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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 1-3305
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MERCK & CO., INC.
ONE MERCK DRIVE
WHITEHOUSE STATION, N. J. 08889-0100
(908) 423-1000
INCORPORATED IN NEW JERSEY I.R.S. EMPLOYER
IDENTIFICATION NO. 22-1109110
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH NAME OF EACH EXCHANGE
CLASS ON WHICH REGISTERED
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COMMON STOCK NEW YORK AND PHILADELPHIA STOCK EXCHANGES
(NO PAR VALUE)
Number of shares of Common Stock (no par value) outstanding as of February
27, 1998: 1,195,985,267.
Aggregate market value of Common Stock (no par value) held by non-affiliates
on December 31, 1997 based on closing price on February 27, 1998:
$152,194,000,000.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X. NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENT PART OF FORM 10-K
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Annual Report to stockholders for the fiscal Parts I and II
year
ended December 31, 1997
Proxy Statement for the Annual Meeting of Part III
Stockholders to be held April 28, 1998
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PART I
ITEM 1. BUSINESS.
Merck & Co., Inc. (the "Company") is a global research-driven pharmaceutical
company that discovers, develops, manufactures and markets a broad range of
human and animal health products, directly and through its joint ventures, and
provides pharmaceutical benefit services through Merck-Medco Managed Care,
L.L.C. (formerly Medco Containment Services, Inc.) ("Merck-Medco"). The
Company's industry segment is the Human and Animal Health Products and
Services segment.
The following table shows the sales of various categories of the Company's
products and services:
($ in millions) 1997 1996 1995
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Elevated cholesterol........................ $ 4,672.3 $ 4,055.9 $ 3,211.1
Hypertension/heart failure.................. 3,918.2 3,512.4 3,021.3
Anti-ulcerants.............................. 1,329.6 1,143.6 1,019.8
Antibiotics................................. 774.9 822.3 848.3
Ophthalmologicals........................... 740.0 693.1 570.6
Vaccines/biologicals........................ 733.6 586.8 529.9
Human immunodeficiency virus ("HIV")........ 581.7 187.8 --
Osteoporosis................................ 532.1 281.8 45.2
Animal health/crop protection............... 550.0 1,044.1 1,041.9
Other Merck products........................ 364.2 342.9 675.8
Merck-Medco................................. 9,440.3 7,158.0 5,717.2
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Total..................................... $23,636.9 $19,828.7 $16,681.1
========= ========= =========
Human health products include therapeutic and preventive agents, generally
sold by prescription, for the treatment of human disorders. Among these are
elevated cholesterol products, which include Zocor (simvastatin) and Mevacor
(lovastatin); hypertension/heart failure products which include Vasotec
(enalapril maleate), the largest-selling product among this group, Cozaar
(losartan potassium), Hyzaar (losartan potassium and hydrochlorothiazide),
Prinivil (lisinopril) and Vaseretic (enalapril maleate and
hydrochlorothiazide); anti-ulcerants, of which Pepcid (famotidine) is the
largest-selling; antibiotics, of which Primaxin (imipenem and cilastatin
sodium) and Noroxin (norfloxacin) are the largest-selling; ophthalmologicals,
of which Timoptic (timolol maleate), Timoptic-XE (timolol maleate ophthalmic
gel forming solution) and Trusopt (dorzolamide hydrochloride) are the largest-
selling; vaccines/biologicals, of which Recombivax HB (hepatitis B vaccine
[recombinant]), M-M-R II (measles, mumps and rubella virus vaccine live) and
Varivax (varicella virus vaccine live [Oka/Merck]), a live virus vaccine for
the prevention of chickenpox, are the largest-selling; human immunodeficiency
virus, which is comprised of Crixivan (indinavir sulfate), a protease inhibitor
for the treatment of human immunodeficiency viral infection in adults, which was
launched in the United States in 1996; and osteoporosis, which is comprised of
Fosamax (alendronate sodium), for treatment and prevention in postmenopausal
women.
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, the
Company and Rhone-Poulenc 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 and, beginning in 1997, supply sales
to the Merial joint venture. Also included in this category are rebates and
discounts on Company pharmaceutical products.
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Merck-Medco primarily includes Merck-Medco sales of non-Merck products and
Merck-Medco pharmaceutical benefit services, principally managed prescription
drug programs and programs to help manage patient health.
In 1997, the U.S. Food and Drug Administration ("FDA") cleared Fosamax for two
new indications in postmenopausal women: prevention of fractures in those with
osteoporosis and prevention of osteoporosis in those at risk for the disease. In
October 1997, the FDA approved an expanded indication for Zocor to include the
lowering of triglycerides in patients with elevated cholesterol levels. In
November 1997, Cozaar received regulatory approval for a new heart failure
indication in Denmark and Finland, and approval of this indication is pending in
other foreign countries. On December 19, 1997, the FDA cleared Propecia
(finasteride) for marketing in the United States for treatment of male pattern
hair loss, for use in men only. In January 1998, Mexico became the first country
to grant marketing clearance to Maxalt (rizatriptan benzoate), a new oral anti-
migraine treatment. On February 25, 1998, the Netherlands became the first
European country to approve Maxalt, and other regulatory approvals are pending
worldwide, including in the United States where the Company filed a New Drug
Application ("NDA") with the FDA on June 30, 1997. On February 20, 1998, the FDA
cleared Singulair (montelukast sodium), a once-a-day oral leukotriene D4
receptor antagonist, for marketing in the United States for the prevention and
chronic treatment of asthma in adults and children aged six and above. On March
5, 1998, the FDA granted traditional approval for Crixivan in combination with
antiretroviral agents for the treatment of HIV infection (in 1996, the FDA
granted an accelerated approval for Crixivan for treatment of HIV Infection).
In 1997, the Company acquired Istituto Gentili S.p.A., a privately-held
Italian pharmaceutical company which owned the intellectual property rights for
alendronate, which is marketed in the United States by the Company as Fosamax.
Divestitures--In 1995, the Company completed the sale of its specialty
chemicals businesses, with the sales of Calgon Vestal Laboratories to Bristol-
Myers Squibb for $261.5 million and Kelco to Monsanto Company for $1.075
billion.
In October 1995, the Company sold Medco Behavioral Care Corporation ("MBC"),
a managed mental health care service business which was acquired as part of
Merck-Medco, to MBC management and Kohlberg Kravis Roberts & Co. for $340.0
million.
In July 1997, the Company sold its crop protection business to Novartis for
$910.0 million.
The decision to divest these businesses, which were not significant to the
Company's financial position, liquidity or results of operations, reflects the
Company's intention to focus its resources more fully on its core human health
and pharmaceutical benefit services businesses.
Strategic Alliances--In 1982, the Company entered into an agreement with
Astra AB ("Astra") to develop and market Astra products in the United States.
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., in which the Company and Astra each own a 50%
share. The joint venture, formed in November 1994, develops and markets most
of Astra's new prescription medicines in the United States. Joint venture
sales consist primarily of Prilosec (omeprazole), 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. In December 1996, the FDA cleared
Prilosec for use as initial therapy in the treatment of heartburn and other
symptoms associated with gastroesophageal reflux disease.
