simvastatin)
Fosamax®
(alendronate sodium)
Propecia ®
Proscar®
KRP-297✝
(finasteride)
(finasteride)
Gastrointestinal
Pepcid ®
(famotidine)
Ulcers and gastro-esophageal reflux disease
Infection
Crixivan®
Stocrin® c
Mefoxin®
MK-826 ✝
CancidasTM ✝
Primaxin®
(indinavir sulfate)
(efavirenz)
(cefoxitin)
HIV infection
HIV infection
Antibiotic
Antibiotic
Antifungal
Antibiotic
Clinoril ®
Dolobid ®
MK-663✝
Vioxx®
(sulindac)
(diflunisal)
Mevacor®
Prinivil®
Prinzide®
Vaseretic®
Endocrinology
Inflammation
®
(caspofungin acetate)
(imipenem and cilastatin)
(rofecoxib)
Unstable angina, non-Q-wave myocardial infarction (MI)
High blood pressure
High blood pressure
Elevated cholesterol
High blood pressure, heart failure and acute MI
High blood pressure
High blood pressure
High blood pressure, heart failure and asymptomatic LVD
Elevated cholesterol, associated total/coronary mortality, raise HDL
cholesterol, reduce triglycerides and reduce stroke risk
Treatment and prevention of postmenopausal osteoporosis,
reduced osteoporotic fracture risk, Paget’s disease of the bone and
glucocorticoid-induced osteoporosis
Male pattern hair loss
Symptomatic benign prostate enlargement
Diabetes
Arthritis
Arthritis and pain
Osteoarthritis, rheumatoid arthritis and acute pain
Osteoarthritis and acute pain
Neurological
Maxalt
MK-869 ✝
Substance P✝
Antagonist
(rizatriptan)
Migraine
Emesis due to chemotherapy
Depression and anxiety
Ophthalmic
Cosopt®
(dorzolamide hydrochloride
and timolol maleate)
(timolol maleate)
(timolol maleate ophthalmic gel
forming solution)
(dorzolamide hydrochloride)
Glaucoma
Glaucoma
Glaucoma
(montelukast sodium)
Asthma
(Haemophilus influenzae
type b and hepatitis B
conjugate vaccine)
Haemophilus influenzae
type b and hepatitis B
Timoptic®
Timoptic-XE ®
Trusopt ®
Respiratory
Singulair
Vaccines
Comvax®
®
Human
papillomavirus✝
M-M-R ® II
Glaucoma
HPV infections
(measles, mumps and rubella
Measles, mumps and rubella
virus vaccine live)
PedvaxHIB®
(Haemophilus influenzae
Haemophilus influenzae type b
type b conjugate vaccine)
(polyvalent pneumococcal
Pneumonia
Pneumovax® 23
vaccine)
Recombivax HB® ([recombinant]hepatitis B vaccine) Hepatitis B
Rotavirus vaccine✝
Rotaviral infections
Vaqta®
(inactivated hepatitis A vaccine) Hepatitis A
Varivax®
(varicella virus vaccine live
Chickenpox
[Oka/Merck strain])
**This list excludes
a number of older
Company products.
**Marketed in
six European
countries
by DuPont
Pharmaceuticals
Company
✝ Products in
development.
c
Efavirenz is marketed
by DuPont Pharmaceuticals Company as
Sustiva in the U.S.,
Canada and certain
European countries
and by Merck in the
rest of the world as
Stocrin.
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
21
Special Report
THE VALUE OF PHARMACEUTICALS
Merck believes the best way to address the real questions about the cost and value of pharmaceuticals – and to remove
inefficiencies, control costs and improve quality in the health care system – is through competition and choice
determined by the cost of a disk’s
e live in a time of unprecematerial, the price of a medicine is not
dented progress in pharbased on the cost of its ingredients.
maceutical research and
The price of medicines, like that of
development. Partnerships among govother products that result from research
ernment, academia and industry are proand creativity, is determined by the
ducing new and better medicines for the
value of the knowledge represented –
treatment of disease and, increasingly,
knowledge that prevents and cures
for the prevention of chronic diseases.
This progress does
Shrinking Period of Market Exclusivity Between Introduction of a
not come without conBreakthrough Medicine and Competing Innovators
troversy. Increasingly,
Innovative Drug -Year of Introduction
people are asking tough
and legitimate questions
Inderal-1968
about the role and responTagamet-1977
sibility of Merck and our
Capoten-1980
competitors for expanding access to the miracles Seldane-1985
of modern pharmaceutical AZT-1987
Mevacor-1987
research. At Merck, we
Prozac-1988
take seriously our duty to
respond to these questions Diflucan-1990
Recombinate-1992
directly and forthrightly.
W
Invirase-1995
Q: Why do medicines
cost so much?
Just as the price of a
computer program is not
Celebrex-1999
0
2
4
6
8
Sources: Pharmaceutical Research and Manufacturers of America, 1997; The Wilkerson Group, 1995; Merck & Co., Inc.
disease and relieves suffering. That
knowledge does not come cheaply. The
process is expensive, time-consuming
and risky. Studies show that it can take
nearly 15 years and cost nearly $500
million to bring a new drug to patients.
But for those in the United States
who have prescription drug coverage,
the emergence of powerful buyers through managed care organizations
Follower Drug
and health plans has created price competition
1978-Lopressor
based on value. These
1983-Zantac
plans are able to negoti1985-Vasotec
ate rebates and discounts
1989-Hismanal
on medicines – even on
1991-Videx
new breakthrough medi1991-Pravachol
cines that quickly can
1992-Zoloft
face competition.
1992-Sporanox
Competition, then,
1992-Kogenate
benefits those who have
1996-Norvir
pharmaceutical insurance
1999-Vioxx
coverage. Yet those who
do not have insurance pay
10 years
the highest retail price for
medicines. We need to
MERCK SUPPORTS PRESCRIPTION DRUG COVERAGE FOR SENIORS
or those Americans who cannot afford the medicines
F
they need, the fact that Merck’s medicines deliver value
doesn’t offer a solution. For them, the real answer is coverage. Those without coverage – including many senior citizens
– are not getting the benefit of competition in the pharmaceutical marketplace.
Yet the current Medicare program, which covers 39 million
senior citizens and will begin to cover America’s 77 million
baby boomers in 2011, does not cover outpatient prescription
drugs. And while projections for the system’s bankruptcy may
differ by dates, all agree that the current Medicare system is
economically unsustainable. Furthermore, it is outdated and not
designed to deliver the best care. There is little incentive to coordinate care around the patient, to focus on prevention, to rapidly
adopt technology or to practice the most basic principles of
modern health management. Today’s reimbursement rules often
reward inefficiency, favoring long hospital stays even when medical advances and patient preference make them unnecessary.
Merck supports adding a prescription drug benefit,
based on quality, real consumer choice and competition,
22
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
to a modernized and strengthened Medicare program. Like
private-sector employees and members of Congress, beneficiaries should be able to choose among private-sector health
plans that include prescription drug coverage. Medicare
should provide information toward making informed choices
among plans, fund an adequate financial contribution to pay
for all or a portion of the chosen plan, and contain costs
through improved quality and marketplace competition,
not government price controls and bureaucracy.
The Federal Employees Health Benefits Plan (FEHBP)
provides an excellent working model. It incorporates the
principles of quality and competition, along with streamlined administration and regulation – and prescription
drug coverage.
A modernized Medicare program, based on quality, real
consumer choice and competition, not only will preserve and
strengthen Medicare well into the 21st century but also will
provide incentives for continuous improvements in the quality of
care and continued incentives for medical innovation, including
the discovery and development of important new medicines.
make sure that all Americans have
access to prescription drug coverage
and the benefits that come only with
this coverage – the most competitive
pricing, health management programs
and protection from dangerous drug
interactions – and the answer is not
more government, but more competition. (See “Merck supports prescription
drug coverage for seniors.”)
Q: Why are medicines less expensive
in other nations?
The main reason why U.S. consumers who lack insurance may pay
higher prices for some medicines than
people in other countries is the existence in those nations of government
price controls. These limit pharmaceutical prices or reimbursements arbitrarily
in a manner that we believe does not
reflect the value of medicines to
patients and those paying for health
care. Throughout history, across all
industries, price controls have created
shortages and hampered innovation.
Furthermore, a number of variables
make simple price comparisons misleading. For example, comparisons
frequently ignore the widespread use
of rebates and discounts in the United
States. Even changing currency values
can create large apparent differences
in prices among nations.
And the presence of government
controls – and the absence of the
natural market controls that competition provides – can combine to create
higher-than-expected prices for items
such as generic drugs, which often may
be much more expensive than in the
United States. Some innovative treatments may not even be made available.
The answer is not to import the
poor policy of government price controls but to stimulate and take advantage of competition. This solution will
enhance the strengths of U.S. health
care – while also offering the best and
most sustainable way to control the
price of pharmaceuticals.
Q: Why do pharmaceutical companies
make so much money?
U.S. pharmaceutical research and
manufacturing is indeed a successful
and high-growth industry. During the
HOW MERCK DEMONSTRATES
VALUE OF ITS MEDICINES
e believe the best answer to rising
W
health care costs is to demand
value – to ensure that pharmaceuticals
are providing the best quality care in
a cost-effective and cost-saving manner.
Merck’s subsidiary, Merck-Medco,
uses a number of strategies to do
just this – control the rate of increase
of drug spending and improve the
quality of care through proper use
of medicines with demonstrated value.
Strategies include benefit design,
formulary management, generic drug
substitution, utilization management
and health management, all supported
by sophisticated technology.
Merck’s clinical teams also help
design outcome studies for our new
and existing products, to measure the
effectiveness and cost of therapeutic
past two decades, U.S. companies
discovered about one-half of the
world’s new medicines. The industry’s
profitability, then, reflects this success.
But to put this in perspective, a 1994
study by the Congressional Budget
Office noted: “Economists have found
that, properly measured, pharmaceutical company profits are only slightly
above the average for companies in all
industries.” Other studies demonstrate
that the returns the industry earns are
appropriate, given the risks of research.
Q: Why are pharmaceutical costs
rising so rapidly?
One of the major reasons drug costs
are rising is that more people are using
more medicines to prevent or treat diseases previously left untreated. Our population is aging and therefore using
more medicines. Patients and physicians
are recognizing the benefits of using
medicines on a daily basis to prevent
serious conditions, such as heart disease.
And patients, physicians and health care
payers are realizing that the appropriate
use of medicines may reduce hospitalizations and other expensive and lesseffective medical interventions.
interventions under typical practice
conditions and to show providers how
to secure the most effective therapy
in the most cost-effective manner.
One such example is the Scandinavian
Simvastatin Survival Study (4S). Regulatory authorities around the world
have acknowledged the medical importance of the 4S results in saving lives
and preventing heart attacks in people
with heart disease and high cholesterol.
Interventions that improve health
outcomes can cut costs dramatically.
Yet, just as importantly, these strategies force competition and challenge
pharmaceutical companies to demonstrate improvements in patient care,
health outcomes, quality of life
and cost effectiveness to gain
formulary positions.
Drug Spending Increased 18%
Between 2nd Quarter 1998 and
2nd Quarter 1999
Increased
Utilization
7.3%
New
Medicines
5.8%
Price
Inflation
4.9%
Sources: IMS Health, Pharmaceutical Pricing Update, September 1999.
A second major reason is that more
new medicines are being introduced.
There has been an explosion of new
scientific knowledge, leading to a large
number of new and improved medicines, many of which treat conditions
never before treated. These innovative
medicines are frequently introduced at
higher prices than the older and often
less-effective therapies they replace.
The third and least significant factor
is that prices for medicines are increasing. For example, overall, Merck’s
prices – taking into account rebates and
discounts – are rising at a cumulative
rate that is generally below the cumulative rate of U.S. inflation.
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
23
Merck-Medco
Communication
Technologies Boost
Service
Merckmedco.com, the world’s
largest on-line pharmacy, dispenses
more than 50,000 prescriptions
ordered each week via the Internet.
Retiree Fred Bearse is one of the 700,000 plan members who logged on to merckmedco.com in 1999 to
refill prescriptions and obtain health information.
24
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
Merck-Medco
Merck-Medco: solutions for managing
pharmacy benefits
Applying advanced technologies to enhance service, improve care and keep costs affordable
eadership in the highly competitive
maintained its excellent client retention
business of managing pharmacy
rate of over 95 percent – a significant
benefits requires continuous innoaccomplishment in a business where
roughly one-third of client contracts are
vation to develop products and services
up for bid each year.
that meet the evolving needs of patients,
As a result, the drug spending
health plan sponsors and health care
providers.
Today,
Drug Spending
Prescriptions Managed
patients want
(in millions)
on Behalf of Clients
(in billions of $)
information and
20
400
services to help
them more
actively partici15
300
pate in their
health care.
With drug
10
200
benefit budgets
increasingly
5
100
under pressure,
plan sponsors,
such as corpo0
0
1995
1996
1997
1998
1999
1995
1996
1997
1998
rations, Blue
Cross & Blue
Mail Service Prescriptions
Retail Prescriptions
Shield plans,
Merck-Medco continued its strong growth in 1999.
managed care
organizations
Merck-Medco managed on behalf of
and government payers, require programs to help ensure that prescription
its clients increased 26 percent in 1999
medicines are used appropriately, effecto over $18 billion dollars and the pretively and economically. Likewise,
scriptions it managed on behalf of its
physicians and pharmacists are seeking
clients reached 370 million, up 16 perservices that support their efforts to procent over 1998.
vide high-quality care to patients.
L
Merck-Medco’s Growth Continues
Setting New Standards in
Prescription Drug Benefit Services
By anticipating these needs, by relying on recognized clinical standards for
high-quality prescription drug care, and
by incorporating the latest technological
developments into its products and services, Merck-Medco strengthened its position in 1999 as the leader in providing
high-quality, clinically superior economical pharmacy benefit management services. In doing so, it continued its record
of strong growth, winning a number of
important new accounts during the year,
including Blue Cross Blue Shield of
North Carolina, Ashland Oil, Bank One,
ConAgra and Champion. In addition to
winning new accounts, Merck-Medco
To further improve communications
with patients and providers and to provide
even more responsive service, MerckMedco made significant investments
in its business during 1999. It enhanced
its Internet site, merckmedco.com,
it began projects with a number of companies to evaluate emerging technologies
for physician connectivity, and it added
new pharmacies and technologies to its
nationwide network of mail service and
call center pharmacies.
For instance, work began on a new
fully-automated mail service pharmacy
in Willingboro, N.J. The new pharmacy will dispense approximately
500,000 prescriptions per week and will
complement Merck-Medco’s similarly
sized, fully-automated mail service
pharmacy in Las Vegas, Nev. These
high-volume pharmacies are an integral
part of Merck-Medco’s “Pharmacy
Covered Lives
(in millions)
60
45
30
15
1999
0
1995
1996
1997
1998
of the Future” strategy (see page 26).
Merck-Medco also continued
to enhance the clinical programs and
benefit management services it provides
to its clients and their members. For
instance, new programs were introduced
to help clients effectively manage the
cost of providing prescription drug
benefits while maintaining quality. To
help patients with high-risk, high-cost
conditions, such as asthma, diabetes
and cardiovascular disease, MerckMedco’s clinicians furthered their work
with health care providers and patients
to promote care that is in keeping with
recognized best practices.
Through innovation and dedication
to service and quality, Merck-Medco’s
12,000 employees successfully met the
needs of its more than 1,100 plan sponsor clients and their 52 million plan
members in 1999. In doing so, MerckMedco produced results that made
a significant contribution to Merck’s
strategy for growth.
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
1999
25
Merck-Medco
The “Pharmacy of the Future”
and merckmedco.com
Delivering unmatched quality, safety and convenience
arly on, Merck-Medco recognized the tremendous potential
the Internet had for transforming
health care, generally, and prescription
drug care, in particular. Merck-Medco
saw that the Internet and other emerging communications technologies could
be coupled with its state-of-the-art,
nationwide network of mail service
pharmacies to more efficiently and
effectively deliver services to its clients
and their health plan members.
By pursuing these opportunities,
Merck-Medco has created the “Pharmacy of the Future” today. Rather than
using each mail service pharmacy in its
national network to perform all of the
functions necessary to dispense a prescription, Merck-Medco’s “Pharmacy of
the Future” strategy enables each pharmacy to specialize in specific pharmacy
functions. For instance, some pharmacies
are dedicated “call centers” for patients
and physicians. Others specialize in
activities before a prescription is filled,
such as conducting the clinical reviews
of prescriptions needed to prevent
problems like drug-drug interactions
E
Monitoring flow and volume
Operations analyst Renee Avon keeps
a watch on the volume of phone calls coming into Merck-Medco’s Columbus, Ohio,
call center pharmacy. If volume should
exceed capacity, she can redirect incoming
calls to other U.S. Merck-Medco call
center pharmacies.
Meeting client needs for
care and affordability
Working with clients to ensure maximum quality and value
s the nation’s leading provider
of pharmacy benefit management services, Merck-Medco
is committed to improving the quality
of patient care while controlling the
overall cost of prescription drug benefits. This is an increasingly important
challenge given the aging of the
population, the many new drugs available to treat patients and, thus, the
greater role prescription drugs now
play in health care.
A
26
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
Merck-Medco has developed many
capabilities during the past two decades
to help its clients meet this challenge.
Now, more than ever, it is using its
expertise to meet client requirements
for managing costs.
For instance, Merck-Medco provides savings through its effective
cost-management capabilities. It also
works with its clients to implement
programs that encourage, when
appropriate, the use of generic drugs
or inappropriate dosing. Other pharmacies employ computer-aided, highly
automated dispensing technologies
to fill prescriptions safely, quickly and
efficiently and to provide specific information to patients on how to properly
take their medications.
Central to Merck-Medco’s
“Pharmacy of the Future”
strategy is merckmedco.com.
Now the world’s leading
Internet pharmacy site,
merckmedco.com offers plan
members a suite of tools
to help them more effectively
use their prescription drug
benefits, order prescription
refills and renewals, and
to obtain personalized health
and wellness information
based on their interests and
health care needs.
Plan members quickly
embraced the new services
and by year-end more than
700,000 visits had been made
to the site and Merck-Medco
had dispensed more than
50,000 prescriptions a week ordered
on merckmedco.com. Through an agreement Merck-Medco signed with CVS
Corporation in 1999, the site soon will
be providing plan members with “onestop shopping” for discounted over-thecounter and general health products.
or specific brands that can help reduce
overall costs. In addition, MerckMedco’s clinical staff works with
health care providers to help prevent
unnecessary costs caused by prescriptions that are inappropriate for
patients and on health management
programs to keep costs affordable
for patients with chronic, high-risk
conditions such as asthma, diabetes
or heart disease.
Although the aging of the population and the discovery of important new
medicines are likely to keep pressure
on drug trends, Merck-Medco is committed to working closely with its
clients to provide those products and
services that will have the greatest
impact on quality and costs.
Merck-Medco
The clinical difference
Merck-Medco’s commitment to improving patient care
ehind the many
programs and services Merck-Medco
provides to plan sponsors
and their plan members,
is a broad base of clinical
knowledge and a dedicated
staff of more than 1,700
Merck-Medco pharmacists,
physicians and nurses.
Whether reviewing and
dispensing prescriptions
for Merck-Medco plan
members, consulting with
plan sponsors on how
to structure benefit programs, counseling patients
on the safe and effective
use of their medicines,
or helping patients understand their benefits, the
team is committed to
operating based on recognized standards of care.
In addition to our
internal clinical expertise, Eagle eye on performance
Stephen Hobson, second from left, vice president and general
Merck-Medco also works
with outside medical advi- manager of the Columbus, Ohio, mail service pharmacy,
meets with his senior team every morning of each business
sory groups to ensure the
highest quality of medical day to review yesterday’s performance and to see how they
stacked up to more than 50 quality parameters. With him are
care. One very important
team members, from left: Andy McMillan, Tracy Kokoska,
outside advisory group is
Mark Brusadin, Kim Vinh and Dick Dickson.
the independent Pharmacy
American Lung Association and the
and Therapeutics (P&T) Committee.
American College of Gastroenterology
The P&T Committee reviews new
have formed alliances with Merckmedicines and makes binding recomMedco to advance the treatment
mendations, based on safety and effecof significant chronic conditions.
tiveness, on whether new medicines
Merck-Medco has extended its
must be added to or excluded from
commitment to the highest standards
Merck-Medco formularies.
in medical practice to emerging areas
Similarly, all Merck-Medco’s health
in health care, such as the Internet.
management programs for conditions
In 1999, merckmedco.com became the
such as diabetes, respiratory conditions
first pharmacy benefit manager to gain
and heart disease are reviewed and
the Verified Internet Pharmacy Practice
approved by independent, outside medSites certification from the independent
ical advisory boards to ensure that they
National Association of State Boards
comply with recognized best practices.
of Pharmacy. The seal assures consumers
Based on this approach, a number
that merckmedco.com practices on-line
of patient advocacy groups such as the
pharmacy in accordance with the highest
National Multiple Sclerosis Society,
professional standards.
the American Liver Foundation, the
B
FOCUS ON
SENIORS
Program links senior patients
in need with community support
and services
his year, Sandra Blake,
Gatekeeper coordinator
for Merck-Medco, helped
an elderly woman receive homedelivered meals, told a recent
widower where he could find help
to work through his grief and
arranged for a nursing aide to visit
a housebound 90-year-old.
These are only a few of the thousands of patients who have benefited
from Merck-Medco’s nationwide
Gatekeeper program. Designed
to identify vulnerable senior
patients in need
of special care or
extra assistance,
Sandra Blake
customer service representatives made more than
2,500 referrals to Merck-Medco
Gatekeeper coordinators. With plan
member consent, these coordinators
contacted local and state offices
on aging. Caseworkers then arranged
for appropriate community and
social services.
As a result, nearly 1,900 patients,
ranging from ages 60 to 90, were provided with options to help improve
their quality of life and care, including the assignment of homemakers,
nursing aides, transportation services,
financial planners or volunteers who
run errands. In some cases, members
were introduced to senior citizen
groups as a valuable social outlet
and source of morale support.
“The Gatekeeper program is
another example of Merck-Medco
expanding its ongoing commitment
to seniors,” said Pat Royer, vice
president of consumer affairs.
“Through Partners for Healthy
Aging – an unparalleled nationwide
initiative – Merck-Medco has
become the leader in providing
Rx care for older adults.”
T
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
27
People
We discover and develop more than breakthrough medicines...
we discover and develop breakthrough talent
erck’s reputation rests upon its scientific research,
M the quality and safety of the resulting pharmaceutical
products and the ethical standards incorporated in the credo
laid down by George W. Merck in 1950. That reputation
prompts doctors around the world to prescribe our drugs for
patients or professors to encourage their brightest students
to approach Merck first if they are considering careers
in the pharmaceutical industry.
Merck’s ability to attract and keep the best and brightest
scientists, functional specialists and managers permits us
to maintain the highest of standards even as we expand scientific boundaries in the pursuit of new and better products.
While individual talent and institutional tradition are vital
to success, they are not enough without strong internal leadership. Leadership at Merck is rarely the domain of one person.
Rather, it exists at all levels, most often evidencing itself as
a group of talented individuals melding into a team, very often
under considerable pressure to achieve a common goal. That
is how Merck developed a full-scale production process for
penicillin during World War II, created Crixivan to combat
HIV/AIDS four years ago, and recently achieved the highly
successful discovery, manufacturing and marketing of Vioxx.
