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As filed with the Securities and Exchange Commission on March 22, 2000
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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, 1999
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 29, 2000: 2,316,574,409.
Aggregate market value of Common Stock ($0.01 par value) held by non-
affiliates on December 31, 1999 based on closing price on February 29, 2000:
$143,318,000,000.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] . No____________
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Documents Incorporated by Reference:
Document Part of Form 10-K
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Annual Report to stockholders for the fiscal year Parts I and II
ended December 31, 1999
Proxy Statement for the Annual Meeting of Part III
Stockholders to be held April 25, 2000
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PART I
Item 1. Business.
Merck & Co., Inc. (the "Company") is a global research-driven
pharmaceutical company that discovers, develops, manufactures and markets a
broad range of human and animal health products, directly and through its joint
ventures, and provides pharmaceutical benefit services through Merck-Medco
Managed Care, L.L.C. ("Merck-Medco"). The Company's operations are principally
managed on a products and services basis and are comprised of two reportable
segments: Merck Pharmaceutical and Merck-Medco. Merck Pharmaceutical products
consist of therapeutic agents, sold by prescription, for the treatment of human
disorders. Merck-Medco revenues are derived from the filling and management of
prescriptions and health management programs.
The following table shows the sales of various categories of the
Company's products and services:
($ in millions) 1999 1998 1997
--------------- ------------ ------------- -------------
Elevated cholesterol.................... $ 5,093.2 $ 4,694.1 $ 4,672.3
Hypertension/heart failure.............. 4,563.8 4,213.5 3,855.0
Osteoporosis............................ 1,043.1 775.2 532.1
Anti-ulcerants.......................... 913.9 1,113.5 1,184.4
Vaccines/biologicals.................... 860.0 846.7 733.6
Antibiotics............................. 772.3 743.3 774.9
Ophthalmologicals....................... 670.0 630.7 639.1
Human immunodeficiency virus ("HIV").... 664.4 676.3 581.7
Anti-inflammatory/analgesics............ 578.5 98.0 116.0
Respiratory............................. 501.8 194.0 .4
Animal health/crop protection........... -- -- 550.0
Other Merck products.................... 1,820.6 1,311.2 557.1
Merck-Medco............................. 15,232.4 11,601.7 9,440.3
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Total.............................. $32,714.0 $26,898.2 $23,636.9
========= ========= =========
Human health products include therapeutic agents within the Merck
Pharmaceutical segment, sold by prescription for the treatment of human
disorders, as well as preventive agents (vaccines/biologicals). 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);
osteoporosis, which is comprised of Fosamax (alendronate sodium), for treatment
and prevention in postmenopausal women; anti-ulcerants, of which Pepcid
(famotidine) is the largest-selling; 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;
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), Trusopt (dorzolamide hydrochloride ophthalmic solution) and Cosopt
(dorzolamide hydrochloride and timolol maleate ophthalmic solution) are the
largest selling; HIV, which includes Crixivan (indinavir sulfate), a protease
inhibitor for the treatment of human immunodeficiency viral infection in adults;
anti-inflammatory/analgesics, of which Vioxx (rofecoxib), a specific inhibitor
of COX-2, is the largest-selling; and respiratory, which is comprised of
Singulair (montelukast sodium), a leukotriene receptor antagonist.
Animal health products include medicinals used to control and
alleviate disease in livestock, small animals and poultry. Crop protection
includes products for the control of crop pests and fungal disease. In July
1997, the Company sold its crop protection business to Novartis. In August
1997, 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 Proscar (finasteride), which
provides long-term disease management of symptomatic benign prostate
enlargement, 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 within the Merck
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Pharmaceutical segment, 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
Company 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 help manage patient health.
In 1997, the Company acquired Istituto Gentili S.p.A., a privately-held
Italian pharmaceutical company that owned the intellectual property rights for
alendronate, which is marketed in the United States by the Company as Fosamax.