In 1989, the Company formed a joint venture with Johnson & Johnson to
develop, market and manufacture consumer healthcare products in the United
States. In April 1995, the joint venture obtained FDA clearance in the United
States for marketing Pepcid AC Acid Controller (famotidine), an over-the-
counter form of the Company's ulcer medication Pepcid. This 50% owned joint
venture was expanded into Europe in 1993, and
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Canada in 1996. The European extension currently markets and sells over-the-
counter pharmaceutical products in France, Germany, Italy, Spain and the
United Kingdom.
In 1991, the Company and E.I. du Pont de Nemours and Company ("DuPont")
entered into a joint venture to form a worldwide pharmaceutical company for
the research, marketing, manufacturing and sale of pharmaceutical and imaging
agent products. DuPont contributed its entire worldwide pharmaceutical and
radiopharmaceutical imaging agents businesses and is providing administrative
services. The Company contributed cash and European marketing rights to
several of its prescription medicines and is providing research and
development and international industry expertise. In January 1995, the joint
venture began co-promotion of the Company's prescription medicines, Prinivil
and Prinzide (lisinopril and hydrochlorothiazide), in the United States.
Effective April 1992, the Company, through the Merck Vaccine Division, and
Connaught Laboratories, Inc. ("Connaught"), recently renamed Pasteur Merieux
Connaught USA ("PMC USA"), an affiliate of Pasteur Merieux Connaught ("PMC"),
which is part of the Rhone-Poulenc group, agreed to collaborate on the
development and marketing of combination pediatric vaccines and to promote
selected vaccines in the United States. The research and marketing
collaboration enables the companies to pool their resources to expedite the
development of vaccines combining several different antigens to protect
children against a variety of diseases, including Haemophilus influenzae type
b, hepatitis B, diphtheria, tetanus, pertussis and poliomyelitis. In addition,
the Company and Connaught have agreed that PMC USA will promote selected
Company vaccine products.
In 1994, the Company, through the Merck Vaccine Division, and PMC formed a
joint venture to market human vaccines and to collaborate in the development of
new combination vaccines for distribution in the European Union ("EU") and the
European Free Trade Association. The Company and PMC contributed, among other
things, their European vaccine businesses for equal shares in the joint venture,
known as Pasteur Merieux MSD, S.N.C. The joint venture is subject to monitoring
by the EU, to which the partners made certain undertakings in return for an
exemption from European Competition Law, effective until December 2006. The
joint venture is active through affiliates in Belgium, Denmark, Italy, Germany,
Spain and the United Kingdom, and through distributors throughout the rest of
Europe.
In 1995, Merck-Medco entered into a joint venture with Wyeth-Ayerst
Laboratories, a division of American Home Products Corporation, to develop,
market and implement health management programs for certain conditions,
including several involving women's health. The joint venture company,
Innovative Health Solutions, L.P., introduced its first health management
program in 1997.
In April 1997, the Company and Chugai Pharmaceutical Co., Ltd. completed
arrangements relating to the formation of a joint venture, Chugai MSD Co.,
Ltd. ("Chugai MSD"), which was created for the development and marketing of
self-medication pharmaceutical products in Japan. Products currently marketed
by Chugai MSD include the Chugai Ichoyaku line of gastrointestinal products,
and Efeel, a famotidine product for stomach pain, nausea, heartburn and
indigestion, which is marketed in the United States, Canada and various
European markets by the Johnson & Johnson Merck Consumer Pharmaceuticals Co.
joint venture under the trademark Pepcid AC.
In August 1997, the Company and Rhone-Poulenc combined their respective
animal health and poultry genetics businesses to form Merial, a fully-
integrated, stand-alone joint venture, equally owned by the Company and Rhone-
Poulenc. Merial is the world's largest company dedicated to the discovery,
manufacture and marketing of veterinary pharmaceuticals and vaccines. The
Company contributed developmental research personnel, sales and marketing
activities, and animal health products, as well as its poultry genetics
business. Rhone-Poulenc contributed research and development, manufacturing,
sales and marketing activities, and animal health products, as well as its
poultry genetics business.
Competition--The markets in which the Company's business is conducted are
highly competitive and, in many cases, highly regulated. Such competition
involves an intensive search for technological innovations and
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the ability to market these innovations effectively. With its long-standing
emphasis on research and development, the Company is well prepared to compete
in the search for technological innovations. Additional resources to meet
competition include quality control, flexibility to meet exact customer
specifications, an efficient distribution system and a strong technical
information service. The Company is active in acquiring and marketing products
through joint ventures and licenses and has been expanding its sales and
marketing efforts to further address changing industry conditions. However,
the introduction of new products and processes by competitors may result in
price reductions and product replacements, even for products protected by
patents. For example, the number of compounds available to treat diseases
typically increases over time and has resulted in slowing the growth in sales
of certain of the Company's products.
In addition, particularly in the area of human pharmaceutical products,
legislation enacted in all states allows, encourages or, in a few instances,
in the absence of specific instructions from the prescribing physician,
mandates the use of "generic" products (those containing the same active
chemical as an innovator's product) rather than "brand-name" products.
Governmental and other pressures toward the dispensing of generic products
have significantly reduced the sales of certain of the Company's products no
longer protected by patents, such as Clinoril (sulindac) and Aldomet
(methyldopa), and slowed the growth of certain other products.
See also the description of the effect upon competition of the Drug Price
Competition and Patent Term Restoration Act of 1984 ("PTRA") on page 7.
It is generally the Company's position to limit individual product price
increases of its human health products in the United States to the projected
Consumer Price Index ("CPI") plus one percent on an annual basis and to limit
the net weighted average price changes for all human health products in the
United States to the projected general rate of inflation as measured by the
CPI, given stable markets and government policies that foster innovation.
Merck-Medco's pharmacy benefit management business is highly competitive.
Merck-Medco competes with other pharmacy benefit managers, insurance companies
and other providers of health care and/or administrators of healthcare
programs. Merck-Medco competes primarily on the basis of its ability to design
and administer innovative programs which contain a plan sponsor's overall
prescription drug costs, its flexibility in handling integrated prescription
drug programs resulting from its ability to dispense drugs through mail
service and act as retail prescription drug manager, and the sophistication
and quality of its systems, procedures and services.
Distribution--The Company sells its human health products to drug
wholesalers and retailers, hospitals, clinics, government agencies and managed
healthcare providers such as health maintenance organizations and other
institutions. The Company's professional representatives communicate the
effectiveness, safety and value of the Company's products to healthcare
professionals in private practice, group practices and managed-care
organizations.
Raw Materials--Raw materials and supplies are normally available in
quantities adequate to meet the needs of the Company's business.
Government Regulation and Investigation--The pharmaceutical industry is
subject to global regulation by regional, country, state and local agencies.