The demand for leadership only can grow given increased
competition within our industry and the greater complexity of the
science required for medical breakthroughs. Merck is confident
of meeting the challenge. The examples below show why.
Beating the
competition
in Switzerland
Forging our China strategy
SD China is still in its infancy,
M
but management believes it can
become the leading pharmaceutical
company in this largely untapped health
care market of nearly 1.2 billion people.
Managing director Paul Li ascribes
this belief to recognition by China’s
government and health care officials of
Merck’s sound science and the creation
of a country team committed to an overarching idea. “We share a common goal
for MSD China to improve the quality
of life for Chinese patients through
Merck medicines,” Mr. Li said. “This
creates a powerful synergy that maximizes our resources to ensure growth
and success.”
The Chinese management team includes,
from left: Cho Wong, James Cai, Paul Li,
James Li, Robin Li, Johnny Lam, Victor
Lam, Jimmy Shideler and Robin Li.
28
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
espite fast-track approval, Vioxx
D
hit the Swiss market two months
behind the competition last March.
Ayesha Sitlani, Ph.D. Chirfi Guindo
Growing into leadership
Only by aligning the entire MSD
Switzerland organization behind the
launch could we hope to achieve market leadership for this new class of
drugs. So, all four Swiss sales forces
erck attracts and develops the
M leaders of tomorrow by persuading the most exceptional candidates
that Merck is a great place to build
a lasting career.
A prime example is Ayesha Sitlani,
Ph.D., who joined Merck in 1998 after
completing postdoctoral research at
Yale University in protein DNA systems.
“I saw at Merck a place where I could
be part of a team focused on developing
better solutions to health problems,”
she said. Today, Dr. Sitlani is a senior
research biochemist on a team studying
medicines for inflammatory diseases.
Challenge, opportunity and commitment to society. These factors are
why Chirfi Guindo, business unit
director, MSD The Netherlands, has
remained at Merck for more than
a decade, gaining experience in finance,
sales and marketing and general management. “I like to take on big challenges, and Merck has given me that
opportunity,” he said.
The Swiss team includes, from left: Michael
Lonsert, Ph.D., Karin Dallenbach, Ph.D.,
Rolf Heeb, Henrik Behrends, Ph.D.,
Gabriele Melzl and Claude Fischlewitz.
focused upon the nation’s rheumatologists and general practitioners.
“We developed simple, focused and
clear messages, which the entire sales
force applied consistently and relentlessly,” said Michael Lonsert, Ph.D.,
managing director. The result: Only
17 weeks after launch, Vioxx achieved
class leadership.
People
List of 1999 Merck Awards
Chief Ethics Officer Jacqueline Brevard discusses Merck’s values and standards with
Latin American Human Resources managers.
Translating an ethical code
into practice
ost multinational companies
M
talk about doing business ethically regardless of local custom and
behavior. Not all back up the talk
with action.
Merck senior management insists
that all employees, regardless of where
they work, uphold our corporate code
of conduct. To achieve that goal, our
60,000 employees are taking part in
an interactive ethical business practices
program that exposes them to real-life
situations they may face.
“Regardless of where you work
or what you do, we want employees
to know how Merck’s values apply
to their day-to-day activities so that they
can adhere to these standards and model
these values whenever and wherever
they conduct Merck business,” said
Jacqueline Brevard, Chief Ethics
Officer. “They guide our actions day
in and day out. They are who we are
and who we will continue to be.”
This training reinforces and formalizes Merck’s traditional behavior.
Nowhere is this more important than
in sales, where thousands of our sales
representatives meet with health care
professionals every day. “Merck’s ethics
and values will be the sustainable competitive advantage that ensure we build
on the trust the Company is known for
today,” said Marty Carroll, executive
vice president in U.S. Sales.
Challenging Merck’s leaders
Professor Michael Beer, Ph.D., takes
about 75 Merck senior managers through
provocative case studies based on real
Merck business challenges during a weeklong session at Harvard Business School.
Leaders never
stop learning
reating tomorrow’s leaders does
C
not occur by osmosis. We help
their development via a rigorous
leadership-training curriculum for
all employees. One program is our
Executive Business Program, developed in conjunction with Harvard
Business School. Harvard professors
and members of Merck Management
Committee lead the one-week program, which brings together leaders
from different Merck divisions and
countries to talk candidly about issues
they face and to help them better
anticipate and capitalize on strategic
business opportunities and challenges
in the future.
Best Place to Work: Placed, for
the third consecutive year, on Fortune’s
“100 Best Companies to Work For.”
Best for Asians, Blacks and
Hispanics: For the second year in
a row, Merck ranked as one of the top
50 companies in this Fortune list.
Working Mother: For the 14th
consecutive year, Merck has been
named one of Working Mother magazine’s “100 Best Companies” for working mothers.
Working Woman: Merck was the
only pharmaceutical company that
made Working Woman’s second
annual list of “Top 25 Companies
for Executive Women.”
Global Fortune Ranking: Merck
moved to the top 10 (up two places)
in the “Global Most
Admired” survey and
ranked among the
25 global “all stars.”
U.S. Fortune
Ranking: Merck
has made “America’s
Most Admired” list
every year since its
1982 inauguration,
and has placed in the
top 10 for 15 years out of the
18 years the list has existed.
American Society of Aging:
Merck-Medco’s Partners for Healthy
Aging was honored with the society’s
Business of the Year Award.
Best Website: Financial Times
presented Merck with the “Best Use
of a Company Website” for demonstrated excellence in corporate communication strategy and for providing
clear business benefits.
Helen Keller Award: The American
Foundation for the Blind honored
Merck for its efforts to eliminate river
blindness.
Environmental: Merck received
the Pennsylvania Governor’s Award
for Environmental Excellence for
waste minimization programs and the
Pennsylvania Department of Environmental Protection Award for outstanding recycling and packaging reduction
efforts at our West Point, Pa. site.
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
29
Corporate Responsibility
Initiatives for a healthier world
Merck ranked No. 1 in corporate giving
erck is in business to meet
the health needs of society
through the discovery and
development of innovative medicines.
Our commitment to scientific innovation and breakthrough medicines helps
advance health, technology and the
economies in the countries where
we do business. But our mission doesn’t
end there. Merck also is committed
to helping address important societal
needs through our philanthropic outreach around the world. In our efforts
to do so, Merck’s charitable initiatives
outpaced those of all other U.S. companies in 1998, according to a recent
BusinessWeek report that ranked
Merck No. 1 in corporate giving.
We look for opportunities to initiate
or collaborate on programs that focus
on improving health care and advancing
scientific knowledge and education,
as well as programs that foster ethics and
leadership, the arts, social services and
the environment. This is a global challenge and it requires global cooperation.
M
HIV/AIDS: Health Care in
the Developing World
Helping find solutions to the
HIV/AIDS crisis in developing nations
is a case in point.
Merck is funding
the “Enhancing
Care Initiative”
(ECI) – a multipartite partnership designed
to improve the
care of people
with HIV/AIDS
in the developing world.
Coordinated
by the Harvard AIDS Institute and the
François-Bagnoud Center for Health
and Human Rights at Harvard’s School
of Public Health, this initiative includes
local experts on HIV/AIDS, community
groups, and governmental and nongovernmental organizations. Among
30
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
the latter are UNAIDS (Joint United
Nations Programme on HIV/AIDS) and
the World Health Organization (WHO).
“More than 90 percent of the
approximately 34 million people with
HIV/AIDS live in the developing world,
where access to even basic health care,
not to mention new drug treatments,
is extremely limited,” said Linda
Distlerath, Ph.D., Merck vice president
of Public Affairs and president of The
Merck Company Foundation. “The ECI
will mobilize the expertise to help these
countries provide better care for
HIV/AIDS patients.”
River Blindness: Expanding
a Successful Collaboration
Another successful partnership
involves our anti-parasitic medicine
Mectizan. In 1987, Merck decided to
donate Mectizan for as long as needed,
wherever needed, to treat the devastating disease of onchocerciasis (river
blindness), which is endemic in subSaharan Africa and parts of Central
and South America. Today, The Merck
Mectizan Donation Program includes
partners from a number of non-governmental organizations, government
health ministries, private foundations,
the WHO, The World Bank, UNICEF
and the United Nations Development
Program. More than 400 million tablets
of Mectizan have been donated to date.
Each year about 25 million people
in 31 countries receive treatment.
In 1998, Merck expanded the
program to include the treatment of
lymphatic filariasis (commonly known
as elephantiasis) in African countries
where it is medically necessary. The
WHO estimates more than 300 million
Africans are at risk of lymphatic
filariasis.
Ethics: Fostering Codes of
Business Conduct
Outside of the arena of health and
medicine, Merck is leading efforts
to promote high standards of ethical
business conduct – an
increasingly important
issue to successful global
commerce. In the United
Arab Emirates (UAE),
the Ministry of Health
is striving to promote
such standards in the
Gulf region by establishing, with funding from Merck, The
Gulf Centre for Excellence in Ethics.
The Ethics Resource Center, based in
Washington, D.C., is helping the UAE
to coordinate the effort. Merck is working with the medical association in
South Africa and with governments
in Latin America to establish similar
centers in those regions.
“The UAE wants to become the
major regional trade, commerce and
financial center,” said Alex Zalami,
the Gulf Centre’s managing director.
“But it realizes that critical issues of
business practices must be addressed
if it is to reach that status.”
It is through such multi-faceted,
philanthropic initiatives that Merck
seeks to contribute to society and promote the economic and physical wellbeing of people around the globe.
Dr. Distlerath sums up the challenge
and response: “The enormity of many
of today’s health, economic, technical
and infrastructure issues demands a
broad range of approaches and sustained efforts by private and public
entities working together to find solutions to today’s most pressing health
problems. Where we can help and
when we can make a difference,
Merck will be there.”
Financial Section
Contents
Financial Review
Description of Merck’s Business . . . . . . . . . . . . . . . . . . . . . 31
Competition and the Health Care Environment . . . . . . . . . . 31
Business Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Foreign Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Operating Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Environmental and Other Matters . . . . . . . . . . . . . . . . . . . . 38
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Analysis of Liquidity and Capital Resources . . . . . . . . . . . . 39
Recently Issued Accounting Standards. . . . . . . . . . . . . . . . . 41
Cautionary Factors That May Affect Future Results. . . . . . . 41
Condensed Interim Financial Data . . . . . . . . . . . . . . . . . . . . 41
Dividends Paid per Common Share . . . . . . . . . . . . . . . . . . . 41
Common Stock Market Prices . . . . . . . . . . . . . . . . . . . . . . . 41
Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . . . 42
Consolidated Statement of Retained Earnings . . . . . . . . . . . . . . 42
Consolidated Statement of Comprehensive Income . . . . . . . . . . 42
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Consolidated Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . 44
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 45
Management’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . 56
Audit Committee’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Compensation and Benefits Committee’s Report . . . . . . . . . . . . 57
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Financial Review
Description of Merck’s Business
Merck is a global research-driven pharmaceutical company that
discovers, develops, manufactures and markets a broad range of
human and animal health products, directly and through its joint
ventures, and provides pharmaceutical benefit services through
Merck-Medco Managed Care (Merck-Medco).
Sales
1999
1998
1997
Elevated cholesterol . . . . . . . . . $ 5,093.2
Hypertension/heart failure . . . .
4,563.8
Osteoporosis . . . . . . . . . . . . . .
1,043.1
Anti-ulcerants . . . . . . . . . . . . .
913.9
Vaccines/biologicals . . . . . . . . .
860.0
Antibiotics . . . . . . . . . . . . . . .
772.3
Ophthalmologicals . . . . . . . . . .
670.0
Human immunodeficiency
virus (HIV) . . . . . . . . . . . . . .
664.4
Anti-inflammatory/analgesics . .
578.5
Respiratory. . . . . . . . . . . . . . . .
501.8
—
Animal health/crop protection . .
Other Merck products . . . . . . .
1,820.6
Merck-Medco . . . . . . . . . . . . .
15,232.4
$ 4,694.1
4,213.5
775.2
1,113.5
846.7
743.3
630.7
$ 4,672.3
3,855.0
532.1
1,184.4
733.6
774.9
639.1
676.3
98.0
194.0
1,311.2
11,601.7
581.7
116.0
.4
550.0
557.1
9,440.3
$ 32,714.0
$ 26,898.2
$23,636.9
($ in millions)
—
Human health products include therapeutic and preventive
agents, generally sold by prescription, for the treatment of
human disorders. Among these are elevated cholesterol prod-
ucts, which include Zocor and Mevacor; hypertension/heart
failure products which include Vasotec, the largest-selling product among this group, Cozaar, Hyzaar, Prinivil and Vaseretic;
osteoporosis, comprised of Fosamax, for treatment and prevention in postmenopausal women; anti-ulcerants, of which Pepcid
is the largest-selling; vaccines/biologicals, of which M-M-R II,
a pediatric vaccine for measles, mumps and rubella, Varivax,
a live virus vaccine for the prevention of chickenpox, and
Recombivax HB (hepatitis B vaccine recombinant), are the
largest-selling; antibiotics, of which Primaxin and Noroxin
are the largest-selling; ophthalmologicals, of which Timoptic,
Timoptic-XE, Trusopt and Cosopt are the largest-selling; HIV,
which includes Crixivan, a protease inhibitor for the treatment
of human immunodeficiency viral infection in adults; antiinflammatory/analgesics, of which Vioxx, an agent that specifically inhibits COX-2, is the largest-selling; and respiratory,
comprised of Singulair, a leukotriene receptor antagonist.
Animal health products include medicinals used to control
and alleviate disease in livestock, small animals and poultry.
Crop protection includes products for the control of crop pests
and fungal disease. In July 1997, the Company sold its crop
protection business to Novartis. In August 1997, Merck and
Rhône-Poulenc (now Aventis) combined their animal health and
poultry genetics businesses to form Merial Limited (Merial).
Amounts for 1997 reflect sales for these businesses prior to the
completion of these transactions.
Other Merck products include sales of other human pharmaceuticals, continuing sales to divested businesses, pharmaceutical and animal health supply sales to the Company’s joint
ventures and, as of July 1, 1998, supply sales to AstraZeneca
LP (AZLP). (See Note 4 to the consolidated financial statements for further information.) Also included in this category
are rebates and discounts on Merck pharmaceutical products.
Merck-Medco primarily includes Merck-Medco sales of
non-Merck products and Merck-Medco pharmaceutical benefit
services, principally sales of prescription drugs through managed prescription drug programs, as well as services provided
through programs to manage patient health and drug utilization.
Merck sells its human health products to drug wholesalers
and retailers, hospitals, clinics, government agencies and managed health care providers such as health maintenance organizations and other institutions. The Company’s professional
representatives communicate the effectiveness, safety and value
of our products to health care professionals in private practice,
group practices and managed care organizations.
Competition and the Health Care Environment
The markets in which the Company conducts its business are
highly competitive and often highly regulated. Global efforts
toward health care cost containment continue to exert pressure
on product pricing and availability. In the United States, the
Company has been working with private and government
employers to slow the increase of health care costs. Demonstrating that the Company’s medicines can help save costs in
other areas and pricing flexibly across our product portfolio
have encouraged growing use of our medicines and helped offset
the effects of increasing cost pressures. Legislative bodies continue to work to expand health care access and reduce associated costs. Such initiatives include prescription drug benefit
proposals for Medicare participants introduced in the U.S.
Congress. Although no one can predict the outcome of this and
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
31
other legislation, we are well positioned to respond to the
evolving health care environment and market forces.
Outside of the United States, in difficult environments
encumbered by government cost containment actions, the
Company has worked with payers to help them allocate scarce
resources to optimize health care outcomes, limiting the potentially detrimental effects of government actions on sales growth.
In addition, countries within the European Union (EU), recognizing the economic importance of the research-based pharmaceutical industry and the value of innovative medicines to
society, are working with industry and the European Commission on proposals for market deregulation.
Several products face expiration of product patents in the near
term. U.S. product patents will expire for Vasotec and Pepcid in
2000 and for Prilosec, which is supplied exclusively to AZLP,
Prinivil, for which co-marketing rights have been licensed to
a third party, Mevacor, Vaseretic and Prinzide in 2001. In the
aggregate, domestic sales of these products represent 22% of
Merck human health sales for 1999. The Company expects a
significant decline in these sales in the years 2000 through 2002
upon the loss of market exclusivity. With the exception of
Prilosec, for which the Company has U.S. rights only, a decline
is also expected in the Company’s European sales for these
products in the years 2000 through 2005 upon the loss of market exclusivity in European countries throughout this period.
European sales of these products represent 5% of Merck human
health sales for 1999. While the expiration of a product patent
normally results in a loss of market exclusivity, commercial benefits may continue to be derived from other patents, for example,
patents on processes, intermediates, compositions, uses and
formulations related to the product, and, in the United States,
additional market exclusivity that may be available under federal
law. The U.S. Food and Drug Administration (FDA) recently
granted an additional six months of U.S. market exclusivity to
Vasotec for all its uses, based upon studies performed by the
Company for pediatric use.
We anticipate that the worldwide trend toward cost-containment will continue into the new millennium, resulting in ongoing pressures on health care budgets. As we continue to launch
new products successfully, contribute to health care debates and
monitor reforms, our new products, policies and strategies will
enable us to maintain our strong position in the changing economic environment.
Business Strategies
The Company is discovering new innovative products and developing new indications for existing products – the result of its
continuing commitment to research. The Company is also developing innovative sales, marketing and education techniques;
establishing joint ventures, licensing agreements and health care
partnerships with large managed care organizations and other
payers; and demonstrating to payers and providers the costeffectiveness of Merck products. Additionally, achievement of
productivity gains has become a permanent strategy. Productivity
initiatives include, at the manufacturing level, optimizing plant
utilization, implementing lowest-cost processes and improving
technology transfer between research and manufacturing, and
throughout the Company, reducing the cost of purchased materials and services, re-engineering core and administrative processes
and streamlining the organization. At the manufacturing level, the
Company expects that productivity gains will continue to substantially offset inflation.
32
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
To enhance its competitive position in the fast-growing area
of managed care, Merck acquired Medco Containment Services,
Inc. in 1993 (renamed Merck-Medco Managed Care). MerckMedco provides pharmaceutical benefit services in the United
States. Merck-Medco manages prescription drug programs
through its mail service and retail pharmacy networks, and
offers a series of health management programs to help payers,
providers and patients manage high-risk, high-cost diseases.
Merck-Medco sells its pharmaceutical benefit management
services to corporations, labor unions, insurance companies,
Blue Cross/Blue Shield organizations, government agencies,
federal and state employee plans, health maintenance and other
similar organizations.
Joint Ventures
To expand its research base and realize synergies from combining capabilities, opportunities and assets, the Company has
formed a number of joint ventures. In 1982, Merck entered into
an agreement with Astra AB (Astra) to develop and market
Astra’s products under a royalty-bearing license. In 1993, the
Company’s total sales of Astra products reached a level that triggered the first step in the establishment of a joint venture business carried on by Astra Merck Inc. (AMI), in which Merck and
Astra each owned a 50% share. The joint venture, formed in
November 1994, developed and marketed most of Astra’s new
prescription medicines in the United States. Joint venture sales
were $1.7 billion for the first six months of 1998 and $2.3 billion for 1997, consisting primarily of Prilosec, the first of a class
of medications known as proton pump inhibitors, which slows
the production of acid from the cells of the stomach lining.
On July 1, 1998, Merck and Astra completed the restructuring
of the ownership and operations of the joint venture whereby the
Company acquired Astra’s interest in AMI, renamed KBI Inc.
(KBI), for consideration totaling $3.1 billion, including approximately $700.0 million in cash and assumption of a $2.4 billion
preferred stock obligation to Astra. The restructuring provided
Astra with the flexibility to develop global operations, pursue
strategic alliances and manage the U.S. business, free of the
restrictions imposed by the prior AMI joint venture agreement,
while preserving the Company’s interests and rights to the U.S.
sales of current and future Astra products. As a result of the
acquisition, the Company fully owned KBI’s operating assets and
the license rights to make, have made, import, use and sell the
existing and future U.S. pharmaceutical compounds of Astra. The
Company then contributed KBI’s operating assets of $644.3 million, including a $598.0 million step-up in carrying value, to a
new U.S. limited partnership, named Astra Pharmaceuticals L.P.
(the Partnership) in exchange for a 1% limited partner interest.
The contributed assets included KBI’s workforce, operating facility, trademarks and information systems. Astra contributed the net
assets of its wholly owned subsidiary, Astra USA, Inc., to the
Partnership in exchange for a 99% general partner interest. For a
franchise fee payment of $230.0 million, the Partnership became
the exclusive distributor of the products for which KBI retained
rights. The Partnership was renamed AstraZeneca LP (AZLP)
upon Astra’s 1999 merger with Zeneca Group Plc (the
AstraZeneca merger), discussed later.
Merck’s acquisition of Astra’s interest in KBI for $3.1 billion
was accounted for under the purchase method. In addition to the
50% step-up in carrying value of KBI’s operating assets, purchase
price allocations resulted in the recognition of goodwill totaling
$825.9 million which is being amortized on a straight-line basis
over 20 years and other intangibles, principally the retained U.S.
patent rights on in-line products totaling $978.0 million, which
are being amortized on a straight-line basis over 10 years. In connection with the acquisition of the remaining 50% of the license
rights to product candidates within Astra’s research pipeline, the
Company recorded a $1.04 billion charge for acquired research
associated with 10 product candidates in Phase II or later stages
of development and U.S. rights to research projects which had
not yet entered Phase II. At the acquisition date, technological
feasibility for the product candidates and the pre-Phase II
research projects had not been established and no alternative
future use existed. The product candidates were in various therapeutic categories, principally gastrointestinal (comprising over
50% of the charge for Phase II or later stages), respiratory and
neurological, with projected FDA approval dates in the years
1999 through 2005. None of these future products is individually
material to the Company. The fair value of the acquired research
was determined based upon the present value of each product’s
projected future cash flows, utilizing an income approach reflecting the appropriate cost of capital. Future cash flows were predominately based on net income forecasts for each product
consistent with historical pricing, margins, and expense levels
for similar products. Revenues were estimated based on relevant
market size and growth factors, expected industry trends, individual product life cycles, and the life of each product’s underlying
patent. The implied risk adjusted discount rates applied to projected cash flows were based on the Company’s weighted average cost of capital, the useful life of each product, the applicable
product’s stage of completion, as well as its probability of technical and marketing success, and averaged 26%, with a range of
12% to 37%. A cost approach was also utilized to corroborate the
values determined under the income approach. In applying the
cost approach, consideration was given to the level of research
and development expenditures within Astra, the appropriate
required rates of return within the market place and the cost of
reproduction for the acquired assets. Both of these approaches
are appropriate under generally accepted valuation methods and
yielded similar results. The research projects considered in the
valuation are all subject to the normal risks and uncertainties
associated with demonstrating the safety and efficacy required
to obtain timely FDA approval. While Merck will benefit from
future revenues of successful product candidates, AZLP and
Astra will bear all costs to complete the development of these
products, unless AZLP elects not to pursue a particular product
candidate, at which time the Company would bear further development costs at its discretion. Overall, the incremental revenue
and partnership returns arising from this transaction, net of
increased amortization and dividends on KBI’s preferred stock
obligation to Astra, are expected to have a favorable impact on
future results of operations and cash flows.
