As filed with the Securities and Exchange Commission on March 21, 2002
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
________________
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, 2001
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File No. 1-3305
________________
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:
Name of Each Exchange
Title of Each Class on which Registered
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Common Stock New York and Philadelphia Stock Exchanges
($0.01 par value)
Number of shares of Common Stock ($0.01 par value) outstanding as of
February 28, 2002: 2,271,094,459.
Aggregate market value of Common Stock ($0.01 par value) held by
non-affiliates on December 31, 2001 based on closing price on February 28, 2002:
$139,327,000,000.
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. [X]
Documents Incorporated by Reference:
Document Part of Form 10-K
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Annual Report to stockholders for the fiscal year Parts I and II
ended December 31, 2001
Proxy Statement for the Annual Meeting of Part III
Stockholders to be held April 23, 2002
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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. ("Merck-Medco"). The Company's operations are principally
managed on a products and services basis and are comprised of two reportable
segments: Merck Pharmaceutical, which includes products marketed either directly
or through joint ventures, and Merck-Medco. Merck Pharmaceutical products
consist of therapeutic and preventive agents, sold by prescription, for the
treatment of human disorders. Merck-Medco revenues are derived from the filling
and management of prescriptions and health management programs.
The following table shows the sales of various categories of the
Company's products and services:
($ in millions) 2001 2000 1999
--------------- ---- ---- ----
Atherosclerosis .............................. $ 7,179.6 $ 5,805.2 $ 5,093.2
Hypertension/heart failure ................... 4,255.6 4,629.1 4,563.8
Anti-inflammatory/analgesics ................. 2,630.5 2,251.7 578.5
Osteoporosis ................................. 1,759.2 1,275.3 1,043.1
Respiratory .................................. 1,375.7 862.2 501.8
Vaccines/biologicals ......................... 1,022.4 952.0 860.0
Anti-bacterial/anti-fungal ................... 795.4 783.3 772.3
Ophthalmologicals ............................ 672.2 656.2 670.0
Human immunodeficiency virus ("HIV") ......... 411.0 528.8 664.4
Anti-ulcerants ............................... 354.2 849.4 913.9
Other Merck products ......................... 891.2 1,629.7 1,820.6
Merck-Medco .................................. 26,368.7 20,140.3 15,232.4
-------- -------- --------
Total ................................... $47,715.7 $40,363.2 $32,714.0
========= ========= =========
Human health products include therapeutic and preventive agents,
generally sold by prescription, for the treatment of human disorders. Among
these are atherosclerosis products, which include Zocor (simvastatin) and
Mevacor (lovastatin); hypertension/heart failure products, which include Cozaar
(losartan potassium), Hyzaar (losartan potassium and hydrochlorothiazide),
Prinivil (lisinopril), Vasotec (enalapril maleate) and Vaseretic (enalapril
maleate and hydrochlorothiazide); anti-inflammatory/analgesics, of which Vioxx
(rofecoxib), an agent that specifically inhibits COX-2, is the largest-selling;
an osteoporosis product, Fosamax (alendronate sodium), for treatment and
prevention of osteoporosis; a respiratory product, Singulair (montelukast
sodium), a leukotriene receptor antagonist; vaccines/biologicals, of which M-M-R
II (measles, mumps and rubella virus vaccine live), Varivax (varicella virus
vaccine live), a live virus vaccine for the prevention of chickenpox, and
Recombivax HB (hepatitis B vaccine [recombinant]) are the largest-selling;
anti-bacterial/anti-fungal products, of which Primaxin (imipenem and cilastatin
sodium), Noroxin (norfloxacin) and Cancidas (caspofungin acetate) are the
largest-selling; ophthalmologicals, of which Timoptic (timolol maleate),
Timoptic-XE (timolol maleate ophthalmic gel forming solution), Trusopt
(dorzolamide hydrochloride ophthalmic solution) and Cosopt (dorzolamide
hydrochloride and timolol maleate ophthalmic solution) are the largest selling;
HIV products, which include Crixivan (indinavir sulfate), a protease inhibitor
for the treatment of human immunodeficiency viral infection in adults; and
anti-ulcerants, which include Pepcid (famotidine).
Other Merck products include sales of Proscar (finasteride), which
provides for the treatment of symptomatic benign prostatic hyperplasia in men
with enlarged prostates, Maxalt (rizatriptan benzoate), an anti-migraine
treatment, Propecia (finasteride), which treats male pattern hair loss and
Aggrastat (tirofiban hydrochloride), a platelet blocker for treatment of acute
coronary syndrome, and other human pharmaceuticals; continuing sales to divested
businesses; pharmaceutical and animal health supply sales to the Company's joint
ventures; and supply sales to AstraZeneca LP. Also included in this category are
rebates and discounts on the Company's 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.
2
In January 2002, the Company announced plans to establish Merck-Medco
as a separate, publicly-traded company. The Company plans an initial public
offering of a portion of the new company by mid-2002, subject to market
conditions. Alternatives for the distribution of the remaining shares in the new
company are under evaluation. The full separation of Merck-Medco should be
completed within 12 months of the initial public offering, subject to receipt of
an Internal Revenue Service ruling that such an event would be tax-free to
shareholders and to other customary conditions.
On January 10, 2001, the Antiviral Advisory Committee of the U.S. Food
and Drug Administration ("FDA") recommended that the FDA clear Cancidas, the
Company's investigational intravenous anti-fungal medicine, for marketing. On
January 26, 2001, the FDA cleared Cancidas for marketing in the United States
for the treatment of invasive aspergillosis in patients who do not respond to or
are intolerant of other anti-fungal therapies. In February 2001, the once-weekly
formulation of Fosamax was approved for treatment to increase bone mass in men
with osteoporosis. In November 2001, the FDA cleared Invanz (ertapenem sodium),
a new once-a-day injectable antibiotic, for marketing in the United States for
the treatment of adults with the following moderate to severe infections caused
by susceptible strains of the designated organisms: complicated intra-abdominal
infections, complicated skin and skin structure infections, community acquired
pneumonia, complicated urinary tract infections, and acute pelvic infections.
In June 2000, Merck-Medco commenced providing pharmaceutical benefit
management services for the UnitedHealth Group, one of the largest managed care
organizations in the United States.
In November 2000, the Company formed a new subsidiary, Merck Capital
Ventures, LLC, to invest up to $100 million in capital in private Internet and
other emerging businesses that focus on areas related to the commercialization,
distribution and delivery of pharmaceuticals and related health care services.
Acquisitions -- In November 1999, the Company acquired SIBIA
Neurosciences, Inc., a publicly-held California based biotechnology firm, which
engages in the discovery and development of novel small molecule therapeutics
for the treatment of neurodegenerative, neuropsychiatric and neurological
disorders.