Of particular importance is the FDA in the United States, which administers
requirements covering the testing, approval, safety, effectiveness,
manufacturing, labeling and marketing of prescription pharmaceuticals. In many
cases, the FDA requirements have increased the amount of time and money
necessary to develop new products and bring them to market in the United
States. In 1997, the Food and Drug Administration Modernization Act was passed
and was the culmination of a comprehensive legislative reform effort designed
to streamline regulatory procedures within the FDA and to improve the
regulation of drugs, medical devices, and food. The legislation was
principally designed to ensure the timely availability of safe and effective
drugs and biologics by expediting the premarket review process for new
products. A key provision of the legislation is the re-authorization of the
Prescription Drug User Fee Act of 1992, which permits the continued collection
of user fees from prescription drug manufacturers to augment FDA
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resources earmarked for the review of human drug applications. This helps
provide the resources necessary to ensure the prompt approval of safe and
effective new drugs.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the healthcare system, either nationally or at the
state level. Although a reform bill has not been enacted at the federal level,
some states have passed reform legislation and further federal and state
developments are expected. Although the Company is positioned to respond to
evolving market forces, it cannot predict the outcome or effect of legislation
resulting from these reform efforts.
For many years, the pharmaceutical industry has been under federal and state
oversight with the new drug approval system, drug safety, advertising and
promotion, drug purchasing and reimbursement programs and formularies
variously under review. The Company believes that it will continue to be able
to bring new drugs to market in this regulatory environment. One type of
federal initiative to contain federal healthcare spending is the prospective
or "capitated" payment system, first implemented to reduce the rate of growth
in Medicare reimbursement to hospitals. Such a system establishes in advance a
flat rate for reimbursement for health care for those patients for whom the
payor is fiscally responsible. This type of payment system and other cost
containment systems are now widely used by public and private payors and have
caused hospitals, health maintenance organizations and other customers of the
Company to be more cost-conscious in their treatment decisions, including
decisions regarding the medicines to be made available to their patients.
Also, federal and state governments have pursued methods to directly reduce
the cost of drugs for which they pay. For example, federal legislation enacted
in 1990 requires the Company to pay a specified rebate for medicines
reimbursed by Medicaid. Federal legislation enacted in 1992 mandates the
payment of rebates similar to the Medicaid rebate for outpatient medicines
purchased by certain Public Health Service entities and "disproportionate
share" hospitals (hospitals meeting certain criteria). That same law mandates
minimum discounts of 24% off of a defined "non-federal average manufacturer
price" for the Veterans' Administration, Federal Supply Schedule and certain
other federal sector purchasers of medicines.
The Omnibus Budget Reconciliation Act of 1993 established a new Federal
Vaccines for Children entitlement program, under which the U.S. Centers for
Disease Control and Prevention ("CDC") funds and purchases recommended
pediatric vaccines at a capped public sector price for the immunization of
Medicaid-eligible, uninsured, native American and certain underinsured
children. The Company was awarded eight CDC contracts in 1997 for the supply
of its pediatric vaccines for this program.
The Company encounters similar regulatory and legislative issues in most of
the foreign countries where it does business. There, too, the primary thrust
of governmental inquiry and action is toward determining drug safety and
effectiveness, often with mechanisms for controlling the prices of
prescription drugs and the profits of prescription drug companies. The EU has
adopted directives concerning the classification, labeling, advertising,
wholesale distribution and approval for marketing of medicinal products for
human use. The Company's policies and procedures are already consistent with
the substance of these directives; consequently, it is believed that they will
not have any material effect on the Company's business.
The Company is subject to the jurisdiction of various regulatory agencies
and is, therefore, subject to potential administrative actions. Such actions
may include product recalls, seizures of products and other civil and criminal
sanctions. Under certain circumstances, the Company may deem it advisable to
initiate product recalls voluntarily. Although it is difficult to predict the
ultimate effect of these activities and legislative, administrative and
regulatory requirements and proposals, the Company believes that its
development of new and improved products should enable it to compete
effectively within this environment.
There are extensive federal and state regulations applicable to the practice
of pharmacy and the administration of managed healthcare programs. Each state
in which Merck-Medco operates a pharmacy has laws and regulations governing
its operation and the licensing of and standards of professional practice by
its
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pharmacists. These regulations are issued by an administrative body in each
state (typically, a pharmacy board), which is empowered to impose sanctions
for non-compliance. The policies and procedures of the Company comply with
these regulations.
Patents, Trademarks and Licenses--Patent protection is considered, in the
aggregate, to be of material importance in the Company's marketing of human
health products in the United States and in most major foreign markets.
Patents may cover products per se, pharmaceutical formulations, processes for
or intermediates useful in the manufacture of products or the uses of
products. Protection for individual products extends for varying periods in
accordance with the date of grant and the legal life of patents in the various
countries. The protection afforded, which may also vary from country to
country, depends upon the type of patent and its scope of coverage.
Patent portfolios developed for products introduced by the Company normally
provide marketing exclusivity. This is the case with the following major
products in the United States: Chibroxin (norfloxacin), Cozaar, Crixivan,
Fosamax, Hyzaar, Mefoxin (cefoxitin sodium), Mevacor, Noroxin, PedvaxHIB
(Haemophilus b conjugate vaccine), Pepcid, Primaxin, Propecia, Proscar
(finasteride), Recombivax HB, Sinemet CR (carbidopa and levodopa), Timoptic-
XE, Trusopt, Vaseretic, Vasotec and Zocor. Prinivil is subject to a license to
a third party and is not marketed exclusively by the Company.
Several products will face expiration of product patents in the United
States and other countries commencing December 1999 through the year 2001,
including Mevacor (U.S.--2001), Pepcid (U.S.--2000), Prinivil/Prinzide (U.S.--
2001), Vasotec (U.S.--2000), and Vaseretic (U.S.--2001). In addition,
Prilosec, which is sold by the Company's Astra Merck joint venture, will face
expiration of a substance patent in 2001.
Product patent protection in the United States has expired for the following
human and animal pharmaceutical products: Aldomet, Aldoril (methyldopa and
hydrochlorothiazide), Amprol (amprolium), Blocadren (timolol maleate),
Clinoril, Decadron (dexamethasone), Diuril (chlorothiazide), Dolobid
(diflunisal), Flexeril (cyclobenzaprine hydrochloride), HydroDiuril
(hydrochlorothiazide), Indocin (indomethacin), Ivomec (ivermectin), ivermectin-
containing products, Moduretic (amiloride HCl and hydrochlorothiazide), Sinemet
(carbidopa and levodopa), TBZ and Thibenzole (thiabendazole), Timoptic and
Timolide (timolol maleate and hydrochlorothiazide).
While the expiration of a product patent normally results in the loss of
marketing exclusivity for the covered product, commercial benefits may
continue to be derived from: (i) later-granted patents on processes and
intermediates related to the most economical method of manufacture of the
active ingredient of such product; (ii) patents relating to the use of such
product; (iii) patents relating to special compositions and formulations; and
(iv) marketing exclusivity that may be available under the PTRA. The effect of
product patent expiration also depends upon many other factors such as the
nature of the market and the position of the product in it, the growth of the
market, the complexities and economics of the process for manufacture of the
active ingredient of the product and the requirements of new drug provisions
of the Federal Food, Drug and Cosmetic Act or similar laws and regulations in
other countries.