While maintaining a 1% limited partner interest in AZLP,
Merck enjoys consent and protective rights intended to preserve
its business and economic interests, including restrictions on the
power of the general partner to make certain distributions or
dispositions. Furthermore, in limited events of default, additional rights will be granted to the Company, including powers
to direct the actions of, or remove and replace, the Partnership’s
chief executive officer and chief financial officer. Merck earns
certain Partnership returns, which are recorded as Equity
income from affiliates, as well as ongoing revenue based on
sales of current and future KBI products. The Partnership returns
reflect Merck’s share of AZLP earnings in conformity with
accounting principles generally accepted in the United States
(GAAP earnings) and include a preferential return, a priority
return and other variable returns which are based, in part, upon
sales of certain former Astra USA, Inc. products. The preferential return represents Merck’s share of the undistributed AZLP
GAAP earnings which is expected to approximate $275.0 million annually through 2008. The priority return is an amount provided for in the Partnership agreement that varies based upon
the fiscal year, applicable income tax rates and the occurrence
of a partial redemption of our limited partner interest. We
expect this return to approximate $300.0 million annually, subject to availability of sufficient Partnership profits. The
AstraZeneca merger triggers a partial redemption of Merck’s
limited partner interest in 2008, reducing this amount to approximately $210.0 million annually at that time. Upon the
partial redemption of the Company’s limited partner interest,
AZLP will distribute to KBI an amount based primarily on a
multiple of Merck’s annual revenue derived from sales of the
former Astra USA, Inc. products for the three years prior to the
redemption (the Limited Partner Share of Agreed Value).
For a payment of $443.0 million, Astra purchased an option
to buy Merck’s interest in the KBI products, excluding the gastrointestinal medicines Prilosec and esomeprazole, in 2008, 2012
or 2016 (the Asset Option) at an exercise price based primarily
on a multiple of Merck’s annual revenue derived from the KBI
products for the three years prior to exercise. As a result of the
AstraZeneca merger, the Asset Option is now only exercisable
in 2010 at an exercise price equal to the net present value as
of March 31, 2008 of projected future pretax revenue to be
received by the Company from the KBI products (the Appraised
Value). Merck now also has the right to require Astra to purchase
such interest in 2008 at the Appraised Value. The Company also
granted Astra an option to buy Merck’s common stock interest in
KBI, at an exercise price based on the net present value of estimated future net sales of Prilosec and esomeprazole (the Shares
Option). This option is exercisable only after Astra’s purchase
of Merck’s interest in the KBI products. Generally, the Shares
Option was not exercisable before 2017, but as a result of the
AstraZeneca merger, is now exercisable two years after Astra’s
purchase of Merck’s interest in the KBI products.
In April 1999, Astra merged with Zeneca Group Plc, forming
AstraZeneca AB (AstraZeneca), which constituted a Trigger
Event under the KBI restructuring agreements. As a result of
the merger, Astra was required to make two one-time payments
to Merck totaling approximately $1.8 billion. In exchange for
Merck’s relinquishment of rights to future Astra products with
no existing or pending U.S. patents at the time of the merger,
Astra paid $967.4 million (the Advance Payment), which is
subject to a true-up calculation in 2008 that may require repayment of all or a portion of this amount. The amount determined
by the true-up calculation (the True-Up Amount) cannot reasonably be estimated because it is directly dependent on the fair
market value in 2008 of the Astra product rights retained by the
Company which extend to compounds currently in development
as well as compounds that have not yet entered development.
Accordingly, recognition of this contingent income has been
deferred until the realizable amount, if any, is determinable,
which is not anticipated prior to 2008.
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
33
In connection with the Company’s acquisition of Astra’s
interest in KBI, Merck agreed to relinquish rights to the pharmaceutical products of any company that would merge with
or acquire Astra. These rights, which protected the value of
KBI’s perpetual interest in Astra’s pipeline, were relinquished
in exchange for a payment (the Lump Sum Payment) to be
made in the event of the merger or acquisition of Astra. The
Company estimated that it was entitled to receive a Lump Sum
Payment of $822.0 million as the result of the AstraZeneca
merger. In the second quarter of 1999, Astra paid $712.5 million of the Lump Sum Payment and disputed its obligation to
pay the remainder. At December 31, 1999, the Company was
in arbitration seeking to enforce its rights under the agreement
with respect to the disputed amount. Although Merck retains an
interest in current and future Astra products with an existing or
pending U.S. patent, this merger effectively curtailed the Company’s perpetual interest in Astra’s pipeline and, thus, reduced
the going concern value acquired in 1998. Accordingly, onehalf of the expected payment was an adjustment to the purchase
price Merck paid for Astra’s one-half interest in KBI, reducing
goodwill by $411.0 million, less 50% of a reserve relating to
disputed proceeds. The balance represents compensation to the
Company for the reduction of the value of its original one-half
interest in KBI and was recorded in Other (income) expense,
net. Because the reduction in goodwill is not tax-effected and
the Lump Sum Payment is fully taxable, this transaction, net
of a reserve relating to disputed proceeds, yielded an after-tax
gain of $74.6 million. Subsequent to year end, the arbitration
was concluded and a final decision was rendered, pursuant to
which the Company received $87.2 million of the disputed proceeds plus interest, which will be accounted for in the first
quarter of 2000.
Under the provisions of the KBI restructuring agreements,
because a Trigger Event has occurred, the sum of the Limited
Partner Share of Agreed Value, the Appraised Value and the
True-Up Amount is guaranteed to be a minimum of $4.7 billion.
Distribution of the Limited Partner Share of Agreed Value and
payment of the True-Up Amount will occur in 2008. AstraZeneca’s purchase of Merck’s interest in the KBI products is
contingent upon the exercise of either Merck’s option in 2008 or
AstraZeneca’s option in 2010 and, therefore, payment
of the Appraised Value may or may not occur.
In 1989, Merck formed a joint venture with Johnson &
Johnson to develop and market a broad range of nonprescription medicines for U.S. consumers. This 50% owned joint
venture was expanded into Europe in 1993, and into Canada
in 1996. Sales of joint venture products were as follows:
1999
1998
1997
Gastrointestinal products . . . . . . . $ 359.3
Other products . . . . . . . . . . . . . . .
128.1
$ 387.2
127.0
$ 386.3
97.4
$ 487.4
$ 514.2
$ 483.7
In 1991, Merck and E.I. du Pont de Nemours and Company
(DuPont) formed an independent, research-driven, worldwide
pharmaceutical joint venture, The DuPont Merck Pharmaceutical
Company (DMPC), equally owned by each party. Joint venture
sales were $686.2 million for the first six months of 1998 and
$1.3 billion for 1997, consisting primarily of cardiovascular,
radiopharmaceutical and central nervous system products. On
34
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
July 1, 1998, the Company sold its one-half interest in DMPC
to DuPont for $2.6 billion in cash. (See Note 3 to the consolidated financial statements for further information.)
In 1994, Merck and Pasteur Mérieux Connaught (now Aventis
Pasteur) established a 50% owned joint venture to market
vaccines and collaborate in the development of combination
vaccines, for distribution in Europe. Sales of joint venture
products were as follows:
1999
1998
1997
Hepatitis vaccines . . . . . . . . . . . . $ 159.6
Viral vaccines . . . . . . . . . . . . . . .
68.6
Other vaccines . . . . . . . . . . . . . . .
338.6
$ 189.0
64.6
306.8
$ 216.2
63.3
301.8
$ 566.8
$ 560.4
$ 581.3
In August 1997, Merck and Rhône-Poulenc (now Aventis)
combined their animal health and poultry genetics businesses
to form Merial, a fully integrated, stand-alone joint venture,
equally owned by each party. Merial is the world’s largest company dedicated to the discovery, manufacture and marketing
of veterinary pharmaceuticals and vaccines. Merck contributed
developmental research personnel, sales and marketing activities,
and animal health products, as well as its poultry genetics business. Aventis contributed research and development, manufacturing, sales and marketing activities, and animal health products,
as well as its poultry genetics business. Animal health sales
reported in Merck’s 1997 consolidated sales were $448.3 million
prior to August 1. Sales of joint venture products were as follows:
1999
1998
1997
Avermectin products . . . . . . . . $ 564.9
Fipronil products . . . . . . . . . . .
316.0
Other products . . . . . . . . . . . . .
799.2
$ 616.4
300.8
842.2
$ 308.6
83.1
354.6
$ 1,680.1
$ 1,759.4
$ 746.3
Foreign Operations
The Company’s operations outside the United States are conducted primarily through subsidiaries. Sales of Merck human
health products by subsidiaries outside the United States were
40% of Merck human health sales in 1999, and 43% and 46%
in 1998 and 1997, respectively. The 1999 and 1998 percentages
were affected by increased domestic supply sales to AZLP,
as a result of the restructuring of AMI.
Distribution of 1999 Foreign
Human Health Sales
Western
Europe
51%
Asia/Pacific
27%
Other
Foreign
22%
The Company’s worldwide business is subject to risks of
currency fluctuations and governmental actions. The Company
does not regard these risks as a deterrent to further expansion
of its operations abroad. However, the Company closely reviews
its methods of operations and adopts strategies responsive to
changing economic and political conditions.
Within the EU, there has been an evolution toward a single
market in pharmaceuticals, for which Economic and Monetary
Union, including the adoption of the euro as a single currency,
marks an important step. The Company has recognized the
strategic significance of this development and adopted the euro
in 1999. In this way, we are demonstrating our support for the
European Community’s industrial policy, while working toward
the EU’s goal of a competition-driven market that will enhance
access to quality healthcare for European citizens.
In recent years, Merck has been expanding its operations
in countries located in Latin America, the Middle East, Africa,
Eastern Europe and Asia Pacific where changes in government
policies and economic conditions are making it possible for
Merck to earn fair returns. Businesses in these developing
areas, while sometimes less stable, offer important opportunities for growth over time.
Operating Results
Total sales for 1999 increased 22% in total and 17% on a volume basis from 1998, including a two point increase attributable
to supply sales to AZLP, as a result of the 1998 restructuring
of AMI. Foreign exchange had less than a one point unfavorable effect on 1999 sales growth. Total sales for 1998 increased
14% from 1997, including a three point benefit attributable to
the AMI restructuring. Foreign exchange reduced 1998 sales
growth by two percentage points. Sales growth for 1998 was
affected by the 1997 formation of the Merial joint venture
and the divestiture of the crop protection business. Adjusting
for these effects, 1998 sales grew 16% in total and 13% on
a volume basis.
Components of
Human Health Sales Growth
20%
Total Sales Growth
15
Sales Volume Growth
Net Pricing Actions
10
Foreign Exchange
Rates
5
0
-5
95
96
97
98
99
This chart illustrates the effects of price, volume and exchange on
sales of Merck human health products. Growth for 1995 has been
adjusted for the effect of the Astra Merck joint venture formation.
Growth for 1999 and 1998 includes a three and five point increase,
respectively, attributable to the 1998 AMI restructuring. The human
health business has grown predominantly through sales volume over
the last five years. Price had essentially no effect on sales growth,
while the effect of exchange has varied over the same period.
In 1999, sales of Merck human health products grew 15%,
including a three point increase attributable to the 1998 restructuring of AMI. Foreign exchange rates had a one percentage
point unfavorable effect on sales growth, while price changes
had essentially no effect. In measuring these effects, changes in
the value of foreign currencies are calculated net of price
increases in hyperinflationary countries, principally in Latin
America. Domestic sales growth was 21%, including a six point
increase attributable to the restructuring of AMI, while foreign
sales grew 8% including a two percentage point unfavorable
effect from exchange. The unit volume growth from sales of
Merck human health products was driven by established products, including Zocor and Prinivil, as well as newer products,
including Fosamax, Cozaar, Hyzaar, Singulair, Propecia,
Maxalt, Aggrastat and the 1999 launch of Vioxx.
Zocor, one of Merck’s cholesterol-lowering agents, continued to show strong growth. In 1999, it was the world’s leading
statin medicine and became the first statin approved by the FDA
to raise levels of “good” cholesterol (HDL) in people with high
levels of “bad” cholesterol (LDL). Newly published studies
have confirmed that low HDL levels are a significant cardiovascular risk factor, and Zocor has been shown to increase HDL by
8% to 16% in patients who also have high LDL cholesterol.
New analyses of data from the 1994 Landmark Scandinavian
Simvastatin Survival Study show that Zocor helped reduce death
from heart disease by 55% in people with diabetes who have
high LDL levels.
Prinivil, one of Merck’s angiotensin converting enzyme (ACE)
inhibitors for high blood pressure, heart failure and other cardiovascular disorders, recorded strong growth in 1999. The drug
offers a key competitive advantage of convenient once-daily
dosing for the treatment of hypertension, heart failure and acute
myocardial infarction.
In 1999, Fosamax, Merck’s nonhormonal medicine to treat
and prevent postmenopausal osteoporosis and reduce the incidence of hip fractures, the most serious fractures related to
osteoporosis, continued to record strong growth and continues
to be the most widely prescribed medicine in the world for
treatment of postmenopausal osteoporosis. In November 1999,
Merck presented results of a study showing that a once-weekly
formulation of Fosamax provides the same bone-building benefit as once-daily treatment. Consumer research has shown that
women prefer the convenience of once-weekly therapy. The
Company has submitted an application to the FDA for approval
of the once-weekly formulation. A study presented in October
1999 to the American Society for Bone and Mineral Research
suggests that treatment with Fosamax may also be beneficial
to men with osteoporosis.
Cozaar, and its companion agent, Hyzaar (a combination
of Cozaar and the diuretic hydrochlorothiazide), are Merck’s
newest antihypertensive drugs and rank among Merck’s fastestgrowing products. Cozaar is sold in more than 80 countries and
Hyzaar in more than 60. Together they are the world’s most
widely prescribed drugs in the angiotensin II antagonists class.
In the United States, the Company initiated a “Get-to-Goal
Guarantee” whereby patients on Cozaar who fail to reach
health improvement goals set by their physicians are reimbursed by Merck for up to six months worth of treatment.
Extensive clinical trials are under way to investigate whether
Cozaar improves survival and reduces disability associated with
hypertension, diabetic kidney disease and recent heart attacks.
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
35
Singulair, Merck’s once-a-day tablet for the treatment of
chronic asthma in adults and children age six and older, is the
most widely prescribed leukotriene receptor antagonist in the
world. The product has been introduced in 71 countries. A study
published in July 1999 by the British Medical Journal showed
that patients with chronic asthma who took Singulair in addition
to their inhaled steroid medicine were able to reduce their daily
doses of inhaled steroids by 47% (versus 30% taking a placebo)
and still keep their asthma under control. In addition, 40% (versus
29% taking a placebo) of these patients were able to gradually
stop taking inhaled steroids completely. The Company has filed
an application with the FDA to market a pediatric dosage form
for children as young as two. Studies are under way to test
Singulair’s effectiveness in combating allergic rhinitis and as a
hospital-based intravenous treatment for acute asthma sufferers.
Propecia, the first and only tablet to treat male pattern hair
loss, has been introduced in the United States and 34 other
countries. It offers men a highly effective, generally well tolerated and easy-to-use option in managing hair loss on the vertex
and anterior mid-scalp. In the United States, about 600,000 men
have taken it for male pattern hair loss. Research has proven
that Propecia regrows natural hair in about two out of three
men who take it and maintains existing hair in about five out
of six. Innovative advertising and promotional campaigns have
been designed to keep Propecia on the minds of potential customers who could benefit from this treatment.
Maxalt, Merck’s treatment for acute migraine headaches in
adults, continues to make solid gains in the United States and
24 other countries where it is available. In 1999, it was the
fastest growing oral migraine medication in the U.S. and
European markets. Maxalt provides fast and effective relief
of the debilitating headache pain and other symptoms such as
nausea and sensitivity to light and noise that often accompany
a migraine attack. Maxalt is the first and only migraine medicine
in the United States available in both conventional tablets and
convenient, rapidly dissolving oral wafers, which disintegrate
within seconds on the tongue without liquids.
Aggrastat, a member of a new class of drugs known as
glycoprotein IIb/IIIa antagonists, is used to treat patients with
unstable angina and non-Q-wave myocardial infarction, otherwise known as a “small” heart attack. Aggrastat reduces the
risk of heart attack by 47% within the first seven days of an
episode and 30% within the first month. Aggrastat has gained
steadily in the IIb/IIIa antagonist market by targeting hospitals
in the United States that treat the vast majority of patients with
acute coronary syndrome. About 70% of those targeted have
added Aggrastat to their formularies.
In May 1999, following a six-month priority review, the
FDA cleared Vioxx, Merck’s once-daily agent that specifically
inhibits COX-2, for relief of the signs and symptoms of
osteoarthritis, management of acute pain in adults and treatment
of menstrual pain. With its product profile for strength, safety
and once-daily simplicity, Vioxx remains the country’s fastest
growing prescription arthritis medicine. In the product’s first
seven months, U.S. physicians wrote more than five million
prescriptions. Vioxx is also enjoying success in the 47 other
countries in which it has been launched. Vioxx was the first agent
that specifically inhibits COX-2 to receive mutual recognition
approval for marketing in all of the European Union countries
and quickly became the most successful pharmaceutical launch
in the United Kingdom after its introduction. In September
1999, Merck entered into an agreement with a leader in dental
products to co-promote Vioxx to U.S. dentists, periodontists and
36
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
oral surgeons. The Company is conducting extensive clinical
studies with Vioxx to evaluate its efficacy in the treatment of
rheumatoid arthritis and in the prevention and treatment of
Alzheimer’s disease. Merck also has begun studies in patients
with colon polyps – a broad population at risk of developing
colon cancer. Reducing the number of these polyps may reduce
the incidence of colon cancer.
A group of mature products, including Pepcid, Mevacor,
Vasotec, Timoptic and Noroxin, while still contributing to 1999
revenues, declined in unit volume due to generic and therapeutic competition.
In 1998, sales of Merck human health products grew 11%,
including a five point increase attributable to the restructuring
of AMI. Foreign exchange rates had a three percentage point
unfavorable effect on sales growth, while price changes had
essentially no effect. Domestic sales growth was 17%, including
a nine point increase attributable to the restructuring of AMI,
while foreign sales grew 4% including a seven percentage point
unfavorable effect from exchange. The unit volume growth
from sales of Merck human health products was paced by
established products, including Zocor, Prinivil, Proscar and
M-M-R II, newer products, including Cozaar, Hyzaar, Fosamax,
Crixivan, Varivax, Vaqta, Comvax and Trusopt, as well as the
1998 product launches of Singulair, Propecia, Maxalt, Cosopt
and Aggrastat.
Merck-Medco sales contributed significantly to 1999 and
1998 sales growth. By continuing to invest in the development
of important clinical programs, including high-cost, high-risk
diseases, enhanced information management systems and communications technologies, including Internet initiatives, MerckMedco has strengthened its leadership position in managing
prescription drug care. By year-end, more than 700,000 plan
members had logged on to the Company’s Internet web site
(merckmedco.com) and Company mail service pharmacies
were dispensing about 250,000 prescriptions monthly that
members had ordered online. The number of prescriptions
managed by Merck-Medco grew to more than 370 million in
1999, up 16% from 322 million prescriptions in 1998.
Costs, Expenses and Other
($ in millions)
1999 Change
Materials and
production . . . . $ 17,534.2
Marketing and
administrative . .
5,199.9
Research and
development . . .
2,068.3
Acquired research
51.1
Equity income
from affiliates . . .
(762.0)
Gains on sales
—
of businesses . . .
Other (income)
expense, net . . .
3.0
$ 24,094.5
1998 Change
1997
+26% $ 13,925.4
+18% $ 11,790.3
+15%
4,511.4
+ 5%
4,299.2
+14%
–95%
1,821.1
1,039.5
+ 8%
*
1,683.7
–14%
*
–99%
(884.3) +21%
(2,147.7)
499.7
+28% $ 18,765.1
*
+46%
—
(727.9)
(213.4)
342.7
+ 9% $ 17,174.6
* 100% or greater
In 1999, materials and production costs increased 26%, compared to a 22% sales growth rate. The higher growth rate in these
costs over the sales volume growth is primarily attributable to
growth in Merck-Medco’s historically lower-margin business.
Excluding the effect of exchange and inflation, these costs
increased 17%, the same as the unit sales volume growth in 1999.
In 1998, materials and production costs increased 18%. Adjusting
for the effects of the 1997 formation of the Merial joint venture
and the sale of the crop protection business, materials and production costs increased 19%, compared to a 16% sales growth
rate on the same basis. Adjusting for the aforementioned effects,
and excluding exchange and inflation, these costs increased
12%, compared to a 13% unit sales volume gain in 1998.
Marketing and administrative expenses increased 15% in
1999. Excluding the effect of exchange and inflation, these
expenses increased 13%, including a 10 point increase attributable to marketing expenses, primarily in support of recent product launches including the 1999 launch of Vioxx. Marketing and
administrative expenses increased 5% in 1998. Adjusting for
the effects of the 1997 formation of the Merial joint venture
and the sale of the crop protection business, these expenses
increased 9%. Adjusting for the aforementioned effects, and
excluding exchange and inflation, these expenses also increased
9%, primarily due to the commitment of resources to support
recent product launches, including five new products in 1998,
expansion of sales forces in the United States and several key
international markets, and investments in information technology initiatives by Merck-Medco. Marketing and administrative
expenses as a percentage of sales were 16% in 1999, 17% in
1998 and 18% in 1997. The improvement in these ratios primarily reflects the lower growth of marketing and administrative
costs relative to Merck-Medco sales growth.
Research and development expenses increased 14% in 1999.
Excluding the effect of exchange and inflation, these expenses
increased 10%. Research and development expenses increased
8% in 1998. Adjusting for the effects of the 1997 formation of
the Merial joint venture and sale of the crop protection business, these expenses increased 10%. Adjusting for the aforementioned effects, and excluding the effects of exchange and
inflation, these expenses increased 8%.
Research and development in the pharmaceutical industry
is inherently a long-term process. The following data show
an unbroken trend of year-to-year increases in research and
development spending. For the period 1990 to 1999, the compounded annual growth rate in research and development was
11%. Research and development expenses for 2000 are estimated to approximate $2.4 billion.
R&D Expenditures
$ in millions
$2,200
1,650
1,100
550
0
90
91
92
93
94
95
96
97
98
99
In 1999, in connection with the acquisition of SIBIA
Neurosciences, Inc. (SIBIA), the Company recorded a pretax
and after-tax charge of $51.1 million for acquired research
associated with specific research projects for which, at the
acquisition date, technological feasibility had not been established and no alternative future use existed. (See Note 3 to the
consolidated financial statements for further information.)
In 1998, in connection with the restructuring of AMI, the
Company recorded a $1.04 billion charge for acquired research
associated with 10 product candidates in Phase II or later stages
of development and U.S. rights to future Astra products which
had not yet entered Phase II, and for which, at the acquisition
date, technological feasibility had not been established and no
alternative future use existed. (See Note 4 to the consolidated
financial statements for further information.)
Equity income from affiliates reflects the favorable performance of our joint ventures, and beginning in the second half of
1998, partnership returns from AZLP, which are recorded on a
pretax basis, as well as the absence of equity income from
DMPC following the Company’s third quarter 1998 sale of its
one-half interest.