In June 2000, Merck-Medco acquired ProVantage Health Services, Inc., a
publicly-held Wisconsin based health care benefits management and health
information company that provided pharmacy benefit services to approximately
five million people.
In July 2001, the Company acquired Rosetta Inpharmatics, Inc., a
publicly-held Washington based informational genomics company that designs and
develops unique technologies to efficiently analyze gene data to predict how
medical compounds will interact with different kinds of cells in the body.
Joint Ventures -- 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. ("AMI"), in which the Company and Astra each owned a 50% share.
This joint venture, formed in November 1994, developed and marketed most of
Astra's new prescription medicines in the United States including 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 1998, the Company 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"), and contributed KBI's
operating assets to a new U.S. limited partnership named Astra Pharmaceuticals,
L.P. ("the Partnership"), in which the Company maintains a limited partner
interest. The Partnership, renamed AstraZeneca LP, became the exclusive
distributor of the products for which KBI retained rights. The Company earns
certain Partnership returns as well as ongoing revenue based on sales of current
and future KBI products. The Partnership returns include a priority return
provided for in the Partnership Agreement, variable returns based, in part, upon
sales of certain former Astra USA, Inc. products, and a preferential return
representing the Company's share of undistributed Partnership GAAP earnings. In
conjunction with the 1998 restructuring, for a payment of $443.0 million, Astra
purchased an option to buy the Company's interest in the KBI products, excluding
the Company's interest in the gastrointestinal medicines Prilosec and Nexium
(esomeprazole magnesium). The Company also granted Astra an option ("the Shares
Option")
3
to buy the Company's common stock interest in KBI, at an exercise price based on
the net present value of estimated future net sales of Prilosec and Nexium.
In April 1999, Astra merged with Zeneca Group Plc, forming AstraZeneca
AB ("AstraZeneca"). As a result of the merger, Astra was required to make two
one-time payments to the Company totaling approximately $1.8 billion for the
relinquishment of certain rights, including rights to future Astra products with
no existing or pending U.S. patents at the time of the merger. This merger also
triggers a partial redemption of the Company's limited partner interest in 2008.
Furthermore, as a result of the merger, AstraZeneca's option to buy the
Company's interest in the KBI products is exercisable in 2010 and the Company
has obtained the right to require AstraZeneca to purchase such interest in 2008.
In addition, the Shares Option is exercisable two years after Astra's purchase
of the Company's interest in the KBI products.
In 1989, the Company formed a joint venture with Johnson & Johnson to
develop, market and manufacture consumer health care products in the United
States. In April 1995, the joint venture obtained FDA clearance in the United
States for marketing Pepcid AC (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 into Canada in 1996. The European extension currently
markets and sells over-the-counter pharmaceutical products in France, Germany,
Italy, Spain and the United Kingdom.
Effective April 1992, the Company, through the Merck Vaccine Division,
and Connaught Laboratories, Inc. (now Aventis Pasteur), an affiliate of Aventis
A.G., 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
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poliomyelitis.
In 1994, the Company, through the Merck Vaccine Division, and Pasteur
Merieux Connaught (now Aventis Pasteur) formed a joint venture to market human
vaccines in Europe and to collaborate in the development of combination vaccines
for distribution in the European Union ("EU") and the European Free Trade
Association. The Company and Aventis Pasteur contributed, among other things,
their European vaccine businesses for equal shares in the joint venture, known
as Pasteur Merieux MSD, S.N.C. (now Aventis Pasteur 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, directly or through affiliates
in Belgium, Denmark, Italy, Germany, Spain, France, Austria, Ireland and the
United Kingdom, and through distributors in the rest of Europe.
In 1997, the Company and Rhone-Poulenc S.A. combined their respective
animal health and poultry genetics businesses to form Merial Limited ("Merial"),
a fully-integrated animal health company, which is a stand-alone joint venture,
equally owned by each party. Merial provides a comprehensive range of
pharmaceuticals and vaccines to enhance the health, well-being and performance
of a wide range of animal species. In December 1999, Rhone-Poulenc S.A.'s
interest in Merial was acquired by Aventis S.A., a corporation formed by the
merger of Rhone-Poulenc S.A. and Hoechst A.G.
In May 2000, the Company and Schering-Plough Corporation
("Schering-Plough") entered into agreements to create separate partnerships to
develop and market in the United States new prescription medicines in the
cholesterol-management and respiratory therapeutic areas. These partnerships are
pursuing the development and marketing of Zetia (ezetimibe), an investigational
cholesterol absorption inhibitor discovered by Schering-Plough, as a once-daily
monotherapy and in co-administration with statins; Zetia as a once-daily
combination tablet with Zocor; and a once-daily combination tablet of Singulair
and Claritin, Schering-Plough's nonsedating antihistamine, for the treatment of
allergic rhinitis and asthma. In December 2001, the Company and Schering-Plough
announced the worldwide expansion (excluding Japan) of the
cholesterol-management partnership.
Also in December 2001, an entity of the Merck/Schering-Plough
Pharmaceuticals partnership submitted a New Drug Application ("NDA") to the FDA
for Zetia tablets, to be administered alone or with statins for the reduction of
elevated cholesterol levels. On February 28, 2002, the FDA accepted for standard
review the NDA for Zetia tablets, to be administered alone or with a statin for
the reduction of elevated cholesterol levels (hypercholesterolemia).
4
In February 2001, Merck-Medco, Advance PCS and Express Scripts, Inc.
announced the signing of an agreement to form RxHub. RxHub will be an electronic
exchange enabling physicians to link with participating pharmacies, prescription
benefit managers and health plans. RxHub is designed to operate as a utility for
the conduit of information among all parties engaging in electronic prescribing.
Merck-Medco owns one-third of the equity in RxHub.
Competition -- The markets in which the Company's pharmaceutical
business is conducted are highly competitive and, in many cases, highly
regulated. Such competition involves an intensive search for technological
innovations and 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 refining 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 Vasotec, Vaseretic, Pepcid and Mevacor, and slowed the growth of certain
other products.
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
health care programs. Merck-Medco competes primarily on the basis of its ability
to design and administer innovative programs that help plan sponsors provide
high-quality, affordable prescription drug care and health management services
to health plan members. Merck-Medco dispenses prescription drugs from its
national network of mail service pharmacies, manages prescriptions dispensed
through a national network of participating retail pharmacies and implements
health management programs to help its members with some chronic conditions
better understand their conditions and comply with their prescribed drug
therapies.
Distribution -- The Company sells its human health products primarily
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 the Company's products to health care
professionals in private practice, group practices and managed care
organizations. 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.