The PTRA in the United States permits restoration of up to five years of the
patent term for new products to compensate for patent term lost during the
regulatory review process. Additionally, under the PTRA new chemical entities
approved after September 24, 1984 receive a period of five years' exclusivity
from the date of NDA approval, during which time an "abbreviated NDA" or "paper
NDA" may not be submitted to the FDA. Similarly, in the case of non-new chemical
entities approved after September 24, 1984, the applications for which include
the new data of clinical investigations conducted or sponsored by the applicant
essential to approval, no abbreviated NDA or paper NDA may become effective
before three years from NDA approval. However, the PTRA has also resulted in a
general increase in the number and use of generic products marketed in the
United States because the regulatory requirements for approval of generic
versions of off-patent pioneer drugs have significantly lessened. Additionally,
the PTRA has increased the incentive for abbreviated NDA applicants to challenge
the validity of U.S. patents claiming pioneer drugs because such a
7
challenge could result in an earlier effective approval date for the generic
version of the pioneer drug and a six-month period during which other generic
versions of the pioneer drug could not be marketed.
In Japan, a patent term restoration law enacted in 1988 provides, under
specific conditions, up to five years of additional patent life for
pharmaceuticals. In 1992, the Council of the European Communities published a
regulation which created supplementary protection certificates for medicinal
products. Thus, as of January 1993, certain medicinal products sold in the EU
became eligible for up to five years of market exclusivity after patent
expiration. However, this market exclusivity will expire throughout the EU 15
years after the first product approval in the EU. In February 1993, Canada
enacted Bill C91 which significantly modified Canadian patent law by
eliminating compulsory licensing of pharmaceutical products after December 20,
1991. Thus, patented pharmaceutical products will have market exclusivity for
the full 20-year patent life in Canada.
The North American Free Trade Agreement was passed in November 1993.
Pursuant to the agreement, Mexico improved its patent law to meet
international standards and to provide full patent protection to
pharmaceutical products. The General Agreement on Tariff and Trade ("GATT")
negotiations were concluded in December 1993 and the U.S. implementing
legislation was enacted in December 1994. The required changes in U.S. law
became effective in June 1995. The GATT implementing law changed the patent
term of new inventions to 20 years from the date of patent filing. Existing
patents were granted a patent term of the greater of 17 years from issue or 20
years from filing. Patents on several products of the Company obtained longer
life as a result.
The GATT agreement also requires countries to upgrade their intellectual
property laws to meet minimum international standards and to provide full
patent protection for pharmaceutical products not later than the end of a ten-
year transition period. Many countries are in the process of upgrading their
patent laws due to the GATT agreement.
The Generic Animal Drug and Patent Term Restoration Act, enacted in November
1988, provides for the extension of term of patents claiming new animal drugs
approved after enactment. This legislation also establishes a process by which
generic versions of new animal drugs can be approved via an Abbreviated New
Animal Drug Application procedure. The provisions of this legislation, in
general, are parallel to those found in the PTRA covering human health
products.
Worldwide, all of the Company's important products are sold under trademarks
that are considered in the aggregate to be of material importance. Trademark
protection continues in some countries as long as used; in other countries, as
long as registered. Registration is for fixed terms and can be renewed
indefinitely.
Royalties received during 1997 on patent and know-how licenses and other
rights amounted to $101.3 million. The Company also paid royalties amounting
to $226.9 million in 1997 under patent and know-how licenses it holds.
RESEARCH AND DEVELOPMENT
The Company's business is characterized by the introduction of new products
or new uses for existing products through a strong research and development
program. Approximately 7,540 people are employed in the Company's research
activities. Expenditures for the Company's research and development programs
were $1,683.7 million in 1997, $1,487.3 million in 1996 and $1,331.4 million
in 1995 and will be approximately $1.9 billion in 1998. The Company maintains
its ongoing commitment to research over a broad range of therapeutic areas and
clinical development in support of new products. Total expenditures for the
period 1988 through 1997 exceeded $11.0 billion with a compound annual growth
rate of 12%. Research and development costs incurred by the joint ventures in
which the Company participates, totaling $556.6 million in 1997, are not
included in the Company's consolidated research and development expenses.
The Company maintains a number of long-term exploratory and fundamental
research programs in biology and chemistry as well as research programs
directed toward product development. Projects related to human and
8
animal health are being carried on in various fields such as bacterial and
viral infections, cardiovascular functions, cancer, diabetes, inflammation,
ulcer therapy, kidney function, mental health, the nervous system, ophthalmic
research, prostate therapy, the respiratory system, bone diseases,
endoparasitic and ectoparasitic diseases, companion animal diseases and
production improvement.
In the development of human and animal health products, industry practice
and government regulations in the United States and most foreign countries
provide for the determination of effectiveness and safety of new chemical
compounds through pre-clinical tests and controlled clinical evaluation.
Before a new drug may be marketed in the United States, recorded data on the
experience so gained are included in the NDA or the biological Product License
Application to the FDA for the approval required. The development of certain
other products is also subject to government regulations covering safety and
efficacy in the United States and many foreign countries. There can be no
assurance that a compound that is the result of any particular program will
obtain the regulatory approvals necessary for it to be marketed.
New product candidates resulting from this research and development program
include Aggrastat (tirofiban hydrochloride), an intravenous platelet blocker
for the treatment of cardiovascular disorders, for which the Company filed an
NDA with the FDA on October 31, 1997; and Cosopt (dorzolamide hydrochloride
and timolol maleate), a combination of Timoptic-XE and Trusopt, for the
treatment of glaucoma. Other products in development include Vioxx, a new
product to treat arthritis pain and inflammation; an injectable antibiotic; an
antifungal agent; an oral compound with a novel mechanism of action
potentially useful for the treatment of depression and other neuropsychiatric
diseases; and certain new vaccines.
All product or service marks 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; except that Cozaar and
Hyzaar are registered trademarks of E.I. du Pont de Nemours and Company,
Wilmington, DE.
EMPLOYEES
At the end of 1997, the Company had 53,800 employees worldwide, with 33,800
employed in the United States, including Puerto Rico. Approximately 30.5% of
the Company's worldwide employees are represented by various collective
bargaining groups.
ENVIRONMENTAL MATTERS
The Company believes that it is in compliance in all material respects with
applicable environmental laws and regulations. In 1997, the Company incurred
capital expenditures of approximately $41.8 million for environmental
protection facilities. Capital expenditures for this purpose are forecasted to
exceed $470.0 million for the years 1998 through 2002. In addition, the
Company's operating and maintenance expenditures for environmental protection
facilities were approximately $89.4 million in 1997. Expenditures for this
purpose for the years 1998 through 2002 are forecasted to exceed $569.0 million.