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 May 1999, the U.S. Food and Drug Administration ("FDA") cleared Vioxx, a
once-daily, anti-inflammatory COX-2 specific inhibitor, for marketing in the
United States for relief of the signs and symptoms of osteoarthritis, management
of acute pain in adults and treatment of menstrual pain. Vioxx has now been
launched in 47 other countries in addition to the United States. In March
1999, the FDA approved a new use indication for Mevacor to reduce the risk of
first heart attack, unstable angina and coronary revascularization procedures in
people without symptoms of cardiovascular disease, with average to moderately
elevated levels of total and LDL cholesterol and below average HDL cholesterol.
In August 1999, the FDA approved an expanded indication for Zocor for the
increase of HDL cholesterol in persons with high LDL levels of cholesterol. In
March 2000, the FDA approved the use of Singulair 4 mg tablets to help control
asthma in children aged two to five.
Divestitures -- In July 1997, the Company sold its crop protection
business to Novartis for $910.0 million.
In July 1998, the Company sold its one-half interest in The Dupont Merck
Pharmaceutical Company, its joint venture with E.I. du Pont de Nemours and
Company ("DuPont"), to DuPont for $2.6 billion in cash.
In December 1999, the Company transferred all of its interest in Chugai MSD
Co., Ltd. to Chugai Pharmaceutical Co., Ltd.
These businesses were not significant to the Company's financial position,
liquidity or results of operations.
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. The joint venture, formed in November 1994, developed and
marketed most of Astra's new prescription medicines in the United States. Joint
venture sales consisted 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.
On July 1, 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"), for consideration totaling
$3.1 billion. KBI's operating assets, excluding certain product rights, were
then combined with the assets of Astra's wholly owned subsidiary, Astra USA,
Inc., to form a new U.S. limited partnership named Astra Pharmaceuticals, L.P.
("the Partnership") in which the Company maintains a limited partner interest.
For a franchise fee payment of $230.0 million, the Partnership became the
exclusive distributor of the products for which KBI retained rights. The Company
earns certain Partnership returns as well as ongoing revenue based on sales of
current and future KBI products. The Partnership returns reflect the Company's
share of the Partnership's earnings in conformity with accounting principles
generally accepted in the United States
3
(GAAP earnings) and include a preferential return, a priority return and certain
variable returns which are based, in part, upon sales of certain former Astra
USA, Inc. products. The preferential return represents the Company's share of
the undistributed Partnership GAAP earnings. For a payment of $443.0 million,
Astra purchased an option to buy the Company's interest in the KBI products in
2008, 2012 or 2016, excluding the Company's interest in the gastrointestinal
medicines Prilosec and esomeprazole.
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 option 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 now exercisable only in
2010 and the Company has obtained the right to require AstraZeneca to purchase
such interest in 2008.
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 (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 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 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. 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. As
discussed above under "Divestitures," in July 1998, the Company sold its one-
half interest in the joint venture to DuPont for $2.6 billion in cash.
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
- ----------- ----------
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 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 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 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. This joint venture was dissolved by
the parties effective February 1999.
In August 1997, the Company and Rhone-Poulenc S.A. 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 S.A. 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 S.A. contributed research and development,
manufacturing, sales and marketing activities, and animal health products, as
well as its poultry genetics business. In December 1999, Rhone-Poulenc
4
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 October 1999, Merck-Medco formed a long-term strategic alliance with CVS
Corporation to collaborate on enhanced Internet, retail and specialty pharmacy
services for Merck-Medco's health plan members.
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 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 Moduretic (amiloride HCl and hydrochlorothiazide), Clinoril (sulindac)
and Aldomet (methyldopa), 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 healthcare 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 clients provide better care for patients with high-cost,
high-risk conditions.
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. 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.
5
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 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. Such legislative initiatives include prescription drug benefit proposals
for Medicare participants introduced in Congress. 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 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 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 healthcare 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
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 CDC contracts in 1999 for the supply of six 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.