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 resources earmarked for the review of human drug
5
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 health care system, either nationally or at
the state level. Such legislative initiatives introduced in Congress include
prescription drug benefit proposals for Medicare beneficiaries. 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 well 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 and the pharmacy benefits
management business have 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 conduct its operations, including
the introduction of new drugs to the market, in this regulatory environment. One
type of federal initiative to contain federal health care 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 payer is fiscally responsible. This type of payment system and other
cost containment systems are now widely used by public and private payers 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. The
Company continues to work with private and federal employers to slow increases
in health care costs. Further, the Company's efforts to demonstrate that its
medicines can help save costs in other areas, and pricing flexibility across its
product portfolio, have encouraged the use of the Company's medicines and have
helped offset the effects of increasing cost pressures.
Also, federal and state governments have pursued methods to directly
reduce the cost of drugs for which they pay. For example, federal legislation
requires the Company to pay a specified rebate for medicines reimbursed by
Medicaid, and also to pay rebates similar to the Medicaid rebate for outpatient
medicines purchased by certain Public Health Service entities and
"disproportionate share" hospitals (hospitals meeting certain criteria), and
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.
Initiatives in some states seek rebates beyond the minimum required by
Medicaid legislation, in some cases for patients beyond those who are eligible
for Medicaid. Under the Federal Vaccines for Children entitlement program, the
U.S. Centers for Disease Control and Prevention ("CDC") funds and purchases
recommended pediatric vaccines at a public sector price for the immunization of
Medicaid-eligible, uninsured, native American and certain underinsured children.
The Company was awarded CDC contracts in 2001 for the supply of six pediatric
vaccines for this program (and monovalent components of such vaccines).
Outside the United States, the Company encounters similar regulatory
and legislative issues in most of the 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.
In addition, certain countries within the 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.
The Company is subject to the jurisdiction of various regulatory
agencies and is, therefore, subject to potential administrative actions. Such
actions may include seizures of products and other civil and criminal sanctions.
Under certain circumstances, the Company on its own may deem it advisable to
initiate product recalls. Although it is difficult to predict the ultimate
effect of these activities and legislative, administrative and regulatory
6
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 health care 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 pharmacists. These regulations are issued by an administrative
body in each state (typically, a pharmacy board), which is empowered to impose
sanctions for noncompliance. 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 market exclusivity. Basic patents are in effect for the
following major products in the United States: Aggrastat, Cancidas, Chibroxin
(norfloxacin), Cosopt, Cozaar, Crixivan, Fosamax, Hyzaar, Invanz, Maxalt,
PedvaxHIB (Haemophilus b conjugate vaccine), Primaxin, Propecia, Proscar,
Recombivax HB, Singulair, Trusopt, Vioxx and Zocor.
In 2001, several U.S. product patents expired, including Mevacor,
Prinivil, Prinzide (lisinopril and hydrochlorothiazide) and Vaseretic. The
product patent for Prilosec (which is supplied exclusively to AstraZeneca LP) in
the United States also expired in 2001. In the aggregate, domestic sales of
these products, as well as Pepcid, for which market exclusivity expired in 2001,
represent 10% of the Company's human health sales for 2001. The Company expects
a significant decline in the sales of these products in 2002 as a result of 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 2002 through 2005 upon the loss
of market exclusivity in European countries throughout this period. European
sales of these products represent 1% of the Company's human health sales for
2001.
The Company filed a supplemental new drug application with the FDA for
Prinivil, in accordance with the provisions of the FDA Modernization Act of 1997
(the "Modernization Act"). Pursuant to the Modernization Act, the FDA granted an
additional six months of market exclusivity, commencing December 2001, in the
United States to Prinivil and Prinzide for all their uses, based upon pediatric
studies performed by the Company. The FDA also granted an additional six months
of market exclusivity in the United States to Singulair from its February 2012
patent expiration until August 2012, and Zocor from its December 2005 basic
patent expiration until June 2006, in response to supplemental new drug
applications the Company filed on pediatric studies. The market exclusivity
which commenced in the United States for product patents for Prilosec in April
2001, and Mevacor in July 2001, pursuant to the Modernization Act, expired in
October 2001 and December 2001, respectively. Market exclusivity in the United
States also expired for Pepcid in April 2001. The Modernization Act, which was
passed in 1997, includes a Pediatric Exclusivity Provision that may provide an
additional six months of market exclusivity in the United States for indications
of new or currently marketed drugs, if certain agreed upon pediatric studies are
completed by the applicant. These exclusivity provisions were reauthorized until
October 1, 2007 by the "Best Pharmaceuticals for Children Act" passed in January
2002.
While the expiration of a product patent normally results in a loss of
market 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 novel compositions and formulations; and (iv) in the United States,
market exclusivity that may be available under federal law. 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.
7
Additions to market exclusivity are sought in the United States and
other countries through all relevant laws, including laws increasing patent
life. Some of the benefits of increases in patent life have been partially
offset by a general increase in the number of, incentives for and use of generic
products. Additionally, improvements in intellectual property laws are sought in
the United States and other countries through reform of patent and other
relevant laws and implementation of international treaties.
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 2001 on patent and know-how licenses and
other rights amounted to $125.5 million. The Company also paid royalties
amounting to $522.8 million in 2001 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 11,900 people are employed in the Company's
research activities. Expenditures for the Company's research and development
programs were $2.5 billion in 2001, $2.3 billion in 2000 and $2.1 billion in
1999 and will be approximately $2.9 billion in 2002. 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 1992 through 2001 exceeded $16.7 billion with a compound annual growth
rate of 10%.
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 health are being carried
on in various fields such as bacterial and viral infections, cardiovascular
functions, cancer, diabetes, pain and inflammation, kidney function, obesity,
mental health, the nervous system, ophthalmic research, prostate therapy, the
respiratory system, fungal diseases, bone diseases, endoparasitic and
ectoparasitic diseases, companion animal diseases and production improvement.
In the development of human 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 preclinical tests and controlled clinical evaluation. Before a new drug
may be marketed in the United States, recorded data on preclinical and clinical
experience are included in the NDA or the biological Product License Application
to the FDA for the required approval. 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 Arcoxia (etoricoxib), a second COX-2 specific inhibitor
potentially useful for the treatment of osteoarthritis, rheumatoid arthritis,
acute pain, chronic pain and dysmenorrhea, for which the Company filed an NDA
with the FDA on August 8, 2001. The Company plans to submit an expanded NDA for
Arcoxia to the FDA in order to include new efficacy data that will better
position the product to compete successfully in the coxib class, where there
already are three entrants. Accordingly, on March 13, 2002, the Company withdrew
the original U.S. NDA for the investigational medicine. The Company is
submitting the additional efficacy data to support a new indication for
ankylosing spondylitis, which is a chronic, inflammatory disorder primarily
involving the spine. In addition to the indications listed above, the Company is
seeking an indication for acute gouty arthritis. Timing of the expanded
submission has not been determined. The regulatory process for Arcoxia outside
the United States continues uninterrupted.