The Company is also remediating environmental contamination resulting from past
industrial activity at certain of its sites. Expenditures for remediation and
environmental liabilities were $18.8 million in 1997, and are estimated at
$123.0 million for the years 1998 through 2002. These amounts do not consider
potential recoveries from insurers or other parties. The Company has taken an
active role in identifying and providing for these costs; and, therefore,
management 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.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
(CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995)
This 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,"
9
"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. Although it is not
possible to predict or identify all such factors, they may include the
following:
. Generic competition as several products face expiration of product patents
in the United States and other countries commencing December 1999 through
the year 2001, including Mevacor (U.S. -2001), Pepcid (U.S. - 2000),
Prinivil/Prinzide (U.S. - 2001), Vasotec (U.S.- 2000) and Vaseretic (U.S. -
2001). In addition, Prilosec, which is sold by the Company's Astra Merck
joint venture will face expiration of a substance patent in 2001.
. Increased "brand" competition in therapeutic areas important to the
Company's long-term business performance.
. The difficulties and uncertainties inherent in new product development.
The outcome of the lengthy and complex process of new product development
is inherently uncertain. A candidate can fail at any stage of the process
and one or more late-stage product candidates could fail to receive
regulatory approval. New product candidates may appear promising in
development but fail to reach the market because of efficacy or safety
concerns, the inability to obtain necessary regulatory approvals, the
difficulty or excessive cost to manufacture and/or the infringement of
patents or intellectual property rights of others. Furthermore, the sales of
new products may prove to be disappointing and fail to reach anticipated
levels.
. Pricing pressures, both in the United States and abroad, including rules
and practices of managed care groups, judicial decisions and governmental
laws and regulations related to Medicare, Medicaid and healthcare reform,
pharmaceutical reimbursement and pricing in general.
. Changes in government laws and regulations and the enforcement thereof
affecting the Company's pharmaceutical, vaccine and/or pharmaceutical
benefits management businesses.
. Efficacy or safety concerns with respect to marketed products, whether or
not scientifically justified, leading to product recalls, withdrawals or
declining sales.
. Legal factors, including product liability claims, antitrust litigation,
environmental concerns and patent disputes with competitors, any of which
could preclude commercialization of products or negatively affect the
profitability of existing products.
. Lost market opportunity resulting from delays and uncertainties in the
approval process of the FDA and foreign regulatory authorities.
. Changes in tax laws including changes related to the taxation of foreign
earnings, as well as the impact of legislation capping and ultimately
repealing Section 936 of the Internal Revenue Code (relating to earnings
from the Company's Puerto Rican operations).
. Changes in accounting standards promulgated by the American Institute of
Certified Public Accountants, the Financial Accounting Standards Board or
the Securities and Exchange Commission that are adverse to the Company.
. Economic factors over which the Company has no control, including changes
in inflation, interest rates and foreign currency exchange rates.
This list should not be considered an exhaustive statement of all potential
risks and uncertainties.
GEOGRAPHIC AREA INFORMATION
The Company's operations outside the United States are conducted primarily
through subsidiaries. Sales by subsidiaries outside the United States were 27%
of sales in 1997, and 30% and 32% of sales in 1996 and 1995, respectively.
The Company's worldwide business is subject to risks of currency
fluctuations, governmental actions and other governmental proceedings abroad.
The Company does not regard these risks as a deterrent to further
10
expansion of its operations abroad. However, the Company closely reviews its
methods of operations and adopts strategies responsive to changing economic
and political conditions.
The ongoing integration of the European market continues to offer
opportunities to businesses operating within the EU, particularly companies
such as the Company that maintain a strong research and manufacturing presence
within and marketing and sales organizations throughout Europe. The Company is
continually seeking to take advantage of these opportunities to improve the
efficiency and productivity of its EU operations.
In recent years, the Company has been expanding its operations in countries
located in Latin America, Eastern Europe and the Asia Pacific region where
changes in government policies and economic conditions are making it possible
for the Company to earn fair returns. Businesses in these developing areas,
while less stable, offer important opportunities for growth over time.
Financial information about geographic areas of the Company's business is
incorporated by reference to page 49 of the Company's 1997 Annual Report to
stockholders.
OTHER MATTERS
The Company has developed and begun implementing a plan to ensure that its
systems are compliant with the requirements to process transactions in the
year 2000. Management does not expect the cost of implementing this plan to be
material to the Company's financial position, results of operations, liquidity
or capital resources.
ITEM 2. PROPERTIES.
The Company's corporate headquarters is located in Whitehouse Station, New
Jersey. The Company's human health business is conducted through divisional or
subsidiary headquarters located in Montvale, New Jersey; Rahway, New Jersey;
and West Point, Pennsylvania. Principal research facilities for human and
animal health products are located in Rahway and West Point. The Company also
has production facilities for human and animal health products at nine
locations in the United States and Puerto Rico. Branch warehouses are
conveniently located to provide services throughout the country. Merck-Medco
operates its primary businesses through owned or leased facilities in various
locations throughout the United States. Outside the United States, through
subsidiaries, the Company owns or has an interest in manufacturing plants or
other properties in Australia, Canada, countries in Western Europe, Central
and South America, Africa and Asia.
Capital expenditures for 1997 were $1,448.8 million compared with $1,196.7
million for 1996. In the United States, these amounted to $1,062.8 million for
1997 and $937.8 million for 1996. Abroad, such expenditures amounted to $386.0
million for 1997 and $258.9 million for 1996.
The Company and its subsidiaries own their principal facilities and
manufacturing plants under titles which they consider to be satisfactory. The
Company considers that its properties are in good operating condition and that
its machinery and equipment have been well maintained. Plants for the
manufacture of products are suitable for their intended purposes and have
capacities and projected capacities adequate for current and projected needs
for existing Company products. Some capacity of the plants is being converted,
with any needed modification, to the requirements of newly introduced and
future products.
ITEM 3. LEGAL PROCEEDINGS.
The Company, including Merck-Medco, is party to a number of antitrust suits,
certain of which have been certified as class actions, instituted by most of
the nation's retail pharmacies and consumers in several states, alleging
conspiracies in restraint of trade and challenging the pricing and/or
purchasing practices of the Company and Merck-Medco, respectively. A
significant number of other pharmaceutical companies and wholesalers have also
been sued in the same or similar litigation. These actions, except for several
actions pending in state courts, have been consolidated for pre-trial purposes
in the United States District Court for the Northern District of Illinois. The
Company and several other defendants have entered into an agreement to settle
the federal class
11
action alleging conspiracy, which represents the single largest group of
retail pharmacy claims, pursuant to which the Company is obligated to pay
$51.8 million, in four equal annual installments. The court approved an
amended version of the settlement agreement which incorporated revisions,
unrelated to the monetary payment, to address concerns specified by the court.
Following the dismissal of appeals brought by objectors, the approval became
final in October 1997. The Company has not engaged in any conspiracy and no
admission of wrongdoing has been made or is included in the amended agreement,
which was entered into in order to avoid the cost of litigation and the risk
of an inaccurate adverse verdict by a jury presented with a case of this size
and complexity. While it is not feasible to predict the final outcome of these
proceedings, in the opinion of the Company, such proceedings should not
ultimately result in any liability which would have a material adverse effect
on the financial position, liquidity or results of operations of the Company.