The Company recorded a pretax gain of $2.15 billion ($1.25 billion after tax) on the sale of its one-half interest in DMPC in the
third quarter of 1998. (See Note 3 to the consolidated financial
statements for further information.) This gain was substantially
offset on an after-tax basis by a $1.04 billion pretax and after-tax
charge for acquired research in connection with the restructuring
of AMI and $338.6 million of pretax other charges ($193.1 million after tax). These other charges, which are included in Other
(income) expense, net, were primarily for environmental remediation costs and asset write-offs, principally deferred start-up
costs which were expensed in accordance with the Company’s
adoption of Statement of Position No. 98-5, “Reporting on the
Costs of Start-up Activities.”
In 1997, the Company recorded a pretax gain of $213.4 million on the sale of its crop protection business. (See Note 3 to
the consolidated financial statements for further information.)
This gain was substantially offset by $207.3 million of pretax
charges included in Other (income) expense, net, primarily for
the loss on sale of assets, endowment of The Merck Company
Foundation and environmental remediation costs.
In 1999, other expense, net, decreased primarily due to
$411.0 million of income associated with the Lump Sum Payment from Astra, partially offset by a reserve related to disputed
proceeds and $110.0 million of charges, primarily for endowment of both The Merck Company Foundation and The Merck
Genome Research Institute, as approved by the Board of
Directors based on projected future operating requirements of
these organizations, and provisions for the settlement of claims.
Also contributing to the decrease was $77.9 million of income
resulting from the reversal of a restructuring reserve established
in 1995 for the anticipated 1999 closure of a manufacturing
facility and the absence of $338.6 million of charges recorded
in 1998. These decreases were also partially offset by higher
interest expense, increased minority interest expense reflecting
a full year of dividends paid to Astra on preferred stock of a
subsidiary and a full year of amortization of goodwill and other
intangibles resulting from the 1998 restructuring of AMI. In
1998, other expense, net, increased primarily due to the aforementioned $338.6 million of charges, increased amortization
of goodwill and other intangibles arising from the restructuring
of AMI, increased minority interest expense reflecting dividends
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
37
paid to Astra on preferred stock of a subsidiary and higher interest
expense. This increase was partially offset by higher interest
income benefiting from the proceeds from the sale of the Company’s one-half interest in DMPC and $207.3 million of charges
recorded in 1997, which substantially offset the gain on the sale
of the crop protection business. (See Notes 4 and 14 to the consolidated financial statements for further information.)
Earnings
($ in millions except
per share amounts)
Net income . . . . . . .
As a % of sales . . .
As a % of average
total assets . . . . .
Earnings per
common share
assuming dilution. .
1999 Change
1998 Change
1997
$ 5,890.5
18.0%
+12% $5,248.2
19.5%
+14% $ 4,614.1
19.5%
17.5%
18.2%
18.5%
$2.45
+14%
$2.15
+15%
$1.87
Net income was up 12% in 1999 and 14% in 1998. Net
income as a percentage of sales was 18.0% in 1999, compared
to 19.5% in 1998 and 1997. The decline in the ratio from 1998
is principally due to a higher growth rate in Medco’s historically lower-margin business and the commitment of resources
to support recent product launches, including the 1999 launch
of Vioxx. Foreign currency exchange had a one percentage point
unfavorable effect as compared to a four percentage point unfavorable effect in 1998. The Company’s effective income tax rate
in 1999 was 31.7%, compared to 35.5% in 1998 and 28.6% in
1997. The lower effective tax rate in 1999 was primarily driven
by the absence of 1998 nonrecurring items, principally the
nondeductibility of the acquired research charge in connection
with the restructuring of AMI and the state tax cost of the gain
on the sale of the Company’s one-half interest in DMPC. This
impact was partially offset by the 1999 nondeductibility of both
the goodwill write-off resulting from the AstraZeneca merger
and the acquired research charge in connection with the SIBIA
acquisition. The higher effective rate in 1998 versus 1997 principally relates to the aforementioned 1998 nonrecurring items.
The increased tax rate in 1998 substantially offset the growth in
pretax income from these items, resulting in no significant effect
on net income growth. Net income as a percentage of average
total assets was 17.5% in 1999, 18.2% in 1998 and 18.5% in
1997. Earnings per common share assuming dilution grew 14%
in 1999, compared to 15% in 1998. In 1999 and 1998, earnings
per common share assuming dilution increased at a faster rate
than net income as a result of treasury stock purchases.
Distribution of 1999 Sales
and Equity Income
Retained
Earnings
10%
Raw Materials and
Production Costs
52%
Dividends
8%
Taxes and
Net Interest
7%
38
Operating
Expenses
23%
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
Environmental and Other Matters
The Company believes that it is in compliance in all material
respects with applicable environmental laws and regulations.
In 1999, the Company incurred capital expenditures of approximately $101.7 million for environmental protection facilities.
Capital expenditures for this purpose are forecasted to exceed
$600.0 million for the years 2000 through 2004. In addition,
the Company’s operating and maintenance expenditures for
pollution control were approximately $74.2 million in 1999.
Expenditures for this purpose for the years 2000 through 2004
are forecasted to exceed $428.0 million.
The Company is a party to a number of proceedings brought
under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, as well
as under other federal and state statutes. The Company is also
remediating environmental contamination resulting from past
industrial activity at certain of its sites and has taken an active
role in identifying and providing for these costs. In management’s opinion, the liabilities for all environmental matters
which are probable and reasonably estimable have been accrued.
Expenditures for remediation and environmental liabilities were
$28.2 million in 1999, and are estimated at $232.0 million for
the years 2000 through 2004. These amounts do not consider
potential recoveries from insurers or other parties. Although
it is not possible to predict with certainty the outcome of these
environmental matters, or the ultimate costs of remediation,
management does not believe that any reasonably possible expenditures that may be incurred in excess of those provided
should result in a materially adverse effect on the Company’s
financial position, results of operations, liquidity or capital
resources for any year. (See Note 9 to the consolidated financial statements for further information.)
In 1994, the Company, along with other pharmaceutical
manufacturers and pharmaceutical benefits managers (PBMs),
received a notice from the Federal Trade Commission (FTC)
that it intended to investigate agreements, alliances, activities
and acquisitions involving pharmaceutical manufacturers and
PBMs. In August 1998, the Company and Merck-Medco
reached an agreement with the FTC which resolves their portion of the investigation. The agreement formalizes the policies
and practices the Company and Merck-Medco voluntarily
adopted over four years ago governing the operation of their
businesses. The agreement will not affect how the Company
and Merck-Medco currently compete in the marketplace,
serve their customers or conduct business with third parties.
Accordingly, the Company does not believe that the agreement
will have a materially adverse effect on the Company’s financial
position, results of operations or liquidity.
In 1996, the Company, along with other pharmaceutical
manufacturers, received a notice from the FTC that it was conducting an investigation into pricing practices. The Company
has cooperated fully with the FTC in this investigation, and
believes that it is currently operating in all material respects
in accordance with applicable standards. While it is not feasible
to predict or determine the outcome of this investigation, management does not believe that it should result in a materially
adverse effect on the Company’s financial position, results
of operations or liquidity.
The Company initiated a program in 1996 to assess the risks of
Year 2000 noncompliance, remediate all non-compliant systems,
assess the readiness of key third parties and develop contingency
plans. The critical aspects of the Year 2000 readiness program
were completed in the third quarter of 1999. The Company has
not experienced any significant business disruptions related to the
transition to the Year 2000; however, we will continue to actively
monitor our systems and third party suppliers throughout most of
the first quarter. Contingency plans are in place to prevent the failure of critical systems from having a material effect on the Company and address the risk of third party noncompliance. Total
costs to address the Year 2000 issue were not material to the
Company’s financial position, results of operations or cash flows.
Capital Expenditures
Capital expenditures were $2.6 billion in 1999 and $2.0 billion
in 1998. Expenditures in the United States were $2.0 billion
in 1999 and $1.4 billion in 1998. Expenditures during 1999
included $1.0 billion for production facilities, $664.5 million
for research and development facilities, $101.7 million for environmental projects, and $784.4 million for administrative, safety
and general site projects. Capital expenditures approved but
not yet spent at December 31, 1999 were $2.5 billion. Capital
expenditures for 2000 are estimated to be $2.8 billion.
Depreciation was $771.2 million in 1999 and $700.0 million
in 1998, of which $552.3 million and $512.3 million, respectively, applied to locations in the United States.
Capital Expenditures
$ in millions
$2,600
1,950
1,300
650
0
90
91
92
93
94
95
96
97
98
99
Analysis of Liquidity and Capital Resources
Cash provided by operations continues to be the Company’s
primary source of funds to finance operating needs and capital
expenditures. In 1999, pretax cash flows from operations were
$8.6 billion, reflecting the continued growth of the Company’s
earnings. This cash was used to fund capital expenditures of
$2.6 billion, to pay Company dividends of $2.6 billion and to
partially fund the purchase of treasury shares. At December 31,
1999, the total of worldwide cash and investments was $8.0 billion, including $3.2 billion in cash, cash equivalents and shortterm investments, and $4.8 billion of long-term investments.
The above totals include $1.2 billion in cash and investments
held by Banyu Pharmaceutical Co., Ltd., in which the Company
has a 50.87% ownership interest.
Selected Data
1999
1998
1997
Working capital . . . . . . . . . . . . . $ 2,500.4
Total debt to total liabilities
and equity . . . . . . . . . . . . . . .
16.8%
Cash provided by operations
to total debt . . . . . . . . . . . . . .
1.0:1
$ 4,159.7
$ 2,644.4
12.1%
8.7%
1.4:1
2.8:1
($ in millions)
Working capital levels are more than adequate to meet the
operating requirements of the Company. Working capital in 1998
reflects proceeds of $2.6 billion from the sale of the Company’s
one-half interest in DMPC and $1.38 billion from the issuance of
a long-term note to Astra. These proceeds were used to fund a
portion of the Company’s stock repurchase program and for
other general corporate purposes.
Debt levels were affected by the issuance of $2.2 billion of
commercial paper borrowings in 1999 and the issuances of the
$1.38 billion note to Astra and two $500.0 million debentures
in 1998, increasing the ratio of total debt to total liabilities and
equity. The ratio of cash provided by operations to total debt,
although impacted by these debt issuances, still reflects the
ability of the Company to cover its debt obligations.
In July 1998, the Board of Directors approved purchases
of up to $5.0 billion of Merck shares. From 1997 to 1999, the
Company purchased $5.9 billion of treasury shares under previously authorized completed programs, and $3.9 billion under
the 1998 program. Total treasury stock purchased in 1999 was
$3.6 billion. For the period 1990 to 1999, the Company has
purchased 469.0 million shares at a total cost of $16.7 billion.
In February 2000, the Board of Directors approved purchases
of up to an additional $10.0 billion of Merck shares.
In 1997, Merck filed a $1.5 billion shelf registration with
the Securities and Exchange Commission for the issuance of debt
securities, increasing available capacity under such filings to
$1.7 billion. In both February and November 1998, the Company
issued $500.0 million of 30-year debentures under the shelf,
bearing coupons of 6.4% and 6.0%, respectively, payable semiannually. The remaining capacity under the shelf is $.7 billion
at December 31, 1999. Also in 1997, the Company established
a $1.5 billion Euro Medium Term Note program, under which
no securities have been issued. Proceeds from the sale of these
securities are to be used for general corporate purposes.
The Company’s strong financial position, as evidenced by
its triple-A credit ratings from Moody’s and Standard & Poor’s
on outstanding debt issues, provides a high degree of flexibility
in obtaining funds on competitive terms. The ability to finance
ongoing operations primarily from internally generated funds
is desirable because of the high risks inherent in research and
development required to develop and market innovative new
products and the highly competitive nature of the pharmaceutical industry.
A significant portion of the Company’s cash flows are
denominated in foreign currencies. Merck relies on sustained
cash flows generated from foreign sources to support its longterm commitment to U.S. dollar-based research and development. To the extent the dollar value of cash flows is diminished
as a result of a strengthening dollar, the Company’s ability
to fund research and other dollar-based strategic initiatives
at a consistent level may be impaired. To protect against the
reduction in value of foreign currency cash flows, Merck has
instituted balance sheet and revenue hedging programs to partially hedge this risk.
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
39
The objective of the balance sheet hedging program is to
protect the U.S. dollar value of foreign currency denominated
net monetary assets from the effects of volatility in foreign
exchange that might occur prior to their conversion to U.S. dollars. To achieve this objective, the Company will hedge foreign
currency risk on monetary assets and liabilities where hedging
is cost beneficial. Merck seeks to fully hedge exposure denominated in developed country currencies, primarily the euro,
Japanese yen and Canadian dollar, and will either partially
hedge or not hedge at all exposure in other currencies, particularly exposure in hyperinflationary countries where hedging
instruments may not be available at any cost. The Company will
minimize the effect of exchange on unhedged exposure, principally by managing operating activities and net asset positions
at the local level. Merck manages its net asset exposure principally with forward exchange contracts. These contracts enable
the Company to buy and sell foreign currencies in the future at
fixed exchange rates. For net monetary assets hedged, forward
contracts offset the consequences of changes in foreign exchange
on the amount of U.S. dollar cash flows derived from the net
assets. Contracts used to hedge net monetary asset exposure
have average maturities at inception of less than one year. A
sensitivity analysis to changes in the value of the U.S. dollar on
foreign currency denominated derivatives and monetary assets
and liabilities indicated that if the U.S. dollar uniformly weakened by 10% against all currency exposures of the Company
at December 31, 1999 and 1998, Income before taxes would
have declined by $2.5 million and $53.9 million, respectively.
Since Merck is in a net short position relative to its major foreign currencies after consideration of forward contracts, a uniform weakening of the U.S. dollar will yield the largest overall
potential net loss in earnings due to exchange. This measurement assumes that a change in one foreign currency relative to
the U.S. dollar would not affect other foreign currencies relative
to the U.S. dollar. Although not predictive in nature, the Company believes that a 10% threshold reflects reasonably possible
near-term changes in Merck’s major foreign currency exposures
relative to the U.S. dollar. The balance sheet hedging program
has significantly reduced the volatility of U.S. dollar cash flows
derived from foreign currency denominated net monetary assets.
The cash flows from these contracts are reported as operating
activities in the Consolidated Statement of Cash Flows.
The objective of the revenue hedging program is to reduce
the potential for longer-term unfavorable changes in foreign
exchange to decrease the U.S. dollar value of future cash flows
derived from foreign currency denominated sales, primarily the
euro and Japanese yen. To achieve this objective, the Company
will partially hedge forecasted sales that are expected to occur
over its planning cycle, typically no more than three years into
the future. The Company will layer in hedges over time,
increasing the portion of sales hedged as it gets closer to the
expected date of the transaction. The portion of sales hedged
is based on assessments of cost-benefit profiles that consider
natural offsetting exposures, revenue and exchange rate volatilities and correlations, and the cost of hedging instruments.
Merck manages its forecasted transaction exposure principally
with purchased local currency put options. On the forecasted
transactions hedged, these option contracts effectively reduce
the potential for a strengthening U.S. dollar to decrease the
future U.S. dollar cash flows derived from foreign currency
denominated sales. Purchased local currency put options
40
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
provide the Company with a right, but not an obligation, to
sell foreign currencies in the future at a predetermined price.
If the value of the U.S. dollar weakens relative to other major
currencies when the options mature, the options would expire
unexercised, enabling the Company to benefit from favorable
movements in exchange, except to the extent of premiums paid
for the contracts. While a weaker U.S. dollar would result in a
net benefit, the market value of the Company’s hedges would
have declined by $86.7 million and $86.3 million, respectively,
from a uniform 10% weakening of the U.S. dollar at December
31, 1999 and 1998. The market value was determined using
a foreign exchange option pricing model and holding all factors
except exchange rates constant. Since Merck uses purchased
local currency put options, a uniform weakening of the U.S.
dollar will yield the largest overall potential loss in the market
value of these options. The December 31, 1999 measurement
included written euro put options with terms identical to deepin-the-money purchased put options. The changes in market
value of the written options equally offset market value changes
of the purchased options. The sensitivity measurement assumes
that a change in one foreign currency relative to the U.S. dollar
would not affect other foreign currencies relative to the U.S.
dollar. Although not predictive in nature, the Company believes
that a 10% threshold reflects reasonably possible near-term
changes in Merck’s major foreign currency exposures relative
to the U.S. dollar. Over the last three years, the program has
reduced the volatility of cash flows and mitigated the loss in
value of cash flows during periods of relative strength in the
U.S. dollar for the portion of revenues hedged. The cash flows
from these contracts are reported as operating activities in the
Consolidated Statement of Cash Flows.
In addition to the balance sheet and revenue hedging programs,
the Company hedges interest rates on certain variable rate foreign
currency denominated investing transactions. Cross-currency
interest rate swap contracts are used, which, in addition to
exchanging cash flows derived from interest rates on the underlying financial instruments for those derived from interest rates
inherent in the contracts, exchange currencies at both inception
and termination of the contracts. These swap contracts allow
the Company to receive variable rate returns and limit foreign
exchange risk. The cash flows from these contracts are reported as
operating activities in the Consolidated Statement of Cash Flows.
The Company’s investment portfolio is principally exposed
to short- to medium-term U.S. dollar fixed interest rates. The
Company’s debt portfolio is principally exposed to mediumto long-term U.S. dollar fixed interest rates. A sensitivity
analysis to measure potential changes in the market value of
the Company’s investments and debt from a change in interest
rates indicated that a one percentage point increase in interest
rates at December 31, 1999 and 1998 would have positively
impacted the net aggregate market value of these instruments
by $205.0 million and $424.8 million, respectively. A one percentage point decrease at December 31, 1999 and 1998 would
have negatively impacted the net aggregate market value by
$266.5 million and $616.6 million, respectively. The fair value
of the Company’s debt was determined using pricing models
reflecting one percentage point shifts in the appropriate yield
curves. The fair value of the Company’s investments was
determined using a combination of pricing and duration models.
Whereas duration is a linear approximation that works well for
modest changes in yields and generates a symmetrical result,
pricing models reflecting the convexity of the price/yield relationship provide greater precision and reflect the asymmetry
of price movements for interest rate changes in opposite directions. The impact of convexity is more pronounced in longerterm maturities and low interest rate environments. The reduced
sensitivities at December 31, 1999 compared to the prior year
were principally due to the shorter weighted average maturity
of the Company’s debt portfolio and higher interest rates.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133). The Statement
establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at fair value and that changes
in fair value be recognized currently in earnings, unless specific
hedge accounting criteria are met. In June 1999, the FASB
issued Statement No. 137, Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date
of FASB Statement No. 133, which delays the required adoption of FAS 133 to fiscal 2001. The timing of adoption of
FAS 133 and effect on the Company’s financial position or
results of operations have not yet been determined.
Cautionary Factors That May Affect Future Results
This annual report and other written reports and oral statements
made from time to time by the Company may contain so-called
“forward-looking statements,” all of which are subject to risks
and uncertainties. One can identify these forward-looking statements by their use of words such as “expects,” “plans,” “will,”
“estimates,” “forecasts,” “projects” and other words of similar
meaning. One can also identify them by the fact that they do
not relate strictly to historical or current facts. These statements
are likely to address the Company’s growth strategy, financial
results, product approvals and development programs. One must
carefully consider any such statement and should understand
that many factors could cause actual results to differ from the
Company’s forward-looking statements. These factors include
inaccurate assumptions and a broad variety of other risks and
uncertainties, including some that are known and some that are
not. No forward-looking statement can be guaranteed and actual
future results may vary materially.
The Company does not assume the obligation to update any
forward-looking statement. One should carefully evaluate such
statements in light of factors described in the Company’s filings
with the Securities and Exchange Commission, especially on
Forms 10-K, 10-Q and 8-K (if any). In Item 1 of the Company’s
annual report on Form 10-K for the year ended December 31,
1999, which will be filed in March 2000, the Company discusses in more detail various important factors that could cause
actual results to differ from expected or historic results. The
Company notes these factors for investors as permitted by the
Private Securities Litigation Reform Act of 1995. Prior to the
filing of the Form 10-K for the year ended December 31, 1999,
reference should be made to Item 1 of the Company’s annual
report on Form 10-K for the year ended December 31, 1998.
One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential
risks or uncertainties.
Condensed Interim Financial Data
($ in millions except
per share amounts)
4th Q
3rd Q
2nd Q
1st Q
1999
Sales . . . . . . . . . . . . . . . . . . $ 8,963.4 $ 8,195.7 $ 8,018.2 $ 7,536.7
Materials and production
costs . . . . . . . . . . . . . . . . . 4,644.0 4,365.9 4,370.2 4,154.2
Marketing/administrative
expenses . . . . . . . . . . . . . . 1,588.6 1,272.7 1,184.4 1,154.3
Research/development
expenses . . . . . . . . . . . . . .
627.9
516.0
482.7
441.8
—
51.1
—
—
Acquired research . . . . . . .
Equity income from
affiliates . . . . . . . . . . . . . .
(180.4) (227.1) (179.6) (174.8)
Other (income)
expense, net . . . . . . . . . . .
71.9
(17.6) (170.1)
118.4
Income before taxes . . . . . . 2,211.4 2,234.7 2,330.6 1,842.8
Net income . . . . . . . . . . . . . 1,573.2 1,539.6 1,478.1 1,299.6
Basic earnings per
common share . . . . . . . . .
$ .68
$ .65
$ .63
$ .55
Earnings per common
share assuming dilution . .
$ .66
$ .64
$ .61
$ .54
1998
Sales . . . . . . . . . . . . . . . . . . $ 7,530.7 $ 6,838.3 $ 6,470.4 $ 6,058.8
Materials and production
costs . . . . . . . . . . . . . . . . . 3,762.3 3,544.1 3,383.4 3,235.6
Marketing/administrative
expenses . . . . . . . . . . . . . . 1,370.2 1,087.2 1,058.8
995.1
Research/development
expenses . . . . . . . . . . . . . .
541.2
450.4
441.0
388.5
—
1,039.5
—
—
Acquired research . . . . . . . .
Equity income from
affiliates . . . . . . . . . . . . . .
(176.6) (210.5) (271.1) (226.1)
Gains on sales of
— (2,147.7)
—
—
businesses . . . . . . . . . . . . .
Other (income)
expense, net. . . . . . . . . . . .
77.1
360.0
32.2
30.5
Income before taxes . . . . . . . 1,956.5 2,715.3 1,826.1 1,635.2
Net income . . . . . . . . . . . . . 1,400.7 1,367.0 1,316.1 1,164.4
Basic earnings per
common share . . . . . . . . . .
$ .60
$ .57
$ .55
$ .49
Earnings per common
share assuming dilution . . .
$ .58
$ .56
$ .54
$ .47
In the chart above, amounts for the third and fourth quarters
of 1998 were affected by the restructuring of the ownership and
operations of AMI and the sale of the Company’s one-half
interest in DMPC.