Other products in development include an oral compound potentially
useful for treatment of chemotherapy-induced emesis; an oral compound
potentially useful for the treatment of depression and other neuropsychiatric
diseases; a compound potentially useful for the treatment of diabetes and
diabetic dyslipidemia; a compound potentially useful for the treatment of
anxiety; a compound potentially useful for the treatment of Chronic Obstructive
Pulmonary Disease and asthma; a compound potentially useful to treat AIDS; and
certain new vaccines including a Human Papillomavirus vaccine ("HPV"),
potentially useful to prevent HPV infection; a rotavirus vaccine potentially
useful for the prevention of infant diarrhea and dehydration caused by
rotavirus; and a vaccine potentially useful for the prevention and treatment of
human immunodeficiency virus.
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 (including Zetia, a trademark
owned by an entity of the Merck/Schering-Plough Pharmaceuticals partnership).
Cozaar and Hyzaar are registered trademarks of E.I. du Pont de Nemours and
Company, Wilmington, DE. Claritin is a trademark of Schering Corporation and
Prilosec and Nexium are trademarks of the AstraZeneca group.
8
Employees
At the end of 2001, the Company had 78,100 employees worldwide, with
50,400 employed in the United States, including Puerto Rico. Approximately 30%
of worldwide employees of the Merck Pharmaceutical and Merck-Medco segments 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 2001, the Company
incurred capital expenditures of approximately $197.5 million for environmental
protection facilities. Capital expenditures for this purpose are forecasted to
exceed $500.0 million for the years 2002 through 2006. In addition, the
Company's operating and maintenance expenditures for environmental protection
facilities were approximately $88.7 million in 2001. Expenditures for this
purpose for the years 2002 through 2006 are forecasted to approximate $520.0
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 $34.2 million in 2001, and are
estimated at $137.0 million for the years 2002 through 2006. 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 in
management's opinion, the liabilities for all environmental matters which are
probable and reasonably estimable have been accrued. 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.
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," "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, as well as the proposed initial public offering, and eventual
divestiture of our Medco subsidiary. 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 product patents for several products have recently
expired in the United States and other countries, including product patents
for Mevacor (U.S. - 2001), Prinivil and Prinzide (U.S. - 2001) and
Vaseretic (U.S. - 2001). In addition, the product patent for Prilosec,
which is supplied exclusively to AstraZeneca LP, also expired 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 health care reform,
pharmaceutical reimbursement and pricing in general.
9
.. 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 and
governmental investigations, environmental concerns and patent disputes
with branded and generic 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.
.. Increased focus on privacy issues in countries around the world, including
the United States and the EU. In the United States, federal and state
governments have pursued legislative and regulatory initiatives regarding
patient privacy, including recently issued federal privacy regulations
concerning health information, which could affect the Company's operations,
particularly at Merck-Medco.
.. 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.
.. The risk that the initial public offering of our Medco subsidiary may not
be completed due to economic and stock market conditions generally and
specifically as such conditions may impact the pharmacy benefit manager
industry. Additionally, if the initial public offering is completed, the
Company may not complete the divestiture of its remaining interest in Medco
due to, among other reasons, the failure to obtain an Internal Revenue
Service ruling that the divestiture to stockholders would be treated as a
tax free distribution, or the failure to meet other customary conditions.
.. 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 and Segment Information
The Company's operations outside the United States are conducted
primarily through subsidiaries. Sales of the Company's human health products by
subsidiaries outside the United States were 37% of the Company's human health
sales in 2001, and 36% and 40% in 2000 and 1999, 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 expansion of
its operations abroad. However, the Company closely reviews its methods of
operations and adopts strategies responsive to changing economic and political
conditions.
In recent years, the Company 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 the Company to earn fair returns. Business in these
developing areas, while sometimes less stable, offers important opportunities
for growth over time.
Financial information about geographic areas and operating segments of
the Company's business is incorporated by reference to page 37 of the Company's
2001 Annual Report to stockholders.
10
Item 2. Properties.
The Company's corporate headquarters is located in Whitehouse Station,
New Jersey. The Company's pharmaceutical business is conducted through
divisional headquarters located in Rahway, New Jersey and West Point,
Pennsylvania. Principal research facilities for human health products are
located in Rahway and West Point. The Company also has production facilities for
human health products at nine locations in the United States and Puerto Rico.
Branch warehouses provide services throughout the country. 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. Merck-Medco operates
its primary businesses through its headquarters located in Franklin Lakes, New
Jersey, and through owned or leased facilities in various locations throughout
the United States.
Capital expenditures for 2001 were $2,724.7 million compared with
$2,727.8 million for 2000. In the United States, these amounted to $2,128.6
million for 2001 and $2,139.6 million for 2000. Abroad, such expenditures
amounted to $596.1 million for 2001 and $588.2 million for 2000.
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. 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. Since that time, the Company has entered into other settlements
on satisfactory terms. In October 2001, the Judicial Panel on Multi-District
Litigation ("Panel") determined that consolidated pretrial proceedings in
federal district court in Chicago were substantially completed. The Panel
ordered that all of the federal antitrust conspiracy cases, several of which
have not been settled by the Company, be returned to the federal district courts
in which each case was originally filed. The cases have now been returned to
those courts for further proceedings. The Company has not engaged in any
conspiracy and no admission of wrongdoing was made nor included in any
settlement agreements. While it is not feasible to predict the final outcome of
the remaining proceedings, in the opinion of the Company, such proceedings
should not ultimately result in any liability which would have a materially
adverse effect on the financial position, liquidity or results of operations of
the Company.
In June 2001, the Company received a notice from the Federal Trade
Commission ("FTC") advising the Company that the FTC had closed its
investigation into pricing practices, which commenced in 1996. The Company has
been advised by the U.S. Department of Justice that it is investigating
marketing and selling activities of the Company and other pharmaceutical
manufacturers. The Company will be working with the government to respond
appropriately to informational requests.
In a continuing worldwide dispute between the Company and Pharmacia
Corporation ("Pharmacia") over competing claims to the patent rights to the
class of compounds that include rofecoxib, the active ingredient in Vioxx, the
federal district court in Washington, D.C. recently dismissed a Pharmacia claim
for damages for the Company's sale of Vioxx. Pharmacia may seek an appeal of
this decision. The Company has also received favorable decisions regarding the
patent status of Vioxx from courts in the United Kingdom, Holland and Spain,
while receiving no adverse decisions in any country. In addition, in February
2002, the Board of Appeal at the European Patent Office revoked, in its
entirety, the Pharmacia European patent that has been the basis of patent
infringement suits involving
11
Vioxx in European countries. As a result, Merck will maintain exclusive patent
rights in Europe for Vioxx. The Company also noted that a number of federal and
state lawsuits, involving individual claims as well as purported class actions,
have been filed against the Company with respect to Vioxx. Some of the lawsuits
also name as defendants Pfizer Inc. and Pharmacia, which market a competing
product. The lawsuits include allegations regarding gastrointestinal bleeding
and cardiovascular events. The Company believes that these lawsuits are
completely without merit and will vigorously defend them.