The Company is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act, commonly
known as Superfund. These proceedings seek to require the operators of
hazardous waste disposal facilities, transporters of waste to the sites and
generators of hazardous waste disposed of at the sites to clean up the sites
or to reimburse the government for cleanup costs. The Company has been made a
party to these proceedings as an alleged generator of waste disposed of at the
sites. In each case, the government alleges that the defendants are jointly
and severally liable for the cleanup costs. Although joint and several
liability is alleged, these proceedings are frequently resolved so that the
allocation of cleanup costs among the parties more nearly reflects the
relative contributions of the parties to the site situation. The Company's
potential liability varies greatly from site to site. For some sites the
potential liability is de minimis and for others the costs of cleanup have not
yet been determined. While it is not feasible to predict the outcome of many
of these proceedings brought by federal or state agencies or private
litigants, in the opinion of the Company, such proceedings should not
ultimately result in any liability which would have a material adverse effect
on the financial position, results of operations, liquidity or capital
resources of the Company. The Company has taken an active role in identifying
and providing for these costs and such amounts do not include any reduction
for anticipated recoveries of cleanup costs from insurers, former site owners
or operators or other recalcitrant potentially responsible parties.
In November 1994, the Company, along with other pharmaceutical manufacturers
and pharmaceutical benefits managers ("PBMs"), received a notice from the
Federal Trade Commission ("FTC") that the FTC intended to investigate
agreements, alliances, activities and acquisitions involving pharmaceutical
manufacturers and PBMs. In March 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 these investigations, and believes that it is currently operating
in all material respects in accordance with applicable standards. Accordingly,
although the Company cannot predict the outcome of the investigations, it does
not believe that either investigation will have a material adverse effect on
the financial position, liquidity or results of operations of the Company.
There are various other legal proceedings, principally product liability and
intellectual property suits involving the Company, which are pending. While it
is not feasible to predict the outcome of these proceedings, in the opinion of
the Company, all such proceedings are either adequately covered by insurance
or, if not so covered, should not ultimately result in any liability which
would have a material adverse effect on the financial position, liquidity or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
----------------
12
EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF MARCH 1, 1998)
RAYMOND V. GILMARTIN--Age 56
November, 1994--Chairman of the Board, President and Chief Executive
Officer
June, 1994--President and Chief Executive Officer
Prior to June, 1994, Mr. Gilmartin was President and Chief Executive
Officer (1989 to 1992) and Chairman, President and Chief Executive Officer
(1992 to 1994) of Becton Dickinson and Company (medical supplies and
devices and diagnostic systems).
DAVID W. ANSTICE--Age 49
January, 1997--President, Human Health-The Americas--responsible for the
Company's prescription drug business in the United States, Canada and
Latin America and medical and scientific affairs
September, 1994--President, Human Health-U.S./Canada--responsible for the
Company's prescription drug business in the United States and Canada,
worldwide coordination of marketing policies and medical and scientific
affairs
January, 1994--President, Human Health-Europe
January, 1993--Senior Vice President, Merck Human Health Division-Europe
PAUL R. BELL--Age 52
April, 1997--President, Human Health-Asia Pacific--responsible for the
Company's prescription drug business in the Far East, Australia, New
Zealand and Japan
March, 1994--Vice President and Managing Director- Australia and New
Zealand
May, 1993--Vice President and Managing Director, Merck Sharp & Dohme
(Australia) Pty. Limited (MSD Australia), a wholly-owned subsidiary of the
Company
September, 1988--Managing Director, MSD Australia
CELIA A. COLBERT--Age 41
January, 1997--Vice President, Secretary and Assistant General Counsel
November, 1993--Secretary and Assistant General Counsel
September, 1993--Secretary
February, 1993--Secretary, New Products Committee
CAROLINE DORSA--Age 38
January, 1997--Vice President and Treasurer
January, 1994--Treasurer
July, 1993--Executive Director, Customer Marketing, U. S. Human Health
(USHH)
June, 1992--Executive Director, Pricing and Strategic Planning, USHH
R. GORDON DOUGLAS JR.--Age 63
January, 1994--President, Merck Vaccines
April, 1991--President, Merck Vaccine Division
KENNETH C. FRAZIER--Age 43
January, 1997--Vice President, Public Affairs and Assistant General
Counsel--responsible for public affairs, corporate legal activities and
The Merck Company Foundation
April, 1994--Vice President, Public Affairs
May, 1992--Vice President, General Counsel and Secretary, Astra/Merck Group
13
BERNARD J. KELLEY--Age 56
December, 1993--President, Merck Manufacturing Division (MMD)
August, 1993--Senior Vice President, Operations, MMD
September, 1991--Senior Vice President, Administration, Planning and
Quality, MMD
JUDY C. LEWENT--Age 49
January, 1997--Senior Vice President and Chief Financial Officer--
responsible for financial and corporate development functions, internal
auditing and the Company's joint venture relationships
September, 1994--Senior Vice President and Chief Financial Officer--
responsible for financial and public affairs functions, The Merck Company
Foundation, internal auditing and the Company's joint venture
relationships
December, 1993--Senior Vice President and Chief Financial Officer--
responsible for financial and public affairs functions and The Merck
Company Foundation
June, 1993--Senior Vice President, Chief Financial Officer and Controller
January, 1993--Senior Vice President and Chief Financial Officer
PER G. H. LOFBERG--Age 50
December, 1995--President, Merck-Medco Managed Care, L.L.C., a wholly-owned
subsidiary of the Company
January, 1994--President, Merck-Medco Managed Care Division
April, 1991--Senior Executive Vice President, Strategic Planning and
Marketing, Medco Containment Services, Inc.
MARY M. MCDONALD--Age 53
January, 1997--Senior Vice President and General Counsel--responsible for
legal and public affairs functions and The Merck Company Foundation
January, 1993--Senior Vice President and General Counsel
PETER E. NUGENT--Age 55
September, 1993--Vice President, Controller
July, 1989--Vice President, Corporate Taxes
EDWARD M. SCOLNICK--Age 57
September, 1994--Executive Vice President, Science and Technology and
President, Merck Research Laboratories (MRL)--responsible for worldwide
research function and activities of Merck Manufacturing Division (MMD),
computer resources and corporate licensing
December, 1993--Executive Vice President, Science and Technology and
President, MRL--responsible for worldwide research function and activities
of MMD and computer resources
January, 1993--Executive Vice President and President, MRL--responsible for
worldwide research function and activities of Merck AgVet Division and
computer resources
BENNETT M. SHAPIRO--Age 58
September, 1990--Executive Vice President, Worldwide Basic Research, Merck
Research Laboratories
DEBORAH K. SMITH--Age 50
June, 1996--Senior Vice President, Human Resources
Prior to June, 1996, Ms. Smith held numerous senior human resources
positions (1972 to 1995) at Xerox Corporation and most recently was Senior
Vice President, Human Resources (1995 to 1996) of Bausch & Lomb
Incorporated.