In addition, countries within the EU, recognizing the economic importance
of the research-based pharmaceutical industry and the value of innovative
medicines, 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
6
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 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 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 marketing exclusivity. Patents are in effect for the following
major products in the United States: Aggrastat, Cosopt, Chibroxin
(norfloxacin), Cozaar, Crixivan, Fosamax, Hyzaar, Maxalt, Mevacor, PedvaxHIB
(Haemophilus b conjugate vaccine), Pepcid, Primaxin, Prinivil, Prinzide,
- ------------
Propecia, Proscar, Recombivax HB, Sinemet CR (carbidopa and levodopa),
Singulair, Timoptic-XE, Trusopt, Vaseretic, Vioxx, Zocor and Prilosec (which was
developed jointly by the Company and Astra and is supplied exclusively to
AstraZeneca LP). The lisinopril products (which include Prinivil) and Sinemet
CR are subject to agreements with third parties and are not marketed exclusively
by the Company.
Several products face expiration of product patents in the United
States and other countries in the near term, including Pepcid (U.S. - 2000),
Vasotec (U.S. - 2000), Mevacor (U.S. - 2001), Prinivil/Prinzide (U.S. - 2001)
and Vaseretic (U.S. - 2001). In addition, Prilosec will face expiration of a
product patent in 2001. In the aggregate, domestic sales of these products
represent 22% of the Company's aggregate human health sales for 1999. The
Company expects a significant decline in these sales in the years 2000 through
2002 upon the loss of market exclusivity. With the exception of Prilosec, for
which the Company has U.S. rights only, a decline is also expected in the
Company's European sales for these products in the years 2000 through 2005 upon
the loss of market exclusivity in European countries throughout this period.
European sales of these products represent 5% of the Company's human health
sales for 1999.
In January 1999, the Company filed a supplemental new drug application
with the FDA for Vasotec, in accordance with the provisions of the FDA
Modernization Act of 1997 (the "Modernization Act") (See also page 8). In
February 2000, pursuant to the Modernization Act, the FDA granted an additional
six months of market exclusivity in the United States to Vasotec for all its
uses, based upon pediatric studies performed by the Company.
In the period 1994 through 1999, product patent protection in the
United States expired for the following human and animal pharmaceutical
products: Ivomec (ivermectin), certain ivermectin-containing animal health
products, Mefoxin (cefoxitin sodium), Timoptic and Timolide (timolol maleate and
hydrochlorothiazide).
While the expiration of a product patent normally results in the 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
7
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 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.
The Company is considering seeking exclusivity based on pediatric studies for
certain of the Company's products.
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 1999 on patent and know-how licenses and
other rights amounted to $133.5 million. The Company also paid royalties
amounting to $282.8 million in 1999 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 8,900 people are employed in the Company's
research activities. Expenditures for the Company's research and development
programs were $2,068.3 million in 1999, $1,821.1 million in 1998 and $1,683.7
million in 1997 and will be approximately $2.4 billion in 2000. 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 1990 through 1999 exceeded $13.0 billion with a compound annual
growth rate of 11%.
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
animal health are being carried on in various fields such as bacterial and viral
infections, cardiovascular functions, cancer, diabetes, pain and 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 New Drug Application, New
Animal Drug Application 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 an injectable antibiotic; an antifungal agent; 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 second COX-2 specific inhibitor potentially useful
for the treatment of osteoarthritis, rheumatoid arthritis and pain; 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. Cozaar and
Hyzaar are registered trademarks of E.I. du Pont de Nemours and Company,
Wilmington, DE.
8
Employees
At the end of 1999, the Company and Merck-Medco had 62,300 employees
worldwide, with 38,500 employed in the United States, including Puerto Rico.