From time to time, generic manufacturers of pharmaceutical products
file Abbreviated New Drug Applications ("ANDAs") with the FDA seeking to market
generic forms of Company products prior to the expiration of relevant patents
owned by the Company. Generic pharmaceutical manufacturers have submitted ANDAs
to the FDA seeking to market in the United States a generic form of Fosamax and
Prilosec prior to the expiration of the Company's (and AstraZeneca's in the case
of Prilosec) patents concerning these products. The generic companies' ANDAs
include allegations of non-infringement, invalidity and unenforceability of the
patents. One manufacturer has received FDA approval to market a generic form of
Prilosec. The Company has filed patent infringement suits in federal court
against companies filing ANDAs for generic alendronate, and AstraZeneca and the
Company have filed patent infringement suits in federal court against companies
filing ANDAs for generic omeprazole. In the case of alendronate, similar patent
challenges exist in certain foreign jurisdictions. The Company intends to
vigorously defend its patents, which it believes are valid, against infringement
by generic companies attempting to market products prior to the expiration dates
of such patents. A trial in the United States with respect to the alendronate
daily product concluded in November 2001 and the Company is awaiting a ruling;
no trial involving the alendronate weekly product is expected before 2003. In
the case of omeprazole, a trial in the United States commenced in December 2001.
As with any litigation, there can be no assurance of the outcomes, which, if
adverse, could result in significantly shortened periods of exclusivity for
these products.
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
materially 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.
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 materially adverse effect on the financial
position, liquidity or results of operations of the Company.
Merck-Medco
-----------
Seven plaintiffs, from six pharmaceutical benefit plans for which
Merck-Medco is the pharmaceutical benefit manager, have sued Merck-Medco and the
Company in federal court. The suits, which are similar to claims against other
pharmaceutical benefit managers in other pending cases, allege that Merck-Medco
should be treated as a "fiduciary" under the provisions of the Employee
Retirement Income Security Act ("ERISA"). Plaintiffs have not yet formally
sought class-action status.
The amended complaints in the lawsuits also allege that the Company and
Merck-Medco have violated ERISA by using Merck-Medco to increase the Company's
market share and by entering into certain "prohibited transactions" with each
other that favor the Company's products. The plaintiffs have demanded that
Merck-Medco
12
and the Company turn over any unlawfully obtained profits to a trust to be set
up for the benefit plans. A motion for summary judgment filed by Merck-Medco
has been withdrawn for procedural reasons without prejudice to being refiled.
In addition, a complaint against Merck-Medco and the Company has
recently been filed by one Northwest Airlines plan participant, purportedly on
behalf of the plan and similarly-situated self-funded plans. Class action status
has not yet been sought, and Northwest Airlines is not a party to the lawsuit.
The complaint relies on many of the same theories as the litigation discussed
above.
Merck-Medco and the Company believe that these cases are without merit,
Merck-Medco is not a "fiduciary" within the meaning of ERISA and the Company has
not violated ERISA. Merck-Medco and the Company intend to vigorously defend
these claims.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
_________________
13
Executive Officers of the Registrant (as of March 15, 2002)
RAYMOND V. GILMARTIN -- Age 61
June, 1994 -- Chairman of the Board (since November, 1994), President
and Chief Executive Officer
DAVID W. ANSTICE -- Age 53
March, 2001 -- President, The Americas and U.S. Human Health --
responsible for one of the two prescription drug divisions comprising
U.S. Human Health, as well as the Company's prescription drug business
in Canada and Latin America, and the Company's joint venture
relationship with Schering-Plough
January, 1997 -- President, Human Health-The Americas -- responsible for
the Company's human health business in the United States, Canada and
Latin America
PAUL R. BELL -- Age 56
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, Merck Sharp & Dohme Australia and New
Zealand
RICHARD T. CLARK -- Age 56
January, 2000 -- President, Merck-Medco Managed Care, L.L.C.
(Merck-Medco), a wholly-owned subsidiary of the Company
June, 1997 -- Executive Vice President/Chief Operating Officer,
Merck-Medco
April, 1997 -- Senior Vice President, Quality and Commercial Affairs,
Merck Manufacturing Division (MMD)
May, 1996 -- Senior Vice President, North American Operations, MMD
CELIA A. COLBERT -- Age 45
January, 1997 -- Vice President, Secretary (since September, 1993) and
Assistant General Counsel (since November, 1993)
CAROLINE DORSA -- Age 42
September, 1999 -- Vice President and Treasurer -- responsible for the
Company's treasury and tax functions and for providing financial
support for the Asia Pacific Division
February, 1999 -- Vice President and Treasurer -- responsible for the
Company's treasury and tax functions
January, 1997 -- Vice President and Treasurer (since January, 1994)
14
KENNETH C. FRAZIER -- Age 47
December, 1999 -- Senior Vice President and General Counsel --
responsible for legal and public affairs functions and The Merck
Company Foundation (a not-for-profit charitable organization affiliated
with the Company)
January, 1999 -- Vice President and Deputy General Counsel
January, 1997 -- Vice President, Public Affairs (since April, 1994) and
Assistant General Counsel -- responsible for public affairs, corporate
legal activities and The Merck Company Foundation
DOUGLAS A. GREENE -- Age 57
May, 2000 -- Executive Vice President, Clinical Sciences and Product
Development, Merck Research Laboratories
Prior to May, 2000, Dr. Greene served as Chief, Division of
Endocrinology & Metabolism at the University of Michigan School of
Medicine since 1991 and as Director, Center for Clinical Investigation
and Therapeutics since 1998
RICHARD C. HENRIQUES JR. -- Age 46
November, 2000 -- Vice President, Controller -- responsible for the
Corporate Controller's Group and providing financial
support for U.S. Human Health, Canada and Latin America (The Americas)
and the Merck Vaccine Division
February, 1999 -- Vice President, Controller -- responsible for the
Corporate Controller's Group and providing financial support for The
Americas
January, 1998 -- Vice President & Controller, The Americas
January, 1997 -- Controller, The Americas
BERNARD J. KELLEY -- Age 60
December, 1993 -- President, Merck Manufacturing Division
PETER S. KIM -- Age 43
February, 2001 -- Executive Vice President, Research and Development,
Merck Research Laboratories
Prior to February, 2001, Dr. Kim served as Member of the Whitehead
Institute (1985 - 2001), Professor of Biology at the Massachusetts
Institute of Technology (1988 - 2001), and Investigator of the Howard
Hughes Medical Institute (1990 - 2001)
15
JUDY C. LEWENT -- Age 53
February, 2001 -- Executive Vice President and Chief Financial Officer
-- responsible for financial and corporate development functions,
internal auditing, corporate licensing, the Company's joint venture
relationships, and Merck Capital Ventures, LLC, a wholly-owned
subsidiary of the Company
November, 2000 -- Senior Vice President and Chief Financial Officer --
responsible for financial and corporate development functions, internal