14
PER WOLD-OLSEN--Age 50
January, 1997--President, Human Health-Europe, Middle East & Africa--
responsible for the Company's prescription drug business in Europe, the
Middle East and Africa and worldwide coordination of marketing policies
September, 1994--President, Human Health-Europe--responsible for the
Company's European prescription drug business
January, 1994--Senior Vice President, Worldwide Human Health Marketing
September, 1991--Senior Vice President, Human Health Marketing, Merck Human
Health Division
All officers listed above serve at the pleasure of the Board of Directors.
None of these officers, other than Mr. Gilmartin (who has an employment
agreement with the Company which is an exhibit to this Form 10-K) was elected
pursuant to any arrangement or understanding between the officer and the
Board. There are no family relationships among the officers listed above.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required for this item is incorporated by reference to pages
37 and 52 of the Company's 1997 Annual Report to stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
The information required for this item is incorporated by reference to the
data for the last five fiscal years of the Company included under Results for
Year and Year-End Position in the Selected Financial Data table on page 52 of
the Company's 1997 Annual Report to stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required for this item is incorporated by reference to pages
28 through 37 of the Company's 1997 Annual Report to stockholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required for this item is incorporated by reference to pages
35 (under the caption "Analysis of Liquidity and Capital Resources") and 36 of
the Company's 1997 Annual Report to stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) FINANCIAL STATEMENTS
The consolidated balance sheet of Merck & Co., Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
retained earnings and cash flows for each of the three years in the period
ended December 31, 1997 and the report dated January 27, 1998 of Arthur
Andersen LLP, independent public accountants, are incorporated by reference to
pages 38 through 49 and page 50 of the Company's 1997 Annual Report to
stockholders.
(b) SUPPLEMENTARY DATA
Selected quarterly financial data for 1997 and 1996 are incorporated by
reference to the data contained in the Condensed Interim Financial Data table
on page 37 of the Company's 1997 Annual Report to stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The required information on directors and nominees is incorporated by
reference to pages 2 (beginning with the caption "Election of Directors")
through 5 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held April 28, 1998. Information on executive officers is
set forth in Part I of this document on pages 13 through 15. The required
information on compliance with Section 16(a) of the Securities Exchange Act of
1934 is incorporated by reference to page 21 (under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance") of the Company's Proxy Statement for
the Annual Meeting of Stockholders to be held April 28, 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The information required for this item is incorporated by reference to page
7 (under the caption "Compensation of Directors"), and 9 through 18 of the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held
April 28, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required for this item is incorporated by reference to page
8 of the Company's Proxy Statement for the Annual Meeting of Stockholders to
be held April 28, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required for this item is incorporated by reference to page
7 (under the caption "Relationships with Outside Firms") of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held April 28,
1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)DOCUMENTS FILED AS PART OF THIS FORM 10-K
1. FINANCIAL STATEMENTS
The following consolidated financial statements and report of
independent public accountants are incorporated herein by reference
to the Company's 1997 Annual Report to stockholders, as noted on
page 16 of this document:
Consolidated statement of income for the years ended December 31,
1997, 1996 and 1995
Consolidated statement of retained earnings for the years ended
December 31, 1997, 1996 and 1995
Consolidated balance sheet as of December 31, 1997 and 1996
Consolidated statement of cash flows for the years ended December
31, 1997, 1996 and 1995
Notes to consolidated financial statements
Report of independent public accountants
2. FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are either not required or not
applicable.
The registrant is primarily an operating company and all of the subsidiaries
included in the consolidated financial statements filed are wholly owned
except for minority interests in five consolidated subsidiaries.
16
3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------- ----------- ----------------
3(a) -- Restated Certificate of *
Incorporation of Merck
& Co., Inc. (May 6,
1992)
3(b) -- By-Laws of Merck & Co., Incorporated by reference
Inc. (as amended to Form 10-Q Quarterly
effective February 25, Report for the period
1997) ended March 31, 1997
10(a) -- Executive Incentive Plan ***
(as amended effective
February 27, 1996)
10(b) -- Base Salary Deferral Incorporated by reference
Plan (as adopted on to Form 10-K Annual
October 22, 1996, Report for the fiscal
effective January 1, year ended December 31,
1997) 1996
10(c) -- 1987 Incentive Stock *
Plan (as amended
effective May 6, 1992)
10(d) -- 1991 Incentive Stock **
Plan (as amended
effective February 23,
1994)
10(e) -- 1996 Incentive Stock ***
Plan (as amended on
October 24, 1995,
effective January 1,
1996)
10(f) -- Non-Employee Directors Filed with this document
Stock Option Plan (as
amended and restated
February 24, 1998)
10(g) -- 1996 Non-Employee Filed with this document
Directors Stock Option
Plan (as amended and
restated February 24,
1998)
10(h) -- Supplemental Retirement **
Plan (as amended
effective January 1,
1995)
10(i) -- Retirement Plan for the Incorporated by reference
Directors of Merck & to Form 10-Q Quarterly
Co., Inc. (amended and Report for the period
restated June 21, 1996) ended June 30, 1996
10(j) -- Plan for Deferred Incorporated by reference
Payment of Directors' to Form 10-Q Quarterly
Compensation (amended Report for the period
and restated June 21, ended June 30, 1996
1996)
10(k) -- Form of Stock Option ****
Agreement dated October
14, 1992 between Merck-
Medco and Per G.H.
Lofberg (together with
a list showing the
number of options held)
10(l) -- Employment Agreement Incorporated by reference
between Per G.H. to Form 10-K Annual
Lofberg and Merck-Medco Report of Medco
dated April 1, 1993 Containment Services,
Inc. for the fiscal year
ended June 30, 1993
17
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------- ----------- ----------------
10(m) -- Amendment dated July 27, 1993 ***
to Employment Agreement
between Per G.H. Lofberg and
Merck-Medco dated April 1,
1993
10(n) -- Letter Agreement dated May Incorporated by reference
24, 1996 with respect to the to Form 10-Q Quarterly
Employment Agreement between Report for the period
Per G.H. Lofberg and Merck- ended June 30, 1996
Medco dated April 1, 1993
and amended July 27, 1993
10(o) -- Employment Agreement between Incorporated by reference
Raymond V. Gilmartin and the to Form 10-Q Quarterly
Company dated June 9, 1994 Report for the period
ended June 30, 1994
12 -- Computation of Ratios of Filed with this document
Earnings to Fixed Charges
13 -- 1997 Annual Report to Filed with this document
stockholders (only those
portions incorporated by
reference in this document
are deemed "filed")
21 -- List of subsidiaries Filed with this document
24 -- Power of Attorney and Filed with this document
Certified Resolution of
Board of Directors
27(a) -- Financial Data Schedule Filed with this document
27(b) -- Restated Financial Data Filed with this document
Schedule
- --------
* Incorporated by reference to Form 10-K Annual Report for the fiscal year
ended December 31, 1992
** Incorporated by reference to Form 10-K Annual Report for the fiscal year
ended December 31, 1994
*** Incorporated by reference to Form 10-K Annual Report for the fiscal year
ended December 31, 1995
**** Incorporated by reference to Post Effective Amendment No. 1 to
Registration Statement on Form S-8 to Form S-4 Registration Statement
(No. 33-50667)
None of the instruments defining the rights of holders of long-term debt of
the Company and its subsidiaries (Exhibit Number 4) are being filed since the
total amount of securities authorized under any of such instruments taken
individually does not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. The Company agrees to furnish a copy of
such instruments to the Commission upon request.
