Merck & Co., Inc. Seminar Prep

Rutgers Business School

September 21, 2006

Ryan Field

Roberto Lavie

Phil Hodes, Advisor

Snapshot

• Head office: 1 Merck Drive, Whitehouse Station, NJ 08889, (908) 423-1000

• Website: www.merck.com• Stock Info: NYSE, MRK

– $41.94 on Wed 9/20/06

• Financials: 2005 Sales $22B,

Net Income $4.6B• CEO and President:

Richard T. Clark

*Note: All financial information is from FY 2005

Early History

• 1887: Theodore Weicker establishes a US branch of a German chemical company, E. Merck AG, that serves as an importer

• 1904: First US factory is opened (Rahway)• 1933: First research lab is opened• WWII: CEO George Merck gives 80% of

company’s German-held stock to US government, and it is taken public after the war

• 1940s-50s: Merck researchers win 5 Nobel Prizes

Revenues by Geography

• US: Sales $12.7B, -5.2% to LY, 58% of company’s revenues

• Europe, Middle East, Africa: Sales $5.2B, -4.4% to LY, 23.6% of company’s revenues

• Japan: Sales $1.6B, -1.8% to LY, 7.4% of company’s revenues

• Other: Sales $2.4B, +2.0% to LY, 10.9% of company’s revenues

*Note: All financial information is from FY 2005

New Products

• Merck/Schering-Plough Pharmaceuticals– Vytorin

• Fastest growing product in cholesterol market• Superior LDL lowering efficacy vs. competitors

– Zetia• Strong growth in cholesterol market• Add-on LDL lowering efficacy (with statin and as

monotherapy)

New Products

• Gardasil– Only vaccine in US for prevention of HPV types 16-

and 18-related cervical cancer, for use in females ages 9 – 26

– Also approved for prevention of genital warts and low-grade cervical lesions caused by HPV types 6, 11, 16 and 18

– In US, an average of 10 women per day die from cervical cancer

• Zostavax– Reduced incidence of shingles by 51%– With 1 million cases of shingles each year, 40% -

50% occur in those age 60 and older

New Products

• Rotateq– Pediatric vaccine used in prevention of rotavirus gastroenteritis– In developing world, rotavirus is the cause of 1/3 of diarrhea-

related hospitalizations and 500,000 deaths each year– Merck will put strong effort into making the vaccine available

where it is needed

• Januvia– Diabetes drug, currently under review– Phase III study showed significant results in lowering glucose

levels when used in conjunction with metformin– Potential to be the first in a new class of oral drugs in US to

enhance the body’s natural ability to lower blood sugar when it is elevated

Blockbuster Products/Divisions

• Zocor (simvastatin)– Atherosclerosis (cholesterol)– Financials: Sales $4.3B, -15.7% to LY, 19.9% of

company’s revenues– Special note: Zocor went off-patent in June 2006, and

it is rapidly losing market share to generic version

• Fosamax (alendronate sodium)– Osteoporosis– Financials: Sales $3.2B, +1% to LY, 14.5% of

company’s revenue– Off-patent in February 2008

*Note: All financial information is from FY 2005

Blockbuster Products/Divisions

• Cozaar/Hyzaar (losartan potassium)– High blood pressure– Financials: Sales $3.0B, +7.6% to LY, 13.8%

of company’s revenues

• Singulair (montelukast sodium)– Asthma, allergies– Financials: Sales $2.9B, +13.5% to LY, 13.5%

of company’s revenues

*Note: All financial information is from FY 2005

Other Major Products/Divisions

• Vaccines/biologicals– Key products:

• Varivax: chickenpox vaccine• M-M-R II: pediatric vaccine for measles, mumps,

and rubela• Pneumovax: vaccine against pneumococcal

disease• Recombivax HB: vaccine against hepatitis B

– Financials of division: Sales $1.1B, +6.5% to LY, 5% of company’s sales

*Note: All financial information is from FY 2005

Other Major Products/Divisions

• Proscar (finasteride)– Treatment of symptomatic benign prostate

enlargement– Off-patent in June 2006

• Primaxin (imipenem and cilastatin)– Antibiotic

• Vasotec/Vaseretic (enalapril maleate)– Hypertention, heart failure– Joint Venture with Biovail Corporation

Other Major Products/Divisions

• Cosopt/Trusopt (dorzolamide hydrochloride)– Lower intraocular pressure– Off-patent in October 2008

• Cancidas (caspofungin acetate)– Antifungal

• Maxalt (rizatripton benzoate)– Acute migrane

• Propecia (finasteride)– Treatment of male pattern hair loss

Other Major Products/Divisions

• Other Division– Financials: Sales $3.4B, +15% to LY, 15.4% of

company’s sales– Consumer drug alliance with Johnson & Johnson

• Pepcid– Animal health company: Merial

• Joint alliance with Sanofi Aventis– Alliance with AstraZeneca

• Prilosec• Nexium

– Other products• Unbiased health information published

as a not-for-profit service*Note: All financial information is from FY 2005

Merck Pipeline – August 01, 2006

Merck’s Strengths/Weaknesses

Strengths• Market leadership• Streamlined business

model• Strong late stage

product pipeline• High ROI and ROE• Strategic alliances

Weaknesses• Product Recall• Weak operating

performance• Short-term sales have

high costs associated (i.e. vaccines)