auditing, corporate licensing, the Company's joint venture
relationships, and Merck Capital Ventures, LLC
January, 1997 -- Senior Vice President (since January, 1993) and Chief
Financial Officer (since April, 1990) -- responsible for financial and
corporate development functions, internal auditing and the Company's
joint venture relationships
ADEL MAHMOUD -- Age 60
May, 1999 -- President, Merck Vaccines
November, 1998 -- Executive Vice President, Merck Vaccines
Prior to November, 1998, Dr. Mahmoud was the John H. Hord Professor and
Chairman, Department of Medicine and Physician-in-Chief, Case Western
Reserve University and University Hospitals of Cleveland (1987-1998)
EDWARD M. SCOLNICK -- Age 61
December, 1999 -- Executive Vice President, Science and Technology and
President, Merck Research Laboratories (MRL) -- responsible for
worldwide research function, computer resources and corporate licensing
September, 1994 -- Executive Vice President (since January, 1993),
Science and Technology and President, MRL (since May, 1985) --
responsible for worldwide research function and activities of Merck
Manufacturing Division (since December, 1993), computer resources
(since January, 1993) and corporate licensing
BRADLEY T. SHEARES -- Age 45
March, 2001 -- President, U.S. Human Health -- responsible for one of
the two prescription drug divisions comprising U.S. Human Health (USHH)
July, 1998 -- Vice President, Hospital Marketing and Sales, USHH
May, 1996 -- Vice President, Anti-Infectives Therapeutic Business Group,
USHH
16
JOAN E. WAINWRIGHT -- Age 41
January, 2001 -- Vice President, Public Affairs
June, 2000 -- Vice President, Corporate Communications, Public Affairs
Prior to June, 2000, Ms. Wainwright was Deputy Commissioner for
Communications at the U.S. Social Security Administration (1994 - 2000)
PER WOLD-OLSEN -- Age 54
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 human health marketing
September, 1994 -- President, Human Health-Europe -- responsible for the
Company's European prescription drug business
WENDY L. YARNO -- Age 47
December, 1999 -- Senior Vice President, Human Resources
June, 1999 -- Vice President, Human Resources
January, 1999 -- Vice President, Worldwide Human Health Marketing
November, 1997 to January, 1999, Ms. Yarno was Vice President, Women's
Health Care, Johnson & Johnson, Ortho-McNeil Pharmaceutical
(manufacturer of pharmaceuticals)
January, 1995 to November, 1997 -- Vice President, Hypertension and
Heart Failure Therapeutic Business Group, U.S. Human Health
All officers listed above serve at the pleasure of the Board of
Directors. None of these officers was elected pursuant to any arrangement or
understanding between the officer and the Board. There are no family
relationships among the officers listed above.
17
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 23 and 40 of the Company's 2001 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 40
of the Company's 2001 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 13 through 23 of the Company's 2001 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 20 (under the caption "Analysis of Liquidity and Capital Resources") to
22 of the Company's 2001 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, 2001 and 2000, 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, 2001 and the report dated January
22, 2002 of Arthur Andersen LLP, independent public accountants, are
incorporated by reference to pages 24 through 37 and page 38, respectively, of
the Company's 2001 Annual Report to stockholders.
(b) Supplementary Data
Selected quarterly financial data for 2001 and 2000 are incorporated
by reference to the data contained in the Condensed Interim Financial Data table
on page 23 of the Company's 2001 Annual Report to stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On February 26, 2002, the Board of Directors of the Company and its
Audit Committee dismissed Arthur Andersen LLP ("Arthur Andersen" or "AA") as the
Company's independent public accountants and engaged PricewaterhouseCoopers LLP
("PwC") to serve as the Company's independent public accountants for the fiscal
year 2002. The appointment of PwC is subject to stockholder ratification at the
Company's 2002 Annual Meeting of Stockholders to be held in April.
Arthur Andersen's reports on the Company's consolidated financial
statements for each of the years ended 2001, 2000 and 1999 did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2001, 2000 and 1999 and through
March 21, 2002, there were no disagreements with Arthur Andersen on any matter
of accounting principle or practice, financial statement disclosure, or auditing
scope or procedure which, if not resolved to AA's satisfaction, would have
caused them to make reference to the subject matter in connection with their
report on the Company's consolidated financial statements for such years; and
there were no reportable events as defined in Item 304(a)(1)(v) of Regulation
S-K.
The Company provided Arthur Andersen with a copy of the foregoing
disclosures. Attached as Exhibit 16 is a copy of AA's letter, dated March 21,
2002, stating its agreement with such statements.
During the years ended December 31, 2001 and 2000 and through the
date of the Board's decision, the Company did not consult PwC with respect to
the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i)and (ii) of Regulation S-K.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The required information on directors and nominees is incorporated by
reference to pages 7 (beginning with the caption "Election of Directors")
through 10 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held April 23, 2002. Information on executive officers is set
forth in Part I of this document on pages 14 through 17. The required
information on compliance with Section 16(a) of the Securities Exchange Act of
1934 is incorporated by reference to page 30 (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 23, 2002.
Item 11. Executive Compensation.
The information required for this item is incorporated by reference
to page 13 (under the caption "Compensation of Directors"), and pages 15
(beginning with the caption "Compensation and Benefits Committee
18
Report on Executive Compensation") to 22 of the Company's Proxy Statement for
the Annual Meeting of Stockholders to be held April 23, 2002.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required for this item is incorporated by reference
to pages 14 (under the caption "Security Ownership of Directors and Executive
Officers") to 15 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held April 23, 2002.
Item 13. Certain Relationships and Related Transactions.
The information required for this item is incorporated by reference
to page 13 (under the caption "Relationships with Outside Firms") and pages 22
(under the caption "Indebtedness of Management") to 23 of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held April 23, 2002.
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 2001 Annual Report to stockholders,
as noted on page 18 of this document:
Consolidated statement of income for the years ended December
31, 2001, 2000 and 1999
Consolidated statement of retained earnings for the years ended
December 31, 2001, 2000 and 1999
Consolidated statement of comprehensive income for the years
ended December 31, 2001, 2000 and 1999
Consolidated balance sheet as of December 31, 2001 and 2000
Consolidated statement of cash flows for the years ended
December 31, 2001, 2000 and 1999
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.
Financial statements of affiliates carried on the equity basis have been
omitted because, considered individually or in the aggregate, such affiliates do
not constitute a significant subsidiary.