Copies of the exhibits may be obtained by stockholders upon written request
directed to the Stockholder Services Department, Merck & Co., Inc., P.O. Box
100--WS 3AB-40, Whitehouse Station, New Jersey 08889-0100 accompanied by check
in the amount of $5.00 payable to Merck & Co., Inc. to cover processing and
mailing costs.
(b)REPORTS ON FORM 8-K
During the three-month period ended December 31, 1997, no current
reports on Form 8-K were filed.
18
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
MERCK & CO., INC.
Dated: March 20, 1998
RAYMOND V. GILMARTIN
By __________________________________
(Chairman of the Board, President
and
Chief Executive Officer)
/s/ CELIA A. COLBERT
By __________________________________
Celia A. Colbert
(Attorney-in-Fact)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
---------- ----- ----
Raymond V. Gilmartin Chairman of the Board, March 20, 1998
President and Chief
Executive Officer; Principal
Executive Officer; Director
Judy C. Lewent Senior Vice President and March 20, 1998
Chief Financial Officer;
Principal Financial Officer
Peter E. Nugent Vice President, Controller; March 20, 1998
Principal Accounting Officer
Derek Birkin Director March 20, 1998
Lawrence A. Bossidy Director March 20, 1998
William G. Bowen Director March 20, 1998
Johnnetta B. Cole Director March 20, 1998
Carolyne K. Davis Director March 20, 1998
19
SIGNATURES TITLE DATE
---------- ----- ----
Lloyd C. Elam Director March 20, 1998
William N. Kelley Director March 20, 1998
Edward M. Scolnick Director March 20, 1998
Samuel O. Thier Director March 20, 1998
CELIA A. COLBERT, BY SIGNING HER NAME HERETO, DOES HEREBY SIGN THIS DOCUMENT
PURSUANT TO POWERS OF ATTORNEY DULY EXECUTED BY THE PERSONS NAMED, FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION AS AN EXHIBIT TO THIS DOCUMENT, ON
BEHALF OF SUCH PERSONS, ALL IN THE CAPACITIES AND ON THE DATE STATED, SUCH
PERSONS INCLUDING A MAJORITY OF THE DIRECTORS OF THE COMPANY.
/s/ CELIA A. COLBERT
By __________________________________
Celia A. Colbert
(Attorney-in-Fact)
20
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report, incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (Nos. 33-21087, 33-21088,
33-36101, 33-40177, 33-51235, 33-53463, 33-64273, 33-64665, 333-23293 and
333-23295), on Form S-4 (No. 33-50667) and on Form S-3 (Nos. 33-39349, 33-
60322, 33-51785, 33-57421, 333-17045 and 333-36383). It should be noted that
we have not audited any financial statements of the Company subsequent to
December 31, 1997 or performed any audit procedures subsequent to the date of
our report.
ARTHUR ANDERSEN LLP
New York, New York
March 20, 1998
21
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------- ----------- ----------------
3(a) -- Restated Certificate of Incorporation *
of Merck & Co., Inc. (May 6, 1992)
3(b) -- By-Laws of Merck & Co., Inc. (as Incorporated by reference
amended effective February 25, 1997) to Form 10-Q Quarterly
Report for the period
ended March 31, 1997
10(a) -- Executive Incentive Plan (as amended ***
effective February 27, 1996)
10(b) -- Base Salary Deferral Plan (as adopted Incorporated by reference
on October 22, 1996, effective to Form 10-K Annual
January 1, 1997) Report for the fiscal
year ended December 31,
1996
10(c) -- 1987 Incentive Stock Plan (as amended *
effective May 6, 1992)
10(d) -- 1991 Incentive Stock Plan (as amended **
effective February 23, 1994)
10(e) -- 1996 Incentive Stock Plan (as amended ***
on October 24, 1995, effective
January 1, 1996)
10(f) -- Non-Employee Directors Stock Option Filed with this document
Plan (as amended and restated
February 24, 1998)
10(g) -- 1996 Non-Employee Directors Stock Filed with this document
Option Plan (as amended and restated
February 24, 1998)
10(h) -- Supplemental Retirement Plan (as **
amended effective January 1, 1995)
10(i) -- Retirement Plan for the Directors of Incorporated by reference
Merck & Co., Inc. (amended and to Form 10-Q Quarterly
restated June 21, 1996) Report for the period
ended June 30, 1996
10(j) -- Plan for Deferred Payment of Incorporated by reference
Directors' Compensation (amended and to Form 10-Q Quarterly
restated June 21, 1996) Report for the period
ended June 30, 1996
10(k) -- Form of Stock Option Agreement dated ****
October 14, 1992 between Merck-Medco
and Per G.H. Lofberg (together with a
list showing the number of options
held)
10(l) -- Employment Agreement between Per G.H. Incorporated by reference
Lofberg and Merck-Medco dated April to Form 10-K Annual
1, 1993 Report of Medco
Containment Services,
Inc. for the fiscal year
ended June 30, 1993
10(m) -- Amendment dated July 27, 1993 to ***
Employment Agreement between Per G.H.
Lofberg and Merck-Medco dated April
1, 1993
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
------- ----------- ----------------
10(n) -- Letter Agreement dated May 24, 1996 Incorporated by reference
with respect to the Employment to Form 10-Q Quarterly
Agreement between Per G.H. Lofberg Report for the period
and Merck-Medco dated April 1, 1993 ended June 30, 1996
and amended July 27, 1993
10(o) -- Employment Agreement between Raymond Incorporated by reference
V. Gilmartin and the Company dated to Form 10-Q Quarterly
June 9, 1994 Report for the period
ended June 30, 1994
12 -- Computation of Ratios of Earnings to Filed with this document
Fixed Charges
13 -- 1997 Annual Report to stockholders Filed with this document
(only those portions incorporated by
reference in this document are
deemed "filed")
21 -- List of subsidiaries Filed with this document
24 -- Power of Attorney and Certified Filed with this document
Resolution of Board of Directors
27(a) -- Financial Data Schedule Filed with this document
27(b) -- Restated Financial Data Schedule Filed with this document
- --------
* Incorporated by reference to Form 10-K Annual Report for the fiscal year
ended December 31, 1992
** Incorporated by reference to Form 10-K Annual Report for the fiscal year
ended December 31, 1994
*** Incorporated by reference to Form 10-K Annual Report for the fiscal year
ended December 31, 1995
**** Incorporated by reference to Post Effective Amendment No. 1 to
Registration Statement on Form S-8 to Form S-4 Registration Statement
(No. 33-50667)