Dividends Paid per Common Share
Year 4th Q
3rd Q
2nd Q
1st Q
1999 . . . . . . . . . . . . . . $ 1.10
1998 . . . . . . . . . . . . . . .94 1⁄2
$ .29
.27
$ .27
.22 1⁄2
$ .27
.22 1⁄2
$ .27
.22 1⁄2
Common Stock Market Prices
1999
4th Q
3rd Q
2nd Q
1st Q
1
High . . . . . . . . . . . . . . . . . . . . . $ 81 ⁄8
Low . . . . . . . . . . . . . . . . . . . . . 64 1⁄2
15
1
$ 75 ⁄16
60 15⁄16
$ 85 ⁄16
66
$ 87 3⁄8
67 15⁄32
$ 69 9⁄16
57 1⁄2
$67 1⁄8
55 3⁄4
$ 66 13⁄32
50 11⁄16
1998
High . . . . . . . . . . . . . . . . . . . . . $ 80 7⁄8
Low . . . . . . . . . . . . . . . . . . . . . 60 13⁄16
The principal market for trading of the common stock is the
New York Stock Exchange under the symbol MRK.
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
41
Consolidated Statement of Income
Merck & Co., Inc. and Subsidiaries
Years Ended December 31
($ in millions except per share amounts)
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs, Expenses and Other
Materials and production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999
1998
1997
$ 32,714.0
$ 26,898.2
$ 23,636.9
17,534.2
5,199.9
2,068.3
51.1
(762.0)
—
3.0
13,925.4
4,511.4
1,821.1
1,039.5
(884.3)
(2,147.7)
499.7
11,790.3
4,299.2
1,683.7
—
(727.9)
(213.4)
342.7
24,094.5
18,765.1
17,174.6
Income Before Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes on Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,619.5
2,729.0
8,133.1
2,884.9
6,462.3
1,848.2
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,890.5
$ 5,248.2
$ 4,614.1
Basic Earnings per Common Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2.51
$2.21
$1.92
Earnings per Common Share Assuming Dilution . . . . . . . . . . . . . . . . . . . .
$2.45
$2.15
$1.87
1999
1998
1997
$ 20,186.7
$ 17,291.5
$ 14,772.2
Consolidated Statement of Retained Earnings
Merck & Co., Inc. and Subsidiaries
Years Ended December 31
($ in millions)
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock Dividends Declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,890.5
(2,629.3)
$ 23,447.9
5,248.2
(2,353.0)
4,614.1
(2,094.8)
$ 20,186.7
$ 17,291.5
1999
1998
1997
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,890.5
$ 5,248.2
$ 4,614.1
Other Comprehensive Income (Loss)
Net unrealized gain (loss) on investments,
net of tax and net income realization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum pension liability, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25.6
3.8
(5.6)
(24.7)
(17.6)
(12.4)
29.4
(30.3)
(30.0)
Consolidated Statement of Comprehensive Income
Merck & Co., Inc. and Subsidiaries
Years Ended December 31
($ in millions)
Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these consolidated financial statements.
42
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
$ 5,919.9
$ 5,217.9
$ 4,584.1
Consolidated Balance Sheet
Merck & Co., Inc. and Subsidiaries
December 31
($ in millions)
1999
1998
Current Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,021.9
1,180.5
4,089.0
2,846.9
1,120.9
$ 2,606.2
749.5
3,374.1
2,623.9
874.8
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,259.2
10,228.5
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,761.5
3,607.7
Property, Plant and Equipment (at cost)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery, equipment and office furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
259.2
4,465.8
7,385.7
2,236.3
228.8
3,664.0
6,211.7
1,782.1
Less allowance for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,347.0
4,670.3
11,886.6
4,042.8
9,676.7
7,843.8
Goodwill and Other Intangibles (net of accumulated amortization
of $1,488.7 million in 1999 and $1,123.9 million in 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,584.2
8,287.2
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,353.3
1,886.2
$35,634.9
$ 31,853.4
Current Liabilities
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans payable and current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,158.7
2,859.0
1,064.1
677.0
$ 3,682.1
624.2
1,125.1
637.4
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,758.8
6,068.8
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,143.9
3,220.8
Assets
Liabilities and Stockholders’ Equity
Deferred Income Taxes and Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,030.1
6,057.0
Minority Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,460.5
3,705.0
Stockholders’ Equity
Common stock, one cent par value
Authorized – 5,400,000,000 shares
Issued – 2,968,030,509 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.7
5,920.5
23,447.9
8.1
29.7
5,614.5
20,186.7
(21.3)
29,406.2
25,809.6
Less treasury stock, at cost
638,953,059 shares – 1999
607,399,428 shares – 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,164.6
13,007.8
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,241.6
12,801.8
$35,634.9
$ 31,853.4
The accompanying notes are an integral part of this consolidated financial statement.
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
43
Consolidated Statement of Cash Flows
Merck & Co., Inc. and Subsidiaries
Years Ended December 31
($ in millions)
Cash Flows from Operating Activities
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile income before taxes to cash
provided from operations before taxes:
Acquired research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on sales of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999
1998
1997
$ 8,619.5
$ 8,133.1
$ 6,462.3
1,144.8
(547.7)
1,039.5
(2,147.7)
1,015.1
156.6
(213.4)
837.1
528.4
(752.9)
(223.0)
404.5
(150.9)
69.9
(579.1)
(409.5)
250.1
(13.0)
9.8
(271.7)
(53.5)
321.8
(29.4)
29.9
Cash Provided by Operating Activities Before Taxes . . . . . . . . . . . . . . . . .
Income Taxes Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,615.3
(2,484.6)
7,454.9
(2,126.6)
7,611.5
(1,294.9)
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . . . . . . . . . . . .
6,130.7
5,328.3
6,316.6
(2,560.5)
(42,211.2)
40,308.7
1,679.9
(1,973.4)
(29,675.4)
28,618.9
(1,448.8)
(22,986.7)
22,075.4
Cash Flows from Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of securities, subsidiaries and other investments . . . . . . . . . . . . . . . .
Proceeds from sale of securities, subsidiaries and other investments . . . . . . . .
Proceeds from relinquishment of certain AstraZeneca product rights . . . . . . . .
Proceeds from sales of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash Used by Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51.1
—
—
(33.9)
—
2,586.2
432.3
—
—
910.0
(152.6)
(2,817.0)
(11.4)
(1,602.7)
2,137.9
11.6
(17.5)
(457.2)
2,379.5
(340.6)
Cash Flows from Financing Activities
Net change in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemption of preferred stock of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,582.1)
(2,589.7)
322.9
(152.5)
(3,625.5)
(2,253.1)
490.1
(114.1)
431.3
653.1
(590.0)
(1,000.0)
(2,572.8)
(2,039.9)
413.3
(153.9)
Net Cash Used by Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,869.4)
(3,920.9)
(4,858.9)
Effect of Exchange Rate Changes on Cash and Cash Equivalents . . . . . . .
(28.6)
85.1
(82.3)
Net (Decrease) Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . .
(584.3)
1,481.1
(227.3)
—
—
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . . . . . . .
2,606.2
1,125.1
1,352.4
Cash and Cash Equivalents at End of Year . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,021.9
$ 2,606.2
$ 1,125.1
The accompanying notes are an integral part of this consolidated financial statement.
44
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
Notes to Consolidated
Financial Statements
Merck & Co., Inc. and Subsidiaries
($ in millions except per share amounts)
1.
Nature of Operations
Merck is a global research-driven pharmaceutical company that
discovers, develops, manufactures and markets a broad range
of human and animal health products, directly and through its
joint ventures, and provides pharmaceutical benefit services
through Merck-Medco Managed Care (Merck-Medco). Human
health products include therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders.
Pharmaceutical benefit services primarily include sales of prescription drugs through managed prescription drug programs as
well as services provided through programs to manage patient
health and drug utilization.
Merck sells its human health products and provides pharmaceutical benefit services to drug wholesalers and retailers, hospitals,
clinics, government agencies, corporations, labor unions, retirement systems, insurance carriers, managed health care providers
such as health maintenance organizations and other institutions.
2.
Summary of Accounting Policies
Principles of Consolidation – The consolidated financial statements include the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained. For those
consolidated subsidiaries where Merck ownership is less than
100%, the outside stockholders’ interests are shown as Minority
interests. Investments in affiliates over which the Company has
significant influence but not a controlling interest are carried on
the equity basis.
Foreign Currency Translation – The U.S. dollar is the functional
currency for the Company’s foreign subsidiaries.
Cash and Cash Equivalents – Cash equivalents are comprised
of certain highly liquid investments with original maturities of
less than three months.
Inventories – The majority of domestic inventories are valued at
the lower of last-in, first-out (LIFO) cost or market. Remaining
inventories are valued at the lower of first-in, first-out (FIFO)
cost or market.
Revenue Recognition – Revenues from sales of Merck human
health products are recognized upon shipment of product. Revenues generated by Merck-Medco’s pharmaceutical benefit services, comprised principally of sales of prescription drugs, are
recognized, net of certain rebates, upon dispensing of product.
Specifically, revenues from plan member orders dispensed at
Merck-Medco’s mail service pharmacies are recognized when
the product is shipped, while revenues from orders dispensed
by retail network pharmacies are recognized when the prescription is filled. For the majority of the retail business, Merck-Medco
assumes financial risk through having independent contractual
arrangements to bill plan sponsors and pay the retail network
pharmacy providers. In such cases, revenues are recognized for
the amount billed to the plan sponsor. When Merck-Medco acts
solely as a liaison to reimburse retail pharmacies on the plan
sponsor’s behalf, no financial risk has been assumed, and therefore, revenues are recognized only for the amount of the administrative fee received from the plan sponsor.
Merck-Medco has contracts with multiple pharmaceutical
manufacturers that offer rebates on drugs included on MerckMedco formularies. These rebates are recognized as a credit to
cost of sales in the period earned based upon the dispensed volume of specific drugs stipulated in the contracts.
Depreciation – Depreciation is provided over the estimated useful
lives of the assets, principally using the straight-line method. For
tax purposes, accelerated methods are used. The estimated useful
lives primarily range from 10 to 50 years for Buildings, and from
3 to 15 years for Machinery, equipment and office furnishings.
Goodwill and Other Intangibles – Goodwill of $3.8 billion in
1999 and $4.3 billion in 1998 (net of accumulated amortization) represents the excess of acquisition costs over the fair
value of net assets of businesses purchased and is amortized
on a straight-line basis over periods up to 40 years. Other
acquired intangibles principally include customer relationships
of $2.6 billion in 1999 and $2.7 billion in 1998 (net of accumulated amortization) that arose in connection with the
acquisition of Medco Containment Services, Inc. (renamed
Merck-Medco Managed Care) and patent rights approximating
$.8 billion in 1999 and $.9 billion in 1998 (net of accumulated
amortization) acquired as part of the restructuring of Astra
Merck Inc. (AMI). (See Note 4.) These acquired intangibles
are recorded at cost and are amortized on a straight-line basis
over their estimated useful lives of up to 40 years. The weighted
average amortization period for Goodwill and Other Intangibles was 33 years at December 31, 1999 and 1998. The
Company reviews goodwill and other intangibles to assess
recoverability from future operations using undiscounted cash
flows derived from the lowest appropriate asset groupings,
generally the subsidiary level. Impairment of enterprise goodwill is typically evaluated at the acquired entity level. Impairments are recognized in operating results to the extent that
carrying value exceeds fair value, which is determined based
on the net present value of estimated future cash flows.
Stock-Based Compensation – Stock-based compensation is recognized using the intrinsic value method. For disclosure purposes,
pro forma net income and earnings per share impacts are provided as if the fair value method had been applied.
Use of Estimates – The consolidated financial statements are prepared in conformity with accounting principles generally accepted
in the United States (GAAP) and, accordingly, include amounts
that are based on management’s best estimates and judgments.
Reclassifications – Certain reclassifications have been made to
prior year amounts to conform with current year presentation.
3.
Acquisition and Divestitures
On September 2, 1999, the Company acquired the controlling
interest in the outstanding common stock of SIBIA Neurosciences, Inc. (SIBIA) and on November 12, 1999, completed
the acquisition by obtaining the remaining shares. The purchase
price was approximately $97.4 million, consisting of $88.0 million in cash and employee stock options valued at $9.4 million.
SIBIA is engaged in the discovery and development of novel
molecule therapeutics for the treatment of neurodegenerative,
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
45
neuropsychiatric and neurological disorders. The acquisition was
accounted for by the purchase method and, accordingly, SIBIA’s
results of operations have been included with the Company’s
since the acquisition date. Pro forma information is not provided
as the impact of the transaction does not have a material effect on
the Company’s results of operations for 1999 or 1998. The purchase price allocation resulted in assets acquired of $61.4 million,
liabilities assumed of $15.1 million and a charge for acquired
research of $51.1 million associated with research projects for
which, at the acquisition date, technological feasibility had not
been established and no alternative future use existed.
On July 1, 1998, the Company sold its one-half interest in
The DuPont Merck Pharmaceutical Company (DMPC), its joint
venture with E.I. du Pont de Nemours and Company (DuPont),
to DuPont for $2.6 billion in cash, resulting in a pretax gain of
$2.15 billion ($1.25 billion after tax). The joint venture was not
significant to the Company’s financial position or results of
operations. This gain was substantially offset on an after-tax
basis by a $1.04 billion pretax and after-tax charge for acquired
research (see Note 4) and $338.6 million of pretax other charges
($193.1 million after tax) included in Other (income) expense,
net. (See Note 14.)
In July 1997, the Company sold its crop protection business for $910.0 million to Novartis, resulting in a pretax gain
of $213.4 million, after taking into account deferred income
related to long-term contractual commitments entered into in
connection with the sale of the business. This business was not
significant to the Company’s financial position or results of
operations. This gain was substantially offset by $207.3 million
of pretax charges included in Other (income) expense, net.
(See Note 14.)
4.
Joint Ventures
In 1982, Merck entered into an agreement with Astra AB (Astra)
to develop and market Astra’s products under a royalty-bearing
license. In 1993, the Company’s total sales of Astra products
reached a level that triggered the first step in the establishment
of a joint venture business carried on by AMI, in which Merck
and Astra each owned a 50% share. This joint venture, formed in
1994, developed and marketed most of Astra’s new prescription
medicines in the United States. Joint venture sales were $1.7 billion for the first six months of 1998 and $2.3 billion for 1997,
consisting primarily of Prilosec, the first of a class of medications known as proton pump inhibitors, which slows the production of acid from the cells of the stomach lining.
On July 1, 1998, Merck and Astra completed the restructuring
of the ownership and operations of the joint venture whereby the
Company acquired Astra’s interest in AMI, renamed KBI Inc.
(KBI), for consideration totaling $3.1 billion, including approximately $700.0 million in cash and assumption of a $2.4 billion
preferred stock obligation to Astra, which is included in Minority
interests in the consolidated financial statements. (See Note 10
for further information.) As a result of the acquisition, the Company fully owned KBI’s operating assets and the license rights
to make, have made, import, use and sell the existing and future
U.S. pharmaceutical compounds of Astra. The Company then
contributed KBI’s operating assets of $644.3 million, including
a $598.0 million step-up in carrying value, to a new U.S. limited
partnership, named Astra Pharmaceuticals L.P. (the Partnership)
in exchange for a 1% limited partner interest. The contributed
assets included KBI’s workforce, operating facility, trademarks
and information systems. Astra contributed the net assets of its
wholly owned subsidiary, Astra USA, Inc., to the Partnership in
46
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
exchange for a 99% general partner interest. For a franchise fee
payment of $230.0 million, the Partnership became the exclusive
distributor of the products for which KBI retained rights. The
Partnership was renamed AstraZeneca LP (AZLP) upon Astra’s
1999 merger with Zeneca Group Plc (the AstraZeneca merger),
discussed later.
Merck’s acquisition of Astra’s interest in KBI for $3.1 billion
was accounted for under the purchase method and, accordingly,
100% of KBI’s results of operations have been included with the
Company’s since July 1, 1998. Pro forma information is not provided as the impact of the transaction did not have a material
effect on the Company’s results of operations for 1998 and 1997.
The purchase price was allocated based upon the fair values of
the portion of assets and liabilities acquired. In addition to the
50% step-up in carrying value of KBI’s operating assets, purchase price allocations resulted in the recognition of goodwill
totaling $825.9 million which is being amortized on a straightline basis over 20 years and other intangibles, principally the
retained U.S. patent rights on in-line products totaling $978.0 million, which are being amortized on a straight-line basis over
10 years. In connection with the acquisition of the remaining
50% of the license rights to product candidates within Astra’s
research pipeline, the Company recorded a $1.04 billion charge
for acquired research associated with 10 product candidates
in Phase II or later stages of development and U.S. rights to
research projects which had not yet entered Phase II. At the
acquisition date, technological feasibility for the product candidates and the pre-Phase II research projects had not been established and no alternative future use existed. The product
candidates were in various therapeutic categories, principally
gastrointestinal (comprising over 50% of the charge for Phase II
or later stages), respiratory and neurological, with projected U.S.
Food and Drug Administration (FDA) approval dates in the
years 1999 through 2005. None of these future products is individually material to the Company. The fair value of the acquired
research was determined based upon the present value of each
product’s projected future cash flows, utilizing an income
approach reflecting the appropriate cost of capital. Future cash
flows were predominately based on net income forecasts for each
product consistent with historical pricing, margins, and expense
levels for similar products. Revenues were estimated based on
relevant market size and growth factors, expected industry trends,
individual product life cycles, and the life of each product’s underlying patent. The implied risk adjusted discount rates applied to
projected cash flows were based on the Company’s weighted
average cost of capital, the useful life of each product, the applicable product’s stage of completion, as well as its probability of
technical and marketing success, and averaged 26%, with a range
of 12% to 37%. A cost approach was also utilized to corroborate
the values determined under the income approach. In applying
the cost approach, consideration was given to the level of research
and development expenditures within Astra, the appropriate required rates of return within the market place and the cost of
reproduction for the acquired assets. Both of these approaches
are appropriate under generally accepted valuation methods and
yielded similar results. The research projects considered in the
valuation are all subject to the normal risks and uncertainties
associated with demonstrating the safety and efficacy required
to obtain timely FDA approval. While Merck will benefit from
future revenues of successful product candidates, AZLP and
Astra will bear all costs to complete the development of these
products unless AZLP elects not to pursue a particular product
candidate, at which time the Company would bear further development costs at its discretion.
While maintaining a 1% limited partner interest in AZLP,
Merck enjoys consent and protective rights intended to preserve
its business and economic interests, including restrictions on the
power of the general partner to make certain distributions or dispositions. Furthermore, in limited events of default, additional
rights will be granted to the Company, including powers to direct
the actions of, or remove and replace, the Partnership’s chief
executive officer and chief financial officer. Merck earns certain
Partnership returns, which are recorded as Equity income from
affiliates, as well as ongoing revenue based on sales of current and
future KBI products. The Partnership returns reflect Merck’s share
of AZLP GAAP earnings and include a preferential return, a priority return and other variable returns which are based, in part,
upon sales of certain former Astra USA, Inc. products. The preferential return represents Merck’s share of the undistributed AZLP
GAAP earnings which is expected to approximate $275.0 million
annually through 2008. The priority return is an amount provided
for in the Partnership agreement that varies based upon the fiscal
year, applicable income tax rates and the occurrence of a partial
redemption of our limited partner interest. We expect this return
to approximate $300.0 million annually, subject to availability of
sufficient Partnership profits. The AstraZeneca merger triggers a
partial redemption of Merck’s limited partnership interest in 2008,
reducing this amount to approximately $210.0 million annually at
that time. Upon the partial redemption of the Company’s limited
partner interest, AZLP will distribute to KBI an amount based primarily on a multiple of Merck’s annual revenue derived from sales
of the former Astra USA, Inc. products for the three years prior to
the redemption (the Limited Partner Share of Agreed Value).
For a payment of $443.0 million, which has been deferred,
Astra purchased an option to buy Merck’s interest in the KBI
products, excluding the gastrointestinal medicines Prilosec and
esomeprazole, in 2008, 2012 or 2016 (the Asset Option), at an
exercise price based primarily on a multiple of Merck’s annual
revenue derived from the KBI products for the three years prior
to exercise. As a result of the AstraZeneca merger, the Asset
Option is now only exercisable in 2010 at an exercise price
equal to the net present value as of March 31, 2008 of projected
future pretax revenue to be received by the Company from the
KBI products (the Appraised Value). Merck now also has the
right to require Astra to purchase such interest in 2008 at the
Appraised Value. The Company also granted Astra an option to
buy Merck’s common stock interest in KBI, at an exercise price
based on the net present value of estimated future net sales of
Prilosec and esomeprazole (the Shares Option). This option is
exercisable only after Astra’s purchase of Merck’s interest in the
KBI products. Generally, the Shares Option was not exercisable
before 2017, but as a result of the AstraZeneca merger, is now
exercisable two years after Astra’s purchase of Merck’s interest
in the KBI products.
In April 1999, Astra merged with Zeneca Group Plc, forming AstraZeneca AB (AstraZeneca), which constituted a Trigger
Event under the KBI restructuring agreements. As a result of
the merger, Astra was required to make two one-time payments
to Merck totaling approximately $1.8 billion. In exchange for
Merck’s relinquishment of rights to future Astra products with
no existing or pending U.S. patents at the time of the merger,
Astra paid $967.4 million (the Advance Payment), which is
subject to a true-up calculation in 2008 that may require repayment of all or a portion of this amount. The amount determined
by the true-up calculation (the True-Up Amount) cannot reasonably be estimated because it is directly dependent on the fair
market value in 2008 of the Astra product rights retained by the
Company which extend to compounds currently in development
as well as compounds that have not yet entered development.
Accordingly, recognition of this contingent income has been
deferred until the realizable amount, if any, is determinable,
which is not anticipated prior to 2008.
In connection with the Company’s acquisition of Astra’s interest in KBI, Merck agreed to relinquish rights to the pharmaceutical products of any company that would merge with or acquire
Astra. These rights, which protected the value of KBI’s perpetual
interest in Astra’s pipeline, were relinquished in exchange for a
payment (the Lump Sum Payment) to be made in the event of the
merger or acquisition of Astra. The Company estimated that it was
entitled to receive a Lump Sum Payment of $822.0 million as the
result of the AstraZeneca merger. In the second quarter of 1999,
Astra paid $712.5 million of the Lump Sum Payment and disputed its obligation to pay the remainder. At December 31, 1999,
the Company was in arbitration seeking to enforce its rights under
the agreement with respect to the disputed amount. Although
Merck retains an interest in current and future Astra products
with an existing or pending U.S. patent, this merger effectively
curtailed the Company’s perpetual interest in Astra’s pipeline and,
thus, reduced the going concern value acquired in 1998. Accordingly, one-half of the expected payment was an adjustment to the
purchase price Merck paid for Astra’s one-half interest in KBI,
reducing goodwill by $411.0 million, less 50% of a reserve relating to disputed proceeds. The balance represents compensation
to the Company for the reduction of the value of its original onehalf interest in KBI and was recorded in Other (income) expense,
net. Because the reduction in goodwill is not tax-effected and the
Lump Sum Payment is fully taxable, this transaction, net of a
reserve relating to disputed proceeds, yielded an after-tax gain
of $74.6 million. This gain was largely offset on an after-tax basis
by $110.0 million of pretax charges ($66.2 million after tax) also
recorded in Other (income) expense, net. (See Note 14.) Subsequent to year end, the arbitration was concluded and a final decision was rendered, pursuant to which the Company received
$87.2 million of the disputed proceeds plus interest, which will
be accounted for in the first quarter of 2000.