3. Exhibits
Exhibit
Number Description Method of Filing
------ ----------- ---------------
2.1 -- Master Restructuring Agreement dated as of *
June 19, 1998 between Astra AB, Merck & Co.,
Inc., Astra Merck Inc., Astra USA, Inc.,
KB USA, L.P., Astra Merck Enterprises, Inc.,
KBI Sub Inc., Merck Holdings, Inc. and Astra
Pharmaceuticals, L.P. (Portions of this Exhibit
are subject to a request for confidential
treatment filed with the Commission)
19
Exhibit
Number Description Method of Filing
------ ----------- ----------------
3(a) -- Restated Certificate of Incorporation of Incorporated by reference to
Merck & Co., Inc. (September 1, 2000) Form 10-Q Quarterly Report
for the period ended
September 30, 2000
3(b) -- By-Laws of Merck & Co., Inc. (as amended Incorporated by reference to
effective February 25, 1997) Form 10-Q Quarterly Report
for the period ended
March 31, 1997
10(a) -- Executive Incentive Plan (as amended Incorporated by reference to
effective February 27, 1996) Form 10-K Annual Report
for the fiscal year ended
December 31, 1995
10(b) -- Base Salary Deferral Plan (as adopted on Incorporated by reference to
October 22, 1996, effective January 1, Form 10-K Annual Report
1997) for the fiscal year ended
December 31, 1996
10(c) -- 1991 Incentive Stock Plan (as amended Incorporated by reference to
effective February 23, 1994) Form 10-K Annual Report
for the fiscal year ended
December 31, 1994
10(d) -- 1996 Incentive Stock Plan (as amended Incorporated by reference to
November 24, 1998) Form 10-Q Quarterly Report
for the period ended
June 30, 1999
10(e) -- 2001 Incentive Stock Plan (as amended Filed with this document
and restated February 26, 2002)
10(f) -- Non-Employee Directors Stock Option Plan Incorporated by reference to
(as amended and restated February 24, 1998) Form 10-K Annual Report
for the fiscal year ended
December 31, 1997
10(g) -- 1996 Non-Employee Directors Stock Option Plan Incorporated by reference to
(as amended April 27, 1999) Form 10-Q Quarterly Report
for the period ended
June 30, 1999
10(h) -- 2001 Non-Employee Directors Stock Option Plan Incorporated by reference to
(adopted April 24, 2001) Form 10-Q Quarterly Report
for the period ended
June 30, 2001
10(i) -- Supplemental Retirement Plan (as amended Incorporated by reference to
effective January 1, 1995) Form 10-K Annual Report
for the fiscal year ended
December 31, 1994
10(j) -- Retirement Plan for the Directors of Incorporated by reference to
Merck & Co., Inc. (amended and Form 10-Q Quarterly Report
restated June 21, 1996) for the period ended
June 30, 1996
10(k) -- Plan for Deferred Payment of Directors' Filed with this document
Compensation (amended and restated
as of January 1, 2002)
20
Exhibit
Number Description Method of Filing
------ ----------- ----------------
10(l) -- Limited Liability Company Agreement of Incorporated by reference to
Merck Capital Ventures, LLC (Dated as of Form 10-K Annual Report
November 27, 2000) for the fiscal year ended
December 31, 2000
10(m) -- Amended and Restated License and Option *
Agreement dated as of July 1, 1998 between
Astra AB and Astra Merck Inc.
10(n) -- KBI Shares Option Agreement dated as of *
July 1, 1998 by and among Astra AB,
Merck & Co., Inc. and Merck Holdings, Inc.
10(o) -- KBI-E Asset Option Agreement dated as of *
July 1, 1998 by and among Astra AB,
Merck & Co., Inc., Astra Merck Inc. and
Astra Merck Enterprises Inc.
10(p) -- KBI Supply Agreement dated as of *
July 1, 1998 between Astra Merck Inc. and
Astra Pharmaceuticals, L.P. (Portions of this
Exhibit are subject to a request for confidential
treatment filed with the Commission)
10(q) -- Second Amended and Restated Manufacturing *
Agreement dated as of July 1, 1998 among
Merck & Co., Inc., Astra AB, Astra Merck Inc.
and Astra USA, Inc.
10(r) -- Limited Partnership Agreement dated as of *
July 1, 1998 between KB USA, L.P. and
KBI Sub Inc.
10(s) -- Distribution Agreement dated as of July 1, 1998 *
between Astra Merck Enterprises Inc. and
Astra Pharmaceuticals, L.P.
10(t) -- Agreement to Incorporate Defined Terms dated *
as of June 19, 1998 between Astra AB, Merck
& Co., Inc., Astra Merck Inc., Astra USA, Inc.,
KB USA, L.P., Astra Merck Enterprises Inc.,
KBI Sub Inc., Merck Holdings, Inc. and Astra
Pharmaceuticals, L.P.
12 -- Computation of Ratios of Earnings to Fixed Filed with this document
Charges
13 -- 2001 Annual Report to stockholders (only Filed with this document
those portions incorporated by reference in
this document are deemed "filed")
16 -- Letter from Arthur Andersen LLP Incorporated by reference to
to the Securities and Exchange Commission Form 8-K/A Amendment No.1 to
dated March 21, 2002 Current Report on Form 8-K
dated March 21, 2002
21 -- List of subsidiaries Filed with this document
23 -- Consent of Independent Public Accountants Contained on page 24 of
this Report
24 -- Power of Attorney and Certified Resolution Filed with this document
of Board of Directors
99 -- Letter from Registrant to the Filed with this document
Securities and Exchange
Commission relating to
Arthur Anderson LLP
-------------------------
* Incorporated by reference to Form 10-Q Quarterly Report for the
period ended June 30, 1998
21
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, 2001, the Company
furnished three Current Reports on Form 8-K under Item 9 -- Regulation FD
Disclosure:
(1) Report dated and furnished October 18, 2001, regarding earnings
for third quarter and certain supplemental information.
(2) Report dated and furnished October 24, 2001, regarding an
updated presentation to investors.
(3) Report dated December 11, 2001 and furnished December 12, 2001,
regarding the Company's business briefing to analysts.
22
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 21, 2002
By RAYMOND V. GILMARTIN
(Chairman of the Board,
President and Chief Executive Officer)
By CELIA A. COLBERT
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 21, 2002
President and Chief Executive
Officer; Principal Executive
Officer; Director
JUDY C. LEWENT Executive Vice President and Chief March 21, 2002
Financial Officer; Principal
Financial Officer
RICHARD C. HENRIQUES JR. Vice President, Controller; March 21, 2002
Principal Accounting Officer
LAWRENCE A. BOSSIDY Director March 21, 2002
WILLIAM G. BOWEN Director March 21, 2002
JOHNNETTA B. COLE Director March 21, 2002
NIALL FITZGERALD Director March 21, 2002
WILLIAM N. KELLEY Director March 21, 2002
HEIDI G. MILLER Director March 21, 2002
EDWARD M. SCOLNICK Director March 21, 2002
THOMAS E. SHENK Director March 21, 2002
SAMUEL O. THIER Director March 21, 2002
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.