Challenges/Opportunities in the Global Health Care MarketChallenges

• Declining success rates in new drug development

• Rising cost or drug development and commercialization

• Increasing pricing and reimbursement pressures

• Greater regulatory scrutiny

Opportunities• Rising disease incidence

globally• High unmet medical

needs (e.g. Oncology)• New technologies for

research and development

• Expanding access, income, and insurance coverage in key emerging pharma markets

Merck’s Plan to Win5 Strategic Actions

• Priority disease areas– Alzheimer’s disease, atherosclerosis,

cardiovascular disease, diabetes, novel vaccines, obesity, cancer, pain, and sleep disorders

• Redefine product R&D– Increase productivity of product in the pipeline– Make the most use of advanced scientific

techniques and technologies to improve rates of success in R&D

Merck’s Plan to Win5 Strategic Actions

• New Commercial Model– Efficiently providing value to all customers by getting them the

right information, at the right time, in the right way– Devote more resources to bringing relevant information to

payers and consumers, all of whom are becoming more and more involved in the choice of medicines

• Emerging Markets– Build long term leadership in emerging markets

• Flexible Cost Structure– LEAN and flexible cost structure– Supply strategy

"Effort counts, but results count more, and I am counting on results." --Dick Clark, Merck's CEO and president

Current Events and News

• Vioxx– On September 30, 2004 Merck announced the voluntarily

worldwide withdrawal of Vioxx® (rofecoxib) from the market due to an increased risk of serious thrombotic cardiovascular adverse events is associated with all COX 2 selective NSAIDs

– There are over 16,000 pending lawsuits against Merck, who is litigating them individually

• As of 7/14/06, Merck’s record was 4 wins and 3 losses• On 8/18/06, Merck lost its first federal case with $51 million awarded

to the plaintiff (this award has since been overturned by a judge)– Merck is developing a new painkiller called Arcoxia to replace

Vioxx to compete with the arthritis drug Celebrex• Arcoxia is facing opposition with claims that it may be as risky as

Vioxx– New journal reports are giving ammunition to patients suing

Merck, causing stock price to fall

Current Events and News

• Januvia– On September 14, 2006 New Phase III data showed significant

glucose-lowering efficacy of Januvia™, an investigational medicine for Type 2 diabetes, when taken simultaneously with Metformin (common names: Glucophage®, Fortamet®, Riomet®)

– Januvia has been accepted for standard review by the FDA• Merck expects an FDA action on the New Drug Application (NDA)

by mid-October

• Emend– On July 11, 2006 Merck announced that the FDA has approved

Emend® (aprepitant) for the prevention of postoperative nausea and vomiting (PONV), one of the most common side effects associated with surgical procedures

Current Events and News

• Gardasil– On June  8, 2006, Merck announced that the FDA

approved Gardasil® [Quadrivalent Human Papillomavirus (Types 6, 11, 16, 18) Recombinant Vaccine]

– The vaccine is designed to protect against the four types of human papillomavirus (HPV) that account for some 70% of cervical cancer cases and 90% of genital wart conditions

• Zostavax– FDA approves Zostavax on May 25, 2006– Zostavox is the first vaccine that may prevent shingles

in people age 60 and older

Current Events and News

• On November 28, 2005, Merck announced it would cut 7,000 jobs (11 percent of its work force) and close or sell five manufacturing plants in the first phase of a restructuring meant to save up to $4 billion by the end of the decade

• In an act of goodwill, Merck donated 55,000 doses of its vaccine against the viral illness rubella following an outbreak in India earlier this year

Current Events and News

• Merck was named one of the 100 Best Companies for Working Mothers in 2004 by Working Mothers magazine

• For Merck shareholders– $0.38 per share dividend is payable on

October 2, 2006 to stockholders of record at the close of business on September 1, 2006

Tomorrow’s Speakers

• Topic: The Challenges and Opportunities of Marketing and Finance in the Pharmaceutical Industry

• 9:00a-9:15a: Mrs. Regina Flynn – Director of University Relations

• 9:15a-10:00a: Mr. John Copeland– Senior Manager, Influence Networks

• 10:00a-10:45a: Mr. Larry Smith– Marketing Director

• 10:45a-11:30a: Mr. John Canan– Vice President, Corporate Audit Services

Sources Cited

• Last year’s Merck & Co., Inc. seminar prep presentation

• Merck’s website• Merck’s 2005 Annual

Report• Datamonitor’s Merck

company profile, July 2006

• Merck Investor Presentation, September 2006

• Vault’s Merck profile• S&P MRK stock

report• News sources:

Yahoo, Google, Wikipedia