Under the provisions of the KBI restructuring agreements,
because a Trigger Event has occurred, the sum of the Limited
Partner Share of Agreed Value, the Appraised Value and the
True-Up Amount is guaranteed to be a minimum of $4.7 billion.
Distribution of the Limited Partner Share of Agreed Value and
payment of the True-Up Amount will occur in 2008. AstraZeneca’s
purchase of Merck’s interest in the KBI products is contingent
upon the exercise of either Merck’s option in 2008 or AstraZeneca’s option in 2010 and, therefore, payment of the
Appraised Value may or may not occur.
In 1989, Merck formed a joint venture with Johnson
& Johnson to develop and market a broad range of nonprescription medicines for U.S. consumers. This 50% owned
venture was expanded into Europe in 1993, and into Canada
in 1996. Sales of product marketed by the joint venture
were $487.4 million for 1999, $514.2 million for 1998 and
$483.7 million for 1997.
In 1991, Merck and DuPont formed an independent, researchdriven, worldwide pharmaceutical joint venture, equally owned
by each party. Joint venture sales were $686.2 million for the
first six months of 1998 and $1.3 billion for 1997, consisting
primarily of cardiovascular, radiopharmaceutical and central
nervous system products. On July 1, 1998, the Company sold its
one-half interest in the joint venture to DuPont for $2.6 billion
in cash. (See Note 3.)
In 1994, Merck and Pasteur Mérieux Connaught (now Aventis
Pasteur) established an equally owned joint venture to market
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
47
vaccines and collaborate in the development of combination
vaccines for distribution in Europe. Joint venture vaccine sales
were $566.8 million for 1999, $560.4 million for 1998 and
$581.3 million for 1997.
In August 1997, Merck and Rhône-Poulenc (now Aventis) combined their animal health and poultry genetics businesses to form
Merial Limited (Merial), a fully integrated, stand-alone joint venture, equally owned by each party. Merial is the world’s largest
company dedicated to the discovery, manufacture and marketing
of veterinary pharmaceuticals and vaccines. Merck contributed
developmental research personnel, sales and marketing activities,
and animal health products, as well as its poultry genetics business.
Aventis contributed research and development, manufacturing,
sales and marketing activities, and animal health products, as well
as its poultry genetics business. The formation of Merial has not
had a material impact on comparability of net income. Merial sales
were $1.7 billion for 1999, $1.8 billion for 1998 and $746.3 million for 1997. Animal health sales reported in Merck’s 1997 consolidated sales were $448.3 million prior to August 1.
5.
Affiliates Accounted for Using the Equity Method
Investments in affiliates accounted for using the equity method
are included in Other assets and were $1.4 billion at December
31, 1999 and $1.1 billion at December 31, 1998. Dividends and
distributions received from these affiliates were $412.2 million
in 1999, $919.3 million in 1998 and $791.0 million in 1997.
The decrease in 1999 primarily relates to the 1998 restructuring
of AMI. Summarized information for these affiliates is as follows:
1999
1998
1997
Sales . . . . . . . . . . . . . . . . . . . . . $ 7,443.7
Materials and production costs . .
2,895.2
Other expense, net . . . . . . . . . .
2,854.5
Income before taxes . . . . . . . . .
1,694.0
$ 7,095.6
2,191.1
2,757.8
2,146.7
$ 5,655.8
1,349.3
1,852.9
2,453.6
1999
1998
Current assets . . . . . . . . . . . . . . $ 2,763.7
Noncurrent assets . . . . . . . . . . .
3,018.6
Current liabilities . . . . . . . . . . . .
2,468.1
Noncurrent liabilities . . . . . . . . .
267.1
$ 2,693.0
2,036.6
2,280.2
281.4
Years Ended December 31
December 31
6.
Financial Instruments
Foreign Currency Risk Management
The Company has established revenue and balance sheet hedging programs to protect against reductions in value and volatility of future foreign currency cash flows caused by changes in
foreign exchange rates. The objectives and strategies of these
programs are described in the Analysis of Liquidity and Capital
Resources section of the Financial Review.
The Company partially hedges forecasted revenues denominated in foreign currencies with purchased local currency put
options. When the dollar strengthens against foreign currencies,
the decline in the value of foreign currency cash flows is partially offset by the recognition of gains in the value of purchased
currency options designated as hedges of the period. Conversely,
when the dollar weakens, the increase in the value of foreign
currency cash flows is reduced only by the recognition of the
premium paid to acquire the options designated as hedges of the
period. Market value gains and premiums on these contracts are
recognized in Sales when the hedged transaction is recognized.
The carrying value of purchased currency options is reported in
Prepaid expenses and taxes or Other assets.
48
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
The Company continually reviews its portfolio of purchased
options. From time to time, the Company will adjust its portfolio
to decrease the coverage provided by purchased options that are
no longer necessary due to changes in exposure to forecasted revenues or to preserve the value of deep-in-the-money purchased
options. The most cost-effective means of adjusting the portfolio
is to write options with terms identical to the purchased options.
Deferred gains or losses that accumulate on purchased options
prior to writing an offsetting position will remain deferred and
are recognized when the hedged transaction occurs. Subsequent
changes in the market value of the written options and related
purchased options are recorded in earnings. Because the changes
in market value of the purchased options equally offset the written options, there is no net impact on earnings. The market value
changes in the options written by the Company in 1999 were not
significant. The carrying value of written currency options is
reported in Accounts payable and accrued liabilities or Deferred
income taxes and noncurrent liabilities.
Deferred gains and losses on purchased currency options
used to hedge forecasted revenues amounted to $172.9 million
and $37.4 million at December 31, 1999 and $12.6 million and
$45.3 million at December 31, 1998, respectively.
The Company also hedges certain exposures to fluctuations
in foreign currency exchange rates that occur prior to conversion of foreign currency denominated monetary assets and
liabilities into U.S. dollars. Prior to conversion to U.S. dollars,
these assets and liabilities are translated at spot rates in effect
on the balance sheet date. The effects of changes in spot rates
are reported in earnings and included in Other (income)
expense, net. The Company hedges its exposure to changes in
foreign exchange principally with forward contracts. Because
monetary assets and liabilities are marked to spot and recorded
in earnings, forward contracts designated as hedges of the
monetary assets and liabilities are also marked to spot with the
resulting gains and losses similarly recognized in earnings.
Gains and losses on forward contracts are included in Other
(income) expense, net, and offset losses and gains on the net
monetary assets and liabilities hedged. The carrying values of
forward exchange contracts are reported in Accounts receivable,
Other assets, Accounts payable and accrued liabilities or Deferred
income taxes and noncurrent liabilities.
At December 31, 1999 and 1998, the Company had contracts
to exchange foreign currencies, principally of the euro region
and Japan, for U.S. dollars in the following notional amounts:
1999
1998
Purchased currency options . . . . . . . . . . . . . . $ 3,005.4
Written currency options . . . . . . . . . . . . . . . .
739.5
Forward sale contracts . . . . . . . . . . . . . . . . . .
2,500.0
Forward purchase contracts . . . . . . . . . . . . . .
1,265.0
$ 4,583.5
–
1,972.3
542.8
Interest Rate Risk Management
The Company uses interest rate swap contracts on certain
investing and borrowing transactions. Interest rate swap contracts are intended to be an integral part of these transactions
and, therefore, are not recognized at fair value. Interest differentials paid or received under these contracts are recognized as
adjustments to the effective yield of the underlying financial
instruments hedged. Interest rate swap contracts would only be
recognized at fair value if the hedged relationship is terminated. Gains or losses accumulated prior to termination of the
relationship would be amortized as a yield adjustment over the
shorter of the remaining life of the contract or the remaining
period to maturity of the underlying instrument hedged. If the
contract remained outstanding after termination of the hedged
relationship, subsequent changes in market value of the contract
would be recognized in earnings. The Company does not use
leveraged swaps and, in general, does not leverage any of its
investment activities that would put principal capital at risk.
In 1995, the Company entered into a five-year combined
interest rate and currency swap contract with a notional amount
of $239.4 million at December 31, 1999 and $231.3 million at
December 31, 1998 and, in 1997, a seven-year interest rate and
currency swap contract with a notional amount of $353.1 million
at December 31, 1999 and $344.1 million at December 31, 1998.
In 1998, a portion of the 1995 swap contract was terminated in
conjunction with the sale of a portion of the related asset with an
immaterial impact on net income. These swaps convert two different variable rate Dutch guilder investments to variable rate
U.S. dollar investments. The market values of these contracts are
reported in Other assets or Deferred income taxes and noncurrent
liabilities with unrealized gains and losses recorded, net of tax, in
Accumulated other comprehensive income (loss).
Fair Value of Financial Instruments
Summarized below are the carrying values and fair values of
the Company’s financial instruments at December 31, 1999 and
1998. Fair values were estimated based on market prices, where
available, or dealer quotes.
1999
Carrying
Value
1998
Fair
Value
Carrying
Value
Fair
Value
$ 2,021.9
1,180.5
4,755.2
$ 2,606.2
749.5
3,607.7
$ 2,606.2
749.5
3,604.3
266.7
170.2
137.5
Assets
Cash and cash
equivalents . . . . . . . . . $ 2,021.9
Short-term investments . .
1,180.5
Long-term investments . .
4,761.5
Purchased currency
options . . . . . . . . . . . .
131.2
Forward exchange
contracts and
currency swap . . . . . .
128.8
128.8
72.8
$ 2,857.6
2,870.0
$
624.2
3,220.8
$
654.7
3,336.5
106.0
–
–
104.2
86.1
86.1
1999
Available-for-sale
Debt securities . . . . . . $ 4,242.2
Equity securities . . . .
1,155.0
Held-to-maturity
securities . . . . . . . . . .
544.8
1998
Gross Unrealized
Gains
Available-for-sale
Debt securities . . . . . . . $ 76.3
Equity securities . . . . . .
202.0
Held-to-maturity
securities . . . . . . . . . . .
–
Losses
Gains
Losses
$ (75.2)
(98.8)
$ 22.1
124.1
$ (12.5)
(64.2)
(6.3)
.6
(4.0)
Gross unrealized gains and losses with respect to availablefor-sale investments are recorded, net of tax and minority interests, in Accumulated other comprehensive income (loss).
Available-for-sale debt securities and held-to-maturity
securities maturing within one year totaled $1.0 billion and
$160.3 million, respectively, at December 31, 1999. Of the remaining debt securities, $2.6 billion mature within five years.
At December 31, 1999 and 1998, $575.0 million and $507.3 million, respectively, of held-to-maturity securities maturing within
four years set off $575.0 million and $507.3 million of 5.0% nontransferable note obligations due by 2003 issued by the Company.
Concentrations of Credit Risk
As part of its ongoing control procedures, the Company monitors concentrations of credit risk associated with financial institutions with which it conducts business. Credit risk is minimal
as credit exposure limits are established to avoid a concentration with any single financial institution. The Company also
monitors the creditworthiness of its customers to which it grants
credit terms in the normal course of business. Concentrations
of credit risk associated with these trade receivables are considered minimal due to the Company’s diverse customer base.
Bad debts have been minimal. The Company does not normally
require collateral or other security to support credit sales.
7.
Inventories
72.8
A summary of the carrying values and fair values of the
Company’s investments at December 31 is as follows:
Carrying
Value
1999
Gross Unrealized
Inventories at December 31 consisted of:
Liabilities
Loans payable and
current portion of
long-term debt . . . . . . $ 2,859.0
Long-term debt . . . . . . .
3,143.9
Written currency
options . . . . . . . . . . . .
106.0
Forward exchange
contracts and
currency swap . . . . . .
104.2
A summary of gross unrealized gains and losses on the
Company’s investments at December 31 is as follows:
1999
1998
Finished goods . . . . . . . . . . . . . . . . . . . . . . . $ 1,895.6
Raw materials and work in process . . . . . . . .
869.8
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81.5
$ 1,701.2
851.6
71.1
Total (approximates current cost) . . . . . . . . . .
Reduction to LIFO cost . . . . . . . . . . . . . . . . .
Fair
Value
Carrying
Value
Fair
Value
$ 4,242.2
1,155.0
$ 2,639.0
1,000.6
$ 2,639.0
1,000.6
538.5
717.6
714.2
2,623.9
–
$ 2,846.9
$ 2,623.9
Inventories valued under the LIFO method comprised approximately 37% of inventories at December 31, 1999 and 1998.
8.
1998
2,846.9
–
Loans Payable and Long-Term Debt
Loans payable at December 31, 1999 consisted primarily of
$2.2 billion of commercial paper borrowings. Loans payable
also reflected $488.5 million and $500.0 million of 5.8% notes
at December 31, 1999 and 1998, respectively. These notes, due
2037, are subject to repayment at par at the option of the holders
in May of each year. Loans payable at December 31, 1999 also
included $66.9 million of tax-exempt floating rate pollution
control and industrial revenue bonds, which the Company
intends to redeem at par in March 2000. The remainder in both
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
49
years was principally borrowings by foreign subsidiaries. The
weighted average interest rate for these borrowings was 5.6% and
6.6% at December 31, 1999 and 1998, respectively.
Long-term debt at December 31 consisted of:
6.0% note due 2008 . . . . . . . . . . . . . . . . . . . .
6.8% euronotes due 2005 . . . . . . . . . . . . . . . .
6.4% debentures due 2028 . . . . . . . . . . . . . . .
6.0% debentures due 2028 . . . . . . . . . . . . . . .
6.3% debentures due 2026 . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999
1998
$ 1,380.0
499.3
499.0
496.0
246.9
22.7
$ 1,380.0
499.2
499.0
495.8
246.8
100.0
$ 3,143.9
$ 3,220.8
The $1.38 billion note issued to Astra, originally due 2038,
is now payable in 2008 as a result of Astra’s 1999 merger with
Zeneca. (See Note 4 for further information.)
In both years, other consisted of foreign borrowings at varying rates up to 9.0%. At December 31, 1998, other also included
$66.9 million of tax-exempt floating rate pollution control and
industrial revenue bonds.
The aggregate maturities of long-term debt for each of the next
five years are as follows: 2000, $75.5 million; 2001, $7.4 million;
2002, $5.8 million; 2003, $4.1 million; 2004, $2.9 million.
9.
Contingencies and Environmental Liabilities
The Company is involved in various claims and legal proceedings of a nature considered normal to its business, principally
product liability and intellectual property cases. Additionally,
the Company, along with numerous other defendants, is a party
in several antitrust actions brought by retail pharmacies and
consumers, alleging conspiracies in restraint of trade and challenging pricing and/or purchasing practices, one of which has
been certified as a federal class action and a number of which
have been certified as state class actions. In 1996, the Company
and several other defendants finalized an agreement to settle
the federal class action alleging conspiracy, which represents
the single largest group of retail pharmacy claims, pursuant to
which the Company paid $51.8 million. Since that time, the
Company has entered into other settlements on satisfactory
terms. The Company has not engaged in any conspiracy, and
no admission of wrongdoing was made nor was included in the
final agreements. While it is not feasible to predict or determine
the final outcome of these proceedings, management does not
believe that they should result in a materially adverse effect on
the Company’s financial position, results of operations or liquidity.
The Company is also a party to a number of proceedings
brought under the Comprehensive Environmental Response,
Compensation and Liability Act, commonly known as Superfund,
as well as under other federal and state statutes. When a legitimate claim for contribution is asserted, a liability is initially
accrued based upon the estimated transaction costs to manage
the site. Accruals are adjusted as feasibility studies and related
cost assessments of remedial techniques are completed, and as
50
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
the extent to which other potentially responsible parties (PRPs)
who may be jointly and severally liable can be expected to contribute is determined.
The Company is also remediating environmental contamination resulting from past industrial activity at certain of its sites
and has taken an active role in identifying and providing for
these costs. In 1989, the Company initiated a worldwide survey
to assess all of its sites that had not been previously investigated
for potential contamination resulting from past industrial activities. Where assessment indicated that physical investigation was
warranted, such investigation was performed, providing a better
evaluation of the need for remedial action. Where such need
was identified, remedial action was then initiated. Estimates of
the extent of contamination at each site were initially made at
the pre-investigation stage and liabilities for the potential cost
of remediation were accrued at that time. As more definitive
information became available during the course of investigations and/or remedial efforts at each site, estimates were refined
and accruals were adjusted accordingly. These estimates and
related accruals continue to be refined annually via the worldwide survey of all environmental exposures.
In management’s opinion, the liabilities for all environmental matters which are probable and reasonably estimable have
been accrued and totaled $305.5 million and $336.0 million at
December 31, 1999 and 1998, respectively. These liabilities are
undiscounted, do not consider potential recoveries from insurers
or other parties and will be paid out over the periods of remediation for the applicable sites, which are expected to occur
primarily over the next 15 years. Although it is not possible to
predict with certainty the outcome of these matters, or the ultimate costs of remediation, management does not believe that
any reasonably possible expenditures that may be incurred in
excess of the liabilities accrued should exceed $104.0 million
in the aggregate. Management also does not believe that these
expenditures should result in a materially adverse effect on the
Company’s financial position, results of operations, liquidity or
capital resources for any year.
10. Preferred Stock of Subsidiary Company
In connection with the 1998 restructuring of AMI (see Note 4),
the Company assumed a $2.4 billion par value preferred stock
obligation with a dividend rate of 5% per annum which is carried by KBI. Because the preferred stock obligation is held by
a subsidiary, it is included in Minority interests in the consolidated financial statements at December 31, 1999 and 1998.
While a small portion of the preferred stock is convertible into
KBI common shares, none of it is convertible into the Company’s common shares and, therefore, it is not included as
common shares issuable for purposes of computing Earnings
per common share assuming dilution. (See Note 16.)
In December 1995, the Company’s wholly owned subsidiary,
Merck Sharp & Dohme Overseas Finance, S.A., issued $1.0 billion par value of variable rate nonconvertible Preferred Equity
Certificates (PECs). The PECs were redeemed by the Company
at par in September 1997.
11. Stockholders’ Equity
In 1999, 1998 and 1997, Other paid-in capital increased by
$306.0 million, $390.1 million and $286.5 million, respectively,
principally as a result of issuances of treasury stock for exercises of stock options.
A summary of treasury stock transactions (shares in millions)
is as follows:
1999
Shares
1998
Cost Shares
1997
Cost
Shares
Cost
Balance,
Jan. 1 . . . . 607.4 $ 13,007.8 580.6 $ 9,959.9
Purchases . . . 50.0
3,582.1
56.9
3,625.5
(425.3) (30.1)
(577.6)
Issuances(1) . . (18.5)
554.0 $ 7,814.7
55.0 2,572.8
(28.4)
(427.6)
Balance,
Dec. 31 . . . 638.9 $ 16,164.6
580.6 $ 9,959.9
(1)
607.4 $ 13,007.8
Issued primarily under stock option plans.
At December 31, 1999 and 1998, 10 million shares of preferred
stock, without par value, were authorized; none were issued.
12. Stock Option Plans
The Company has stock option plans under which employees
and non-employee directors may be granted options to purchase
shares of Company common stock at the fair market value at
the time of the grant. Options generally vest in 5 years and expire
in 10 years from the date of grant. The Company’s stock option
plan for employees also provides for the granting of performancebased stock awards. In connection with the 1999 acquisition of
SIBIA, stock options outstanding on the acquisition date were
converted into options to purchase shares of Company common
stock with equivalent value.
Summarized information relative to the Company’s stock
option plans (shares in thousands) is as follows:
Number
of Shares
Average
Price(1)
Outstanding at December 31, 1996 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . .
172,418.6
31,877.9
(27,994.7)
(5,390.6)
$ 19.19
48.74
14.77
24.30
Outstanding at December 31, 1997 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . .
170,911.2
34,802.8
(29,727.4)
(3,645.9)
25.27
63.43
16.49
39.06
Outstanding at December 31, 1998 . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equivalent Options Assumed . . . . . . . . . . .
172,340.7
28,929.5
(18,367.7)
(4,363.7)
153.8
34.20
80.04
17.59
51.08
40.55
Outstanding at December 31, 1999 . . . . . .
178,692.6
(1)
The number of shares and average price of options exercisable at December 31, 1999, 1998 and 1997 were 51.3 million
shares at $19.14, 45.3 million shares at $17.75 and 47.3 million
shares at $16.49, respectively. At December 31, 1999 and 1998,
57.7 million shares and 83.0 million shares, respectively, were
available for future grants under the terms of these plans.
Effective January 1, 1996, the Company adopted the provisions
of Statement No. 123, Accounting for Stock-Based Compensation.
As permitted by the Statement, the Company has chosen to continue to account for stock-based compensation using the intrinsic
value method. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans other than for
performance-based awards, which was not significant. Had the fair
value method of accounting been applied to the Company’s stock
option plans, which requires recognition of compensation cost ratably over the vesting period of the underlying equity instruments,
Net income would have been reduced by $288.9 million, or $.12
per share in 1999, $192.4 million, or $.08 per share in 1998 and
$102.5 million, or $.04 per share in 1997. This pro forma impact
only takes into account the expense related to options granted since
January 1, 1995, which is being amortized ratably over the vesting
period. The average fair value of options granted during 1999,
1998 and 1997 was $24.75, $20.13 and $15.82, respectively. This
fair value was estimated using the Black-Scholes option-pricing
model based on the weighted average market price at grant date of
$80.04 in 1999, $63.43 in 1998 and $48.74 in 1997 and the following weighted average assumptions:
Years Ended December 31
1999
1998
1997
Dividend yield . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . .
Expected life (years) . . . . . . . . . . . .
1.4%
5.1%
24%
6.7
1.5%
5.6%
25%
6.5
1.7%
6.4%
24%
6.6
Summarized information about stock options outstanding
and exercisable at December 31, 1999 (shares in thousands) is
as follows:
Outstanding
Exercise
Price
Range
Under $15
$15 to 20
$20 to 25
$25 to 40
$40 to 50
$50 to 65
Over $65
...
...
...
...
...
...
...
10,366.6
27,536.5
26,163.9
26,347.0
25,674.3
32,146.9
30,457.4
178,692.6
(1)
(2)
Exercisable
Number Average Average
of Shares
Life(1) Price(2)
6.43
4.16
4.26
5.75
7.18
8.13
8.98
$12.46
16.86
21.38
32.10
48.50
62.39
79.45
Number Average
of Shares
Price(2)
10,366.6
27,528.7
7,870.5
2,995.8
970.8
1,140.7
412.9
$12.46
16.86
21.63
27.00
45.88
55.11
71.66
51,286.0
Weighted average contractual life remaining in years.
Weighted average exercise price.
$ 42.92
Weighted average exercise price.
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
51
13. Pension and Other Postretirement Benefit Plans
The net cost for the Company’s pension plans consisted of the
following components:
1999
Years Ended December 31
1998
1997
Service cost . . . . . . . . . . . . . . . . $ 159.4
Interest cost . . . . . . . . . . . . . . . .
179.0
Expected return on plan assets . .
(229.4)
Net amortization . . . . . . . . . . . .
27.0
$ 134.8
158.7
(199.2)
15.0
$ 105.9
149.4
(175.5)
4.7
Net pension cost . . . . . . . . . . . . $ 136.0
$ 109.3
$
The fair value of international pension plan assets included
in the preceding table was $933.7 million in 1999 and
$793.2 million in 1998. The pension benefit obligation of
international plans included in this table was $1.1 billion in
1999 and $998.2 million in 1998.