By CELIA A. COLBERT
Celia A. Colbert
(Attorney-in-Fact)
23
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-K of our report dated January 22,
2002 included in the Company's Annual Report to stockholders for the fiscal year
ended December 31, 2001, 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, 333-23295, 333-91769, 333-30526,
333-31762, 333-40282, 333-52264, 333-53246, 333-56696, 333-72206 and 333-65796),
on Form S-4 (Nos. 33-50667 and 333-61982) and on Form S-3 (Nos. 33-39349,
33-60322, 33-51785, 33-57421, 333-17045, 333-36383, 333-77569 and 333-72546). It
should be noted that we have not audited any financial statements of the Company
subsequent to December 31, 2001 or performed any audit procedures subsequent to
the date of our report.
ARTHUR ANDERSEN LLP
New York, New York
March 21, 2002
24
EXHIBIT INDEX
-------------
Exhibit
Number Description Method of Filing
------ ----------- ----------------
2.1 -- Master Restructuring Agreement dated as of *
June 19, 1998 between Astra AB, Merck & Co.,
Inc., Astra Merck Inc., Astra USA, Inc.,
KB USA, L.P., Astra Merck Enterprises, Inc.,
KBI Sub Inc., Merck Holdings, Inc. and Astra
Pharmaceuticals, L.P. (Portions of this Exhibit
are subject to a request for confidential
treatment filed with the Commission)
3(a) -- Restated Certificate of Incorporation of Incorporated by reference to
Merck & Co., Inc. (September 1, 2000) Form 10-Q Quarterly Report
for the period ended
September 30, 2000
3(b) -- By-Laws of Merck & Co., Inc. (as amended Incorporated by reference to
effective February 25, 1997) Form 10-Q Quarterly Report
for the period ended
March 31, 1997
10(a) -- Executive Incentive Plan (as amended Incorporated by reference to
effective February 27, 1996) Form 10-K Annual Report
for the fiscal year ended
December 31, 1995
10(b) -- Base Salary Deferral Plan (as adopted on Incorporated by reference to
October 22, 1996, effective January 1, Form 10-K Annual Report
1997) for the fiscal year ended
December 31, 1996
10(c) -- 1991 Incentive Stock Plan (as amended Incorporated by reference to
effective February 23, 1994) Form 10-K Annual Report
for the fiscal year ended
December 31, 1994
10(d) -- 1996 Incentive Stock Plan (as amended Incorporated by reference to
November 24, 1998) Form 10-Q Quarterly Report
for the period ended
June 30, 1999
10(e) -- 2001 Incentive Stock Plan (as amended Filed with this document
and restated February 26, 2002)
10(f) -- Non-Employee Directors Stock Option Plan Incorporated by reference to
(as amended and restated February 24, 1998) Form 10-K Annual Report
for the fiscal year ended
December 31, 1997
10(g) -- 1996 Non-Employee Directors Stock Option Plan Incorporated by reference to
(as amended April 27, 1999) Form 10-Q Quarterly Report
for the period ended
June 30, 1999
10(h) -- 2001 Non-Employee Directors Stock Option Plan Incorporated by reference to
(adopted April 24, 2001) Form 10-Q Quarterly Report
for the period ended
June 30, 2001
10(i) -- Supplemental Retirement Plan (as amended Incorporated by reference to
effective January 1, 1995) Form 10-K Annual Report
for the fiscal year ended
December 31, 1994
Exhibit
Number Description Method of Filing
------ ----------- ----------------
10(j) -- Retirement Plan for the Directors of Incorporated by reference to
Merck & Co., Inc. (amended and Form 10-Q Quarterly Report
restated June 21, 1996) for the period ended
June 30, 1996
10(k) -- Plan for Deferred Payment of Directors' Filed with this document
Compensation (amended and restated
as of January 1, 2002)
10(l) -- Limited Liability Company Agreement of Incorporated by reference to
Merck Capital Ventures, LLC (Dated as of Form 10-K Annual Report
November 27, 2000) for the fiscal year ended
December 31, 2000
10(m) -- Amended and Restated License and Option *
Agreement dated as of July 1, 1998 between
Astra AB and Astra Merck Inc.
10(n) -- KBI Shares Option Agreement dated as of *
July 1, 1998 by and among Astra AB,
Merck & Co., Inc. and Merck Holdings, Inc.
10(o) -- KBI-E Asset Option Agreement dated as of *
July 1, 1998 by and among Astra AB,
Merck & Co., Inc., Astra Merck Inc. and
Astra Merck Enterprises Inc.
10(p) -- KBI Supply Agreement dated as of *
July 1, 1998 between Astra Merck Inc. and
Astra Pharmaceuticals, L.P. (Portions of this
Exhibit are subject to a request for confidential
treatment filed with the Commission)
10(q) -- Second Amended and Restated Manufacturing *
Agreement dated as of July 1, 1998 among
Merck & Co., Inc., Astra AB, Astra Merck Inc.
and Astra USA, Inc.
10(r) -- Limited Partnership Agreement dated as of *
July 1, 1998 between KB USA, L.P. and
KBI Sub Inc.
10(s) -- Distribution Agreement dated as of July 1, 1998 *
between Astra Merck Enterprises Inc. and
Astra Pharmaceuticals, L.P.
10(t) -- Agreement to Incorporate Defined Terms dated *
as of June 19, 1998 between Astra AB, Merck
& Co., Inc., Astra Merck Inc., Astra USA, Inc.,
KB USA, L.P., Astra Merck Enterprises Inc.,
KBI Sub Inc., Merck Holdings, Inc. and Astra
Pharmaceuticals, L.P.
12 -- Computation of Ratios of Earnings to Fixed Filed with this document
Charges
13 -- 2001 Annual Report to stockholders (only Filed with this document
those portions incorporated by reference in
this document are deemed "filed")
16 -- Letter from Arthur Andersen LLP Incorporated by reference to
to the Securities and Exchange Commission Form 8-K/A Amendment No. 1 to
dated March 21, 2002 Current Report on Form 8-K
dated March 21, 2002
21 -- List of subsidiaries Filed with this document
23 -- Consent of Independent Public Accountants Contained on page 24 of
this Report
Exhibit
Number Description Method of Filing
------ ----------- ----------------
24 -- Power of Attorney and Certified Resolution Filed with this document
of Board of Directors
99 -- Letter from Registrant to the Filed with this document
Securities and Exchange
Commission relating to
Arthur Andersen LLP
----------------
* Incorporated by reference to Form 10-Q Quarterly Report for the period
ended June 30, 1998
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.