A reconciliation of the plans’ funded status to the net asset
(liability) recognized at December 31 is as follows:
Pension Benefits
84.5
1999
The net pension cost attributable to international plans included
in the above table was $66.9 million in 1999, $58.8 million in
1998 and $49.9 million in 1997.
The net cost of postretirement benefits other than pensions
consisted of the following components:
1999
Years Ended December 31
1998
Service cost . . . . . . . . . . . . . . . . $ 39.4
Interest cost . . . . . . . . . . . . . . . .
58.8
Expected return on plan assets . .
(73.2)
Net amortization . . . . . . . . . . . . .
(18.7)
$
Net postretirement benefit cost . . $
$
6.3
1997
33.7
53.6
(64.2)
(20.0)
$
3.1
$
24.7
48.2
(53.5)
(18.0)
1.4
The cost of health care and life insurance benefits for active
employees was $212.7 million in 1999, $183.4 million in 1998
and $163.8 million in 1997.
Summarized information about the changes in plan assets
and benefit obligation is as follows:
Pension Benefits
1999
Fair value of plan assets
at January 1 . . . . . . . . . . $ 2,720.9
Actual return on
plan assets . . . . . . . . . . .
570.1
Company contributions . . .
212.8
Benefits paid from
plan assets . . . . . . . . . . .
(172.9)
Other . . . . . . . . . . . . . . . .
38.0
Other
Postretirement
Benefits
1998
1999
1998
$ 2,349.5
$ 735.0
$ 647.4
334.5
198.7
202.3
17.6
93.3
.1
(166.6)
4.8
(6.3)
—
$ 2,720.9
$ 948.6
$ 735.0
Benefit obligation
at January 1 . . . . . . . . . . $ 2,785.9
Service cost . . . . . . . . . . .
159.4
Interest cost . . . . . . . . . . .
179.0
Actuarial (gains) losses . . .
(140.5)
Benefits paid . . . . . . . . . . .
(190.8)
Other . . . . . . . . . . . . . . . . .
27.9
$ 2,388.7
134.8
158.7
258.0
(183.7)
29.4
$ 866.5 $ 734.9
39.4
33.7
58.8
53.6
(108.5)
98.3
(38.0)
(38.2)
.4
(15.8)
Benefit obligation
at December 31 . . . . . . . . $ 2,820.9
$ 2,785.9
$ 818.6
52
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
$ 866.5
1999
1998
Plan assets in excess of (less
than) benefit obligation . . . . $ 548.0 $ (65.0) $ 130.0 $ (131.5)
Unrecognized net
(gain) loss . . . . . . . . . . . . . . . (125.1) 380.6
(328.9)
(95.7)
Unrecognized plan
changes . . . . . . . . . . . . . . . .
75.0
78.8
(116.1)
(130.3)
Unrecognized transitional
—
—
net asset . . . . . . . . . . . . . . . . (29.0)
(39.4)
Net asset (liability) . . . . . . . . . $ 468.9
$ 355.0
$ (315.0) $ (357.5)
Recognized as:
—
$
—
Other assets . . . . . . . . . . . . . $ 651.3 $ 513.4 $
Accounts payable and
accrued liabilities . . . . . . . .
(7.4)
(7.9)
(24.9)
(24.8)
Deferred income taxes and
noncurrent liabilities . . . . . (307.8) (284.3)
(290.1)
(332.7)
Accumulated other
—
—
comprehensive loss . . . . . . 132.8
133.8
For pension plans with benefit obligations in excess of plan
assets at December 31, 1999 and 1998, the fair value of plan
assets was $357.2 million and $402.6 million, respectively, and
the benefit obligation was $813.7 million and $871.1 million,
respectively. For those plans with accumulated benefit obligations in excess of plan assets at December 31, 1999 and 1998,
the fair value of plan assets was $279.3 million and $332.2 million, respectively, and the accumulated benefit obligation was
$503.9 million and $551.0 million, respectively.
Assumptions used in determining U.S. plan information are
as follows:
Pension and Other
Postretirement Benefits
(5.8)
—
Fair value of plan assets
at December 31 . . . . . . . $ 3,368.9
1998
Other
Postretirement
Benefits
1999
1998
1997
Discount rate . . . . . . . . . . . . . . . . . . . . . 7.75%
Expected rate of return
on plan assets . . . . . . . . . . . . . . . . . . . 10.0
Salary growth rate . . . . . . . . . . . . . . . . . 4.5
6.75%
7.0%
December 31
10.0
4.5
10.0
4.5
For the three years presented, international pension plan
assumptions ranged from 4.0% to 8.0% for the discount rate,
5.5% to 10.0% for the expected rate of return on plan assets
and 2.0% to 6.0% for the salary growth rate.
The health care cost trend rate for other postretirement benefit plans was 7.0% at December 31, 1999. The rate will gradually decline to 5.0% over a 4-year period. A one percentage
point change in the health care cost trend rate would have had
the following effects:
One Percentage Point
Increase
Effect on total service and interest cost
components . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on benefit obligation . . . . . . . . . . . . . .
$
18.8
130.6
Decrease
$ (15.7)
(112.6)
14. Other (Income) Expense, Net
1999
Years Ended December 31
Interest income . . . . . . . . . . . . . $ (364.7)
Interest expense . . . . . . . . . . . . .
316.9
Exchange gains . . . . . . . . . . . . .
(27.2)
Minority interests . . . . . . . . . . . .
222.3
Amortization of goodwill
and other intangibles . . . . . . . .
317.4
Other, net . . . . . . . . . . . . . . . . . .
(461.7)
$
3.0
1998
$ (307.7)
205.6
(44.7)
162.4
1997
$ (221.4)
129.5
(18.0)
131.8
264.3
219.8
197.2
123.6
$ 499.7
$ 342.7
Minority interests include third parties’ share of exchange
gains and losses arising from translation of the financial statements into U.S. dollars. The increase in minority interests in
1999 and 1998 primarily reflect dividends paid to Astra on
$2.4 billion par value preferred stock of a subsidiary beginning
in July 1998. (See Note 10.)
Increased amortization of goodwill and other intangibles in
1999 and 1998 primarily reflects amortization of goodwill and
other intangibles associated with the restructuring of AMI in
July 1998. (See Note 4.)
In 1999, other, net, includes $411.0 million of income associated with the Lump Sum Payment from Astra, partially offset
by a reserve relating to disputed proceeds (see Note 4) and
$110.0 million of charges primarily for endowment of both
The Merck Company Foundation and The Merck Genome
Research Institute, as approved by the Board of Directors based
on projected future operating requirements of these organizations, and provisions for the settlement of claims. Other, net,
also includes $77.9 million of income resulting from the reversal
of a restructuring reserve established in 1995 for the anticipated
1999 closure of a manufacturing facility. As a result of favorable
incentives agreed to in July 1999 with local authorities combined with changes in available production capacity across plant
sites, management decided to continue operating the facility.
In 1998, other, net, includes $338.6 million of charges, primarily for environmental remediation costs and asset write-offs,
principally deferred start-up costs.
In 1997, other, net, includes $207.3 million of charges primarily for the loss on sale of assets, endowment of The Merck
Company Foundation and environmental remediation costs.
Interest paid was $276.8 million in 1999, $192.3 million in
1998 and $130.5 million in 1997.
15. Taxes on Income
A reconciliation between the Company’s effective tax rate and
the U.S. statutory rate is as follows:
Tax Rate
1999
Amount
1999
U.S. statutory rate applied
to pretax income . . . . . . . . . . . . $ 3,016.8 35.0%
Differential arising from:
Foreign earnings . . . . . . . . . . . .
(245.1) (2.8)
Tax exemption for
Puerto Rico operations . . . . . .
(133.2) (1.5)
Equity income from
affiliates . . . . . . . . . . . . . . . . .
8.8
.1
Acquired research . . . . . . . . . . .
17.9
.2
State taxes . . . . . . . . . . . . . . . .
169.6
2.0
Other . . . . . . . . . . . . . . . . . . . .
(105.8) (1.3)
$ 2,729.0
31.7%
1998
1997
35.0% 35.0%
.6
(.8)
(1.6)
(1.9)
(1.7)
4.5
1.6
(2.9)
(2.4)
—
1.0
(2.3)
35.5% 28.6%
The decrease in the effective tax rate in 1999 primarily
reflects the absence of 1998 nonrecurring items, principally the
nondeductibility of the acquired research charge in connection
with the restructuring of AMI and the state tax cost of the gain
on the sale of the Company’s one-half interest in DMPC. This
impact was partially offset by the 1999 nondeductibility of both
the goodwill write-off resulting from the AstraZeneca merger
and the acquired research charge in connection with the SIBIA
acquisition. The increase in the effective tax rate in 1998 primarily reflects the aforementioned 1998 nonrecurring items.
In 1998 and 1997, the differential arising from equity
income from affiliates reflected the benefit of recording AMI
joint venture results in equity income on an after-tax basis.
This benefit was eliminated upon the July 1998 restructuring
of AMI, which resulted in recording partnership returns from
AZLP in equity income on a pretax basis.
Domestic companies contributed approximately 65% in 1999,
74% in 1998 and 71% in 1997 to consolidated pretax income.
Taxes on income consisted of:
1999
1998
1997
Current provision
Federal . . . . . . . . . . . . . . . . . $ 2,674.9
Foreign . . . . . . . . . . . . . . . . .
439.9
State . . . . . . . . . . . . . . . . . . .
297.1
$ 1,750.5
699.5
264.7
$ 1,322.2
476.8
90.5
3,411.9
2,714.7
1,889.5
Years Ended December 31
Deferred provision
Federal . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . .
(718.9)
21.9
14.1
(682.9)
$ 2,729.0
226.2
(21.0)
(35.0)
170.2
$ 2,884.9
(48.1)
(6.4)
13.2
(41.3)
$ 1,848.2
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
53
16. Earnings per Share
Deferred income taxes at December 31 consisted of:
1999
1998
Assets Liabilities
Other intangibles . . . . . . $ 198.3
Inventory related . . . . . .
799.1
Accelerated
—
depreciation. . . . . . . . .
Advance payment. . . . . .
338.6
Investment related . . . . .
—
Equity investments . . . . .
57.8
Pensions and OPEB . . . .
185.5
Compensation related . . .
129.3
Environmental related . .
115.6
Restructuring charge . . .
71.3
Other . . . . . . . . . . . . . . .
897.1
Subtotal . . . . . . . . . . . . .
Valuation allowance . . . .
2,792.6
(4.1)
Total deferred taxes . . . . $ 2,788.5
Net deferred tax
liabilities . . . . . . . . . . .
Recognized as:
Prepaid expenses
and taxes. . . . . . . . . .
Other assets . . . . . . . . .
Income taxes payable . .
Deferred income
taxes and noncurrent liabilities . . . . . .
$ 1,372.1
316.3
Assets Liabilities
6.7
546.6
$ 1,434.6
210.5
642.2
—
606.6
—
—
—
—
210.0
91.7
140.1
216.1
201.6
192.5
—
—
—
424.3
3,365.1
—
$ 3,365.1
$
57.8
176.9
118.9
131.0
107.9
758.0
1,903.8
(9.1)
$ 1,894.7
—
The weighted average common shares used in the computations
of basic earnings per common share and earnings per common
share assuming dilution (shares in millions) are as follows:
1999
1998
1997
Average common shares
outstanding . . . . . . . . . . . . . . . . 2,349.0
55.6
Common shares issuable(1) . . . . . .
2,378.8
62.3
2,409.0
60.5
Average common shares
outstanding assuming dilution . . . 2,404.6
2,441.1
2,469.5
Years Ended December 31
(1)
—
Issuable primarily under stock option plans.
—
413.3
3,106.8
—
17. Comprehensive Income
The components of Other comprehensive income (loss) are
as follows:
$ 3,106.8
Pretax(1)
$ 576.6
$ 1,212.1
$ (869.2)
(50.3)
151.9
$ (666.3)
(48.2)
163.5
1,344.2
1,763.1
Income taxes paid in 1999, 1998 and 1997 were $2.5 billion,
$2.1 billion and $1.3 billion, respectively. The increase in 1999
primarily reflects taxes paid on two one-time payments from
Astra and a full year of partnership returns from AZLP, resulting from the 1998 AMI restructuring, offset by absence of taxes
paid in 1998 on the gain on the sale of the Company’s one-half
interest in DMPC. The increase in 1998 primarily reflects taxes
paid on the aforementioned gain on the sale of the Company’s
one-half interest in DMPC and a partial year of partnership
returns from AZLP.
At December 31, 1999, foreign earnings of $7.5 billion and
domestic earnings of $880.9 million have been retained indefinitely by subsidiary companies for reinvestment. No provision
is made for income taxes that would be payable upon the distribution of such earnings, and it is not practicable to determine
the amount of the related unrecognized deferred income tax liability. These earnings include income from manufacturing operations in Ireland, which were tax-exempt through 1990 and are
taxed at 10% thereafter. In addition, the Company has domestic
subsidiaries operating in Puerto Rico under a tax incentive grant
that expires in 2008.
The Company’s federal income tax returns have been audited
through 1992.
After
Tax
Tax
Year Ended December 31, 1999
Net unrealized gain on
investments . . . . . . . . . . . . . .
Net income realization . . . . . . .
$
Subtotal . . . . . . . . . . . . . . . . . .
Minimum pension liability . . . .
91.0
(6.7)
$ (64.9)
6.2
$ 26.1
(.5)
84.3
9.7
(58.7)
(5.9)
25.6
3.8
$
94.0
$ (64.6)
$ 29.4
$
20.6
(41.9)
$ (4.8)
20.5
$ 15.8
(21.4)
Year Ended December 31, 1998
Net unrealized gain on
investments . . . . . . . . . . . . . . .
Net income realization . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . .
Minimum pension liability . . . . .
(21.3)
(47.2)
15.7
22.5
(5.6)
(24.7)
$ (68.5)
$ 38.2
$ (30.3)
$ (74.6)
(37.8)
$ 57.0
25.4
$ (17.6)
(12.4)
$ (112.4)
$ 82.4
$ (30.0)
Year Ended December 31, 1997
Net unrealized loss on
investments . . . . . . . . . . . . . . .
Minimum pension liability . . . . .
Net of minority interest.
(1)
The components of Accumulated other comprehensive
income (loss) are as follows:
1999
December 31
Net unrealized gain on
investments . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum pension liability . . . . . . . . . . . . . . .
1998
$ 47.9
(39.8)
$ 22.3
(43.6)
$
$ (21.3)
8.1
18. Segment Reporting
The Company’s operations are principally managed on a products and services basis and are comprised of two reportable
segments: Merck Pharmaceutical and Merck-Medco. Merck
Pharmaceutical products consist of therapeutic agents, sold by
prescription, for the treatment of human disorders. MerckMedco revenues are derived from the filling and management
54
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
of prescriptions and health management programs. All Other
includes non-reportable human and animal health segments.
Revenues and profits for these segments are as follows:
Merck
Pharmaceutical
MerckMedco
All
Other
Other revenues primarily represent sales related to divested
products or businesses. Adjustments represent the elimination
of receipts reported as revenues in the internal management
system which are not reportable as revenues under generally
accepted accounting principles.
Consolidated revenues by country where derived are as follows:
Total
Year Ended December 31, 1999
Years Ended December 31
1999
1998
Segment revenues . . . . $ 14,418.7 $ 18,109.0 $ 2,890.8 $ 35,418.5
Segment profits . . . . . .
8,495.4
578.3
2,654.9 11,728.6
Included in segment
profits:
Equity income (loss)
—
465.1
481.4
from affiliates . . .
16.3
Depreciation and
amortization . . . .
(113.6)
(84.8)
(48.2)
(246.6)
United States . . . . . . . . . . . . . $ 25,662.1
Japan . . . . . . . . . . . . . . . . . . .
1,412.7
Other . . . . . . . . . . . . . . . . . . .
5,639.2
$20,199.3
1,160.6
5,538.3
$ 16,984.9
1,235.1(1)
5,416.9
$ 32,714.0
$26,898.2
$23,636.9
Year Ended December 31, 1998
Segment revenues . . . . . $ 12,839.9 $ 14,338.0 $ 2,274.4 $ 29,452.3
Segment profits . . . . . . .
7,637.3
475.8
2,390.5 10,503.6
Included in segment
profits:
Equity income (loss)
from affiliates . . . .
12.7
(.4)
850.0
862.3
Depreciation and
amortization . . . . .
(103.6)
(91.9)
(47.6)
(243.1)
Year Ended December 31, 1997
Segment revenues . . . . . $ 12,122.2 $ 11,996.0 $ 1,851.8 $ 25,970.0
Segment profits . . . . . . .
7,396.2
333.9
1,895.1
9,625.2
Included in segment
profits:
Equity income (loss)
from affiliates . . . .
15.0
(.5)
894.6
909.1
Depreciation and
amortization . . . . .
(89.0)
(74.8)
(31.5)
(195.3)
(1)
Exceeds 5% of consolidated sales.
A reconciliation of total segment profits to consolidated
income before taxes is as follows:
Years Ended December 31
1999
Segment profits . . . . . . . . . . . . $ 11,728.6
Other profits . . . . . . . . . . . . . .
83.1
Adjustments . . . . . . . . . . . . . .
252.1
Unallocated:
—
Gains on sales of businesses . .
Interest income . . . . . . . . . . .
364.7
Interest expense . . . . . . . . . .
(316.9)
Equity income (loss)
from affiliates . . . . . . . . . .
280.6
Depreciation and
amortization . . . . . . . . . . .
(898.2)
Acquired research . . . . . . . . .
(51.1)
Research and
development . . . . . . . . . . . .
(2,068.3)
Other expenses, net . . . . . . . .
(755.1)
$ 8,619.5
Segment profits are comprised of segment revenues less certain elements of materials and production costs and operating
expenses, including components of equity income (loss) from
joint ventures and depreciation and amortization expenses. The
Company does not internally allocate the vast majority of indirect production costs, research and development expenses and
general and administrative expenses, all predominantly related
to the Merck pharmaceutical business, as well as the cost of
financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including
depreciation related to fixed assets utilized by these divisions
and, therefore, they are not included in the marketing segment
profits. The vast majority of goodwill and other intangibles
amortization, predominantly related to the Merck-Medco business, as well as the cost of financing capital employed, also are
not allocated internally and, therefore, are not included in the
marketing segment profits.
A reconciliation of total segment revenues to consolidated
sales is as follows:
Years Ended December 31
1999
Segment revenues . . . . . . . . . . $ 35,418.5
Other revenues . . . . . . . . . . . .
172.2
Adjustments . . . . . . . . . . . . . .
(2,876.7)
$ 32,714.0
1998
1997
$ 29,452.3
182.2
(2,736.3)
$ 25,970.0
222.6
(2,555.7)
$ 26,898.2
$ 23,636.9
1997
1998
1997
$ 10,503.6
86.7
180.5
$ 9,625.2
137.3
145.6
2,147.7
307.7
(205.6)
22.0
213.4
221.4
(129.5)
(181.2)
(772.0)
(1,039.5)
(641.8)
(1,821.1)
(1,276.9)
(1,683.7)
(1,244.4)
$ 8,133.1
—
$ 6,462.3
Other profits primarily represent operating income related
to divested products or businesses. Adjustments represent the
elimination of the effect of double counting certain items of
income and expense. Equity income (loss) from affiliates includes
taxes paid at the joint venture level and a portion of equity income
that is not reported in segment profits. Other expenses, net, include
expenses from corporate and manufacturing cost centers and other
miscellaneous income (expense), net.
Net property, plant and equipment (PP&E) by country where
located are as follows:
1999
1998
United States . . . . . . . . . . . . . $ 7,346.8
Japan . . . . . . . . . . . . . . . . . . .
401.4
Other . . . . . . . . . . . . . . . . . . .
1,928.5
$ 5,888.3
388.5
1,567.0
$ 5,017.9
365.4(2)
1,226.1
$ 9,676.7
$ 7,843.8
$ 6,609.4
December 31
1997
Exceeds 5% of consolidated net PP&E.
(2)
The Company does not disaggregate assets on a products
and services basis for internal management reporting and, therefore, such information is not presented.
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
55
Management’s
Report
Report of Independent
Public Accountants
Primary responsibility for the integrity and objectivity of the
Company’s financial statements rests with management. The
financial statements report on management’s stewardship of
Company assets. These statements are prepared in conformity
with generally accepted accounting principles and, accordingly,
include amounts that are based on management’s best estimates
and judgments. Nonfinancial information included in the
Annual Report has also been prepared by management and is
consistent with the financial statements.
To assure that financial information is reliable and assets are
safeguarded, management maintains an effective system of
internal controls and procedures, important elements of which
include: careful selection, training and development of operating and financial managers; an organization that provides
appropriate division of responsibility, and communications
aimed at assuring that Company policies and procedures are
understood throughout the organization. In establishing internal
controls, management weighs the costs of such systems against
the benefits it believes such systems will provide. A staff of
internal auditors regularly monitors the adequacy and application of internal controls on a worldwide basis.
To insure that personnel continue to understand the system
of internal controls and procedures, and policies concerning
good and prudent business practices, the Company periodically
conducts the Management’s Stewardship Program for key management and financial personnel. This program reinforces the
importance and understanding of internal controls by reviewing
key corporate policies, procedures and systems. In addition, an
ethical business practices program has been implemented to
reinforce the Company’s long-standing commitment to high
ethical standards in the conduct of its business.
The independent public accountants have audited the
Company’s consolidated financial statements as described in
their report. Although their audits were not designed for the
purpose of forming an opinion on internal controls, the
Company’s accounting systems, procedures and internal controls were subject to testing and other auditing procedures sufficient to enable the independent public accountants to render
their opinion on the Company’s financial statements.
The recommendations of the internal auditors and independent public accountants are reviewed by management. Control
procedures have been implemented or revised as appropriate to
respond to these recommendations. No material control weaknesses have been brought to the attention of management. In
management’s opinion, for the year ended December 31, 1999,
the internal control system was strong and accomplished the
objectives discussed herein.
To the Stockholders and
Board of Directors of Merck & Co., Inc.:
Raymond V. Gilmartin
Chairman, President and
Chief Executive Officer
56
Judy C. Lewent
Senior Vice President and
Chief Financial Officer
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
We have audited the accompanying consolidated balance sheet
of Merck & Co., Inc. (a New Jersey corporation) and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, retained earnings, comprehensive income and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements
are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Merck
& Co., Inc. and subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the
United States.
New York, New York
January 26, 2000
ARTHUR ANDERSEN LLP
Audit Committee’s
Report
Compensation and Benefits
Committee’s Report
The Audit Committee of the Board of Directors is comprised
of seven outside directors. The members of the Committee are:
Charles E. Exley Jr., Chairman; Carolyne K. Davis, Ph.D.; Sir
Derek Birkin; Carleton S. Fiorina; William N. Kelley, M.D.;
Samuel O. Thier, M.D.; and, effective December 21, 1999,
William B. Harrison Jr. The Committee held four meetings
during 1999.
The Audit Committee meets with the independent public
accountants, management and internal auditors to assure that all
are carrying out their respective responsibilities. The Audit
Committee reviews the performance and fees of the independent public accountants prior to recommending their appointment, and meets with them, without management present, to
discuss the scope and results of their audit work, including the
adequacy of internal controls and the quality of financial reporting. Both the independent public accountants and the internal
auditors have full access to the Audit Committee.
The Compensation and Benefits Committee is comprised of
five outside directors. The members of the Committee are:
H. Brewster Atwater Jr., Chairman; Lawrence A. Bossidy;
William G. Bowen, Ph.D.; Johnnetta B. Cole, Ph.D.; and Lloyd
C. Elam, M.D. The Committee held four meetings during 1999.
The Compensation and Benefits Committee’s major responsibilities include providing for senior management succession
and overseeing the Company’s compensation and benefit programs. The Committee seeks to provide rewards which are
highly leveraged to performance and clearly linked to Company
and individual results. The objective is to ensure that compensation and benefits are at levels which enable Merck to attract
and retain high-quality employees. The Committee views stock
ownership as a vehicle to align the interests of employees with
those of the stockholders. A long-term focus is essential for
success in the pharmaceutical industry and is encouraged by
making a high proportion of executive officer compensation
dependent on long-term performance and on enhancing
stockholder value.
Charles E. Exley Jr.
Chairman, Audit Committee
H. Brewster Atwater Jr.
Chairman, Compensation and Benefits Committee
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
57
Selected Financial Data(1)
Merck & Co., Inc. and Subsidiaries
($ in millions except
per share amounts)
1999
1998
1997
1996
1995
1994
1993
1992(2)
1991
Results for Year:
Sales . . . . . . . . . . . . . . . . . . . . . $32,714.0 $26,898.2 $23,636.9 $19,828.7 $16,681.1 $14,969.8 $10,498.2 $ 9,662.5 $8,602.7
Materials and production costs . . 17,534.2 13,925.4 11,790.3
9,319.2
7,456.3
5,962.7 2,497.6 2,096.1 1,934.9
Marketing/administrative
expenses . . . . . . . . . . . . . . . . . 5,199.9
4,511.4
4,299.2
3,841.3
3,297.8
3,177.5 2,913.9 2,963.3 2,570.3
Research/development expenses . . 2,068.3
1,821.1
1,683.7
1,487.3
1,331.4
1,230.6 1,172.8 1,111.6
987.8
—
—
—
—
—
—
—
Acquired research . . . . . . . . . . .
51.1
1,039.5
Equity (income) loss
from affiliates . . . . . . . . . . . . .
(762.0)
(884.3)
(727.9)
(600.7)
(346.3)
(56.6)
26.1
(25.8)
21.1
—
(2,147.7)
(213.4)
—
(682.9)
—
—
—
—
Gains on sales of businesses. . . .
Restructuring charge . . . . . . . . .
—
—
—
—
—
—
775.0
—
—
Gain on joint venture
—
—
—
—
—
(492.0)
—
—
—
formation . . . . . . . . . . . . . . . .
Provision for joint
—
—
—
—
—
499.6
—
—
—
venture obligation . . . . . . . . . .
Other (income) expense, net . . . .
3.0
499.7
342.7
240.8
827.6
232.8
10.1
(46.3)
(78.1)
Income before taxes . . . . . . . . . . 8,619.5
8,133.1
6,462.3
5,540.8
4,797.2
4,415.2 3,102.7 3,563.6 3,166.7
Taxes on income . . . . . . . . . . . . . 2,729.0
2,884.9
1,848.2
1,659.5
1,462.0
1,418.2
936.5 1,117.0 1,045.0
Net income . . . . . . . . . . . . . . . . . 5,890.5
5,248.2
4,614.1
3,881.3
3,335.2
2,997.0 2,166.2 2,446.6 2,121.7
Basic earnings per
common share . . . . . . . . . . . . .
$2.51
$2.21
$1.92
$1.60
$1.35
$1.19
$.94
$1.06
$.91
Earnings per common share
assuming dilution. . . . . . . . . . .
$2.45
$2.15
$1.87
$1.56
$1.32
$1.17
$.93
$1.05
$.91
Dividends declared . . . . . . . . . . . 2,629.3
2,353.0
2,094.8
1,793.4
1,578.0
1,463.1 1,239.0 1,106.9
920.3
Dividends paid per
common share . . . . . . . . . . . . .
$1.10
$.95
$.85
$.71
$.62
$.57
$.52
$.46
$.39
Capital expenditures. . . . . . . . . . 2,560.5
1,973.4
1,448.8
1,196.7
1,005.5
1,009.3 1,012.7 1,066.6 1,041.5
Depreciation. . . . . . . . . . . . . . . .
771.2
700.0
602.4
521.7
463.3
475.6
348.4
290.3
242.7
1990
1989
$7,671.5 $6,550.5
1,778.1 1,550.3
2,388.0 2,013.4
854.0
750.5
—
—
22.4
11.5
—
—
—
—
—
—
—
—
(69.8) (58.2)
2,698.8 2,283.0
917.6
787.6
1,781.2 1,495.4
$.76
$.63
$.75
788.1
$.62
681.5
$.32
670.8
231.4
$.28
433.0
206.4
Year-End Position:
Working capital . . . . . . . . . . . . . $ 2,500.4 $ 4,159.7 $ 2,644.4 $ 2,897.4 $ 3,870.2 $ 2,291.4 $ 541.6 $ 1,241.1 $1,496.5 $ 939.2 $1,502.5
Property, plant and
equipment (net) . . . . . . . . . . . . 9,676.7
7,843.8
6,609.4
5,926.7
5,269.1
5,296.3 4,894.6 4,271.1 3,504.5 2,721.7 2,292.5
Total assets . . . . . . . . . . . . . . . . 35,634.9 31,853.4 25,735.9 24,266.9 23,831.8 21,856.6 19,927.5 11,086.0 9,498.5 8,029.8 6,756.7
Long-term debt . . . . . . . . . . . . . 3,143.9
3,220.8
1,346.5
1,155.9
1,372.8
1,145.9 1,120.8
495.7
493.7
124.1
117.8
Stockholders’ equity . . . . . . . . . . 13,241.6 12,801.8 12,594.6 11,964.0 11,735.7 11,139.0 10,021.7 5,002.9 4,916.2 3,834.4 3,520.6
Financial Ratios:
Net income as a % of:
Sales . . . . . . . . . . . . . . . . . . . .
Average total assets . . . . . . . . .
Year-End Statistics:
Average common shares
outstanding (millions) . . . . . . .
Average common shares
outstanding assuming
dilution (millions) . . . . . . . . . .
Number of stockholders
of record . . . . . . . . . . . . . . . . .
Number of employees . . . . . . . .
18.0%
17.5%
19.5%
18.2%
19.5%
18.5%
19.6%
16.1%
20.0%
14.6%
20.0%
14.3%
20.6%
14.0%
25.3%
24.1%
24.7%
24.2%
2,349.0
2,378.8
2,409.0
2,427.2
2,472.3
2,514.3
2,313.0
2,307.0
2,319.8
2,344.1 2,376.6
2,404.6
2,441.1
2,469.5
2,489.6
2,527.3
2,557.7
2,332.0
2,330.6
2,343.3
2,363.7 2,401.6
280,500
62,300
269,600
57,300
263,900
53,800
247,300
49,100
243,000
45,200
244,700
47,500
231,300 161,200
47,100(3) 38,400
91,100
37,700
82,300
36,900
Amounts after 1992 include the impact of the Medco acquisition on November 18, 1993.
Results of operations for 1992 exclude the cumulative effect of accounting changes.
(3)
Increase in 1993 is due to the inclusion of 10,300 Merck-Medco employees.
(1)
(2)
58
Merck & Co., Inc. 1999 Annual Report Financial Section
Brought to you by Global Reports
23.2%
24.1%
22.8%
23.2%
75,600
34,400
Manufacturing
MMD’s global manufacturing strategy –
its path to excellence
New global strategy increases speed, flexibility and productivity
mere four days after the FDA
approved Vioxx on May 20,
1999, the Merck Manufacturing
Division (MMD) began shipping the
drug to customers. That meant that
more than 30,000 U.S. pharmacies had
Vioxx in stock within 11 days of FDA
approval. By year-end, MMD was
manufacturing the new blockbuster
painkiller in three countries to support
sales in 34 markets around the world.
The speed with which MMD delivers
when Merck rolls out important new
medicines, such as Vioxx, highlights the
benefits of MMD’s Global Manufacturing Strategy. The strategy serves
as a road map for success in the 21st
century by enabling MMD to focus on
flexibility, simplicity and reliability –
the very qualities that define manufacturing excellence.
The highest priorities in
MMD’s Global Manufacturing
Strategy are quality, safety and
the environment. The strategy
also emphasizes multinational
teamwork and the construction
of strategically located
production facilities around
the world to optimize the
launch of new products
and to ensure availability
of Merck medicines for patients worldwide. In the end, the strategy enables
MMD to achieve productivity improvements that contribute significantly to
Merck’s success and profitability.
A
Early into Vioxx
Years before the launch of Vioxx,
when it was still just a promising compound, MMD began working closely
with other Merck departments such as
research, regulatory affairs and marketing. It developed the processes needed
to manufacture the compound for testing and clinical trials around the world.
“By getting involved early in the life
of the product and by using our expertise
to ensure the highest quality, speed,
flexibility and productivity in all the
Meeting an increasing global demand
for our medicines
Manufacturing operator Bernard Bourke
conducts a key step in the production of
Singulair at our Ballydine, Ireland plant,
where a recently completed $200 million
addition expanded production.
Manufacturing is a vital link between our
laboratories and patients
Dr. Chuck Vencill, manufacturing vice president (second row, second from right), plays
a key role in Merck’s global arthritis and
analgesia franchise team, which addresses
strategic clinical, manufacturing and marketing issues. Teammates are, from left (sitting,
first row): Roberto Urbez, Sumeet Sud, Beth
Seidenberg, M.D., Laurence Hirsch, M.D.,
(sitting, second row) Robert Silverman,
M.D., Roger Perlmutter, M.D., Ph.D.,
and Thomas Salzmann, Ph.D., (standing)
Gary Sender, Scott Leavitt, Errol McKinney,
Wendy Dixon, Ph.D. and Grey Warner.
aspects of manufacturing Vioxx, we
were able to help the Company efficiently gain regulatory approval and
get it to market quickly,” said Bernard
Kelley, president, Merck Manufacturing Division.
As important as MMD’s early
involvement in the launch of new products is its ability to design and deploy
flexible production facilities around the
world to optimize use of its production
capacity and meet global demand for
Merck products.
The production of Vioxx is a case in
point. The active ingredient for rofecoxib
is now made in Rahway, N.J., but eventually will be produced at a new plant
being constructed in Singapore. The
finished tablets are produced in Puerto
Rico, Australia and Mexico. A liquid
form of Vioxx is made in West Point, Pa.,
and the product is packaged in West
Point and Wilson, N.C.
New facilities
Producing medicines globally
to exacting quality standards requires
efficient capital planning, the
development of standard process
technologies and flawless project
execution. This is no small feat,
considering Merck’s 1999 capital
budget of $2.3 billion for projects such as the new Singapore
facility and major expansions
in Ballydine, Ireland; Rahway,
N.J.; and West Point, Pa.
While the Global Manufacturing
Strategy helps guide MMD’s contribution to Merck’s success, it is the division’s nearly 15,000 dedicated employees who deserve credit for making it
effective. Take, for instance, employees
at our Wilson plant. When Hurricane
Floyd roared through the region last
September, employees barely missed
a beat despite impassable roads, power
outages, waist-deep storm drains and
downed trees. Although the storm closed
the plant for four days, the employees
quickly eliminated the resulting backlog.
Said Mr. Kelley: “This is another example of the intense commitment of MMD
employees to getting medicines to the
people who need them.”
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
59
Management Committee
David W. Anstice 51, president, Human
Health – The Americas since 1997; president,
Human Health Division – U.S./Canada,
1994 –1997; president, Human Health –
Europe, 1994. Joined Merck in 1974.
Raymond V. Gilmartin 59, chairman,
president and chief executive officer since
1994. Formerly chairman, president and chief
executive officer of Becton Dickinson and Co.
Joined Merck in 1994.
Paul R. Bell 54, president, Human Health –
Asia Pacific since 1997; vice president, Merck
Sharp & Dohme (MSD) Australia & New
Zealand, 1994 –1997; vice president and
managing director, MSD Australia,
1993–1994. Joined Merck in 1973.
Bernard J. Kelley 58, president, Merck
Manufacturing Division (MMD) since 1994;
senior vice president, operations, MMD, 1993;
senior vice president, administration, planning
and quality, MMD, 1991–1993. Joined Merck
in 1967.
Richard T. Clark 54, president, MerckMedco Managed Care, L.L.C., since January
2000; executive vice president and chief
operating officer, Merck-Medco, 1997 – 2000;
senior vice president, Merck Manufacturing
Division (MMD), 1996 – 1997. Joined Merck
in 1972.
Judy C. Lewent 51, senior vice president
and chief financial officer since 1993; vice
president, finance and chief financial officer,
1990 –1992; vice president and treasurer,
1987–1990. Joined Merck in 1980.
Kenneth C. Frazier 45, senior vice
president and general counsel since December
1999; vice president and deputy general counsel, 1999; vice president, Public Affairs and
assistant general counsel, 1997 – 1999; vice
president, Public Affairs, 1994 – 1997; vice
president, general counsel and secretary,
Astra Merck Group, 1992 – 1994. Joined
Merck in 1994.
Per G. H. Lofberg 52, chairman, MerckMedco Managed Care, L.L.C., since January
2000; president, Merck-Medco, 1994 – 2000.
Formerly senior executive vice president,
strategic planning and marketing, and member
of office of the president, Medco Containment
Services Inc. Joined Merck in 1993.
Management Committee
Left to right: Paul R. Bell, Richard T. Clark, Judy C. Lewent,
Kenneth C. Frazier, Edward M. Scolnick, M.D., Adel Mahmoud, M.D.,
Ph.D., Raymond V. Gilmartin, David W. Anstice, Bernard J. Kelley,
Per Wold-Olsen, Wendy L. Yarno and Per G.H. Lofberg.
60
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
Adel Mahmoud, M.D., Ph.D. 58, president,
Merck Vaccines since 1999; executive vice
president, Merck Vaccines, 1998-1999.
Formerly John H. Hord professor and chairman, Department of Medicine, Case Western
Reserve University, Cleveland, Ohio. Joined
Merck in 1998.
Edward M. Scolnick, M.D. 59, executive
vice president, science and technology, and
president, Merck Research Laboratories
(MRL) since 1993; executive vice president,
Merck, and president, MRL, 1993; senior vice
president and president, MRL, 1991–1993.
Director, Merck & Co. Inc. since 1997. Joined
Merck in 1982.
Per Wold-Olsen 52, president, Human
Health – Europe, Middle East and Africa since
1997; president, Human Health – Europe,
1994–1997; senior vice president, Marketing,
Human Health, 1991–1994. Joined Merck
in 1973.
Wendy L. Yarno 45, senior vice president,
Human Resources since December 1999;
vice president, Worldwide Human Health
Marketing, 1999; vice president, Women’s
Health Care Franchise, Johnson & Johnson
Ortho-McNeil Pharmaceutical, 1997–1999;
vice president, hypertension and heart failure
Therapeutic Business Group in U.S. Human
Health, 1995 – 1997. With Merck 1983 –
1997; rejoined in 1999.
Board of Directors (facing page)
Left to right (first row): Carolyne K. Davis, Ph.D., Dennis Weatherstone and
Anne M. Tatlock; (second row) Samuel O. Thier, M.D., William G. Bowen,
Ph.D., Raymond V. Gilmartin, Lawrence A. Bossidy and Lloyd C. Elam,
M.D.; (third row) William B. Harrison, Jr., Sir Derek Birkin, Johnnetta B.
Cole, Ph.D., Charles E. Exley, Jr., Carleton S. Fiorina, H. Brewster Atwater,
Jr., William N. Kelley, M.D. and Edward M. Scolnick, M.D.
Board of Directors
Raymond V. Gilmartin 59, chairman,
president and chief executive officer of Merck
since 1994. Immediate past chairman,
Pharmaceutical Research and Manufacturers
of America. Director, General Mills, Inc. and
Public Service Enterprise Group. Director
since 1994.
H. Brewster Atwater, Jr. 68, retired chairman and chief executive officer of General
Mills, Inc. Director, American Express Funds
and Mayo Foundation. Director since 1988.
Sir Derek Birkin 70, retired chairman of
The RTZ Corporation PLC. Director, Unilever
PLC and Carlton Communications PLC.
Director since 1992. Retiring from Merck
Board of Directors, April 2000.
Lawrence A. Bossidy 65, chairman of
Honeywell International Inc. Director,
Champion International Corporation and
J.P. Morgan & Co. Incorporated. Director
since 1992.
William G. Bowen, Ph.D. 66, president of
The Andrew W. Mellon Foundation. Director,
American Express Company. Member, Board
of Overseers, Teachers Insurance and Annuity
Association of America – College Retirement
Equities Fund. Director since 1986.
Johnnetta B. Cole, Ph.D. 63, Presidential
Distinguished Professor, Emory University.
Retired president of Spelman College.
Director, Coca-Cola Enterprises. Trustee,
Rockefeller Foundation and Gallaudet
University. Member, Council on Foreign
Relations, National Council of Negro Women.
Director since 1994.
Carolyne K. Davis, Ph.D. 68, international
health care consultant. Director, Beckman
Coulter, Inc., The Prudential Insurance
Company of America, Inc., Minimed Inc. and
Beverly Enterprises, Inc. Trustee, University
of Pennsylvania Health System. Director
since 1989. Retiring from Merck Board of
Directors, April 2000.
Lloyd C. Elam, M.D. 71, professor of psychiatry, Meharry Medical College. Trustee,
The Alfred P. Sloan Foundation. Director
since 1973.
Charles E. Exley, Jr. 70, retired chairman
and chief executive officer of NCR
Corporation. Trustee, The Andrew W. Mellon
Foundation. Member, Board of Overseers,
Columbia University Graduate School of
Business. Director since 1988. Retiring from
Merck Board of Directors, April 2000.
Carleton S. Fiorina 45, president, chief
executive officer and a director of HewlettPackard Company. Formerly group president
of Lucent Technologies Inc. Global Service
Provider business. Director, Kellogg
Company. Director since 1999.
William B. Harrison, Jr. 56, chairman
and chief executive officer of The Chase
Manhattan Corporation and The Chase
Manhattan Bank. Director, Dillard’s, Inc.
Director since 1999.
William N. Kelley, M.D. 60, professor
of medicine, biochemistry and biophysics,
University of Pennsylvania School of
Medicine. From 1989 to February 2000, chief
executive officer, University of Pennsylvania
Health System, dean of the School of
Medicine and executive vice president,
University of Pennsylvania. Director,
Beckman Coulter, Inc. Master, American
College of Physicians. Member, Institute
of Medicine. Director since 1992.
Edward M. Scolnick, M.D. 59, executive
vice president, science and technology, and
president, Merck Research Laboratories.
Member, Institute of Medicine and National
Academy of Sciences. Director since 1997.
Anne M. Tatlock 60, president, chief executive officer and a director of Fiduciary Trust
Company International. Director, American
General Corporation and Fortune Brands, Inc.
Board chairman, Cultural Institutions
Retirement Systems. President, American
Ballet Theatre Foundation. Trustee, The
Andrew W. Mellon Foundation, Vassar
College and Teagle Foundation. Director
since February 2000.
Samuel O. Thier, M.D. 62, president, chief
executive officer and a director of Partners
HealthCare System, Inc. Former president,
Massachusetts General Hospital and Brandeis
University. Director, Charles River Laboratories, Inc. Member, Institute of Medicine.
Director since 1994.
Dennis Weatherstone 69, retired chairman
of J.P. Morgan & Co. Incorporated and
Morgan Guaranty Trust Company of New
York. Director, General Motors Corporation,
L’Air Liquide and Institute for International
Economics. President, Royal College of
Surgeons Foundation. Director since 1988.
Merck & Co., Inc. 1999 Annual Report
Brought to you by Global Reports
61
Corporate Information
For help with your stockholder
account or information about
Merck stock or dividends, call us
toll-free at (800)613-2104.
Annual Meeting
The Annual Meeting of Stockholders will be held at 2 p.m. on
Tuesday, April 25, 2000, at the Edward Nash Theatre at Raritan
Valley Community College, Route 28 and Lamington Road, North
Branch, N.J.
Stock Trading Information
Merck stock is listed on the New York Stock Exchange (ticker symbol: MRK), the Philadelphia Stock Exchange, and the Paris Stock
Exchange.
Direct Purchase of Merck Stock
You can purchase shares directly from the Company through the
Merck Stock Investment Plan. Shares also may be purchased by
automatic investment each month. Call (800)613-2104 or write to:
Merck Stockholder Services, WS3AB-40
Merck & Co., Inc.
One Merck Drive, P.O. Box 100
Whitehouse Station, NJ 08889-0100.
Dividend Reinvestment Plan
Your dividends (all or part) can be automatically reinvested
to purchase additional Merck shares. Just call (800)613-2104.
Stockholder Services
Call Monday through Friday, 8:30 a.m. to 4 p.m., EST, with
questions on stock-related matters, including verification of your
holdings, to change your address or to report lost or missing
dividends. Call (800)613-2104.
Write to us at:
Merck Stockholder Services, WS3AB-40
Merck & Co., Inc.
One Merck Drive, P.O. Box 100
Whitehouse Station, N.J. 08889-0100.
For Changes or Lost Stock Certificates
If you want to transfer your stock, change ownership or if you have
lost your stock certificates, call: (800)522-9114. Or write to
Merck Shareowner Services,
Norwest Bank Minnesota, N.A.
161 N. Concord Exchange
South St. Paul, Minn. 55075-1139.
Independent Public Accountants
for Merck can be reached at
Arthur Andersen L.L.P.
1345 Avenue of the Americas
New York, N.Y. 10105.
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Trademarks
All product or service names appearing in type form different from
that of the surrounding text are trademarks or service marks owned
by or licensed to Merck & Co., Inc., its subsidiaries or affiliates.
Cozaar and Hyzaar are registered trademarks of E.I. du Pont de
Nemours and Company, Wilmington, Del., USA.
Merck operates as MSD outside the United States.
News on Call
You can call “Shareholder Direct” 24 hours a day, seven days a week
for the latest news releases on sales and earnings, dividends, new
products and other Merck-related news. Call (800)CALL-MRK.
Investor Relations
Securities analysts and investment professionals with businessrelated questions should call the investor relations department
at (908)423-5881.
Journalists
Call Merck Public Affairs at
(908)423-4106.
Write for Information
If you want a copy of one of the following:
• Merck’s 1999 Form 10-K Annual Report,
as filed with the Securities and
Exchange Commission
• Merck’s 1999 Environment, Health and
Safety Progress Report
• 1998 Workplace Diversity Report
• Corporate Philanthropy Report
write to the Public Affairs Information Center
Merck & Co., Inc.
One Merck Drive, P.O. Box 100
Whitehouse Station, N.J. 08889-0100.
Merck on the Internet
Our home page is located at: www.merck.com
Corporate Headquarters
Merck & Co., Inc.
One Merck Drive
P.O. Box 100
Whitehouse Station, N.J. 08889-0100 USA
(908)423-1000
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