Approximately 30% of the Company's and Merck-Medco'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 1999, the Company
incurred capital expenditures of approximately $101.7 million for environmental
protection facilities. Capital expenditures for this purpose are forecasted to
exceed $600.0 million for the years 2000 through 2004. In addition, the
Company's operating and maintenance expenditures for environmental protection
facilities were approximately $74.2 million in 1999. Expenditures for this
purpose for the years 2000 through 2004 are forecasted to exceed $428.0 million.
The Company is also remediating environmental contamination resulting from past
industrial activity at certain of its sites. Expenditures for remediation and
environmental liabilities were $28.2 million in 1999, and are estimated at
$232.0 million for the years 2000 through 2004. These amounts do not consider
potential recoveries from insurers or other parties. 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. 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 in the near term, including Pepcid
(U.S. -2000), Vasotec (U.S. - 2000), Mevacor (U.S. - 2001),
Prinivil/Prinzide (U.S. -2001) and Vaseretic (U.S. - 2001). In addition,
Prilosec, which is supplied exclusively to AstraZeneca LP, will face
expiration of a product 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.
9
. 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 and
governmental investigations, 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 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 40% of the Company's human health
sales in 1999, and 43% and 46% in 1998 and 1997, respectively. The 1999 and
1998 percentages were affected by increased domestic supply sales to AstraZeneca
LP, as a result of the restructuring of AMI.
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.
Within the EU, there has been an evolution toward a single market in
pharmaceuticals, for which Economic and Monetary Union ("EMU"), including the
adoption of the euro as a single currency, marks an important step. The Company
has recognized the strategic significance of this development and has adopted
the euro for use in EMU markets. In this way, the Company is demonstrating its
support for the European Community's industrial policy. 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, 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 54 (beginning with
the caption "Segment Reporting") and 55 of the Company's 1999 Annual Report to
stockholders.
10
Other Matters
The Company initiated a program in 1996 to assess the risks of Year
2000 noncompliance, remediate all non-compliant systems, assess the readiness of
key third parties and develop contingency plans. The critical aspects of the
Year 2000 readiness program were completed in the third quarter of 1999. The
Company has not experienced any significant business disruptions related to the
transition to the Year 2000; however, the Company will continue to actively
monitor its systems and third party suppliers throughout most of the first
quarter. Contingency plans are in place to prevent the failure of critical
systems from having a material effect on the Company and address the risk of
third party noncompliance. Total costs to address the Year 2000 issue were not
material to the Company's financial position, results of operations or cash
flows.
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 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 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 1999 were $2,560.5 million compared with
$1,973.4 million for 1998. In the United States, these amounted to $1,954.7
million for 1999 and $1,413.6 million for 1998. Abroad, such expenditures
amounted to $605.8 million for 1999 and $559.8 million for 1998.
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, pursuant to which the Company paid $51.8 million. Since that
time, the Company has entered into other settlements on satisfactory terms. The
Company has not engaged in any conspiracy and no admission of wrongdoing was
made nor was included in the final agreements. While it is not feasible to
predict 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 materially 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
11
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.
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 August 1998, the Company and Merck-Medco reached an
agreement with the FTC that resolves the investigation as to the Company and
Merck-Medco. The agreement formalizes the policies and practices the Company
and Merck-Medco voluntarily adopted over four years ago governing the operation
of their businesses. The agreement will not affect how the Company and Merck-
Medco currently compete in the marketplace, serve their customers or conduct
business with third parties. Accordingly, the Company does not believe that the
agreement will have a materially adverse effect on the Company's financial
position, liquidity or results of operations.
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 the
FTC in this investigation, 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 this investigation, it does not
believe it will have a materially 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 materially 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 15, 2000)
RAYMOND V. GILMARTIN -- Age 59
June, 1994 -- Chairman of the Board (since November, 1994), President and
Chief Executive Officer
DAVID W. ANSTICE -- Age 51
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
PAUL R. BELL -- Age 54
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 54
January, 2000 -- President, Merck-Medco Managed Care, L.L.C., a wholly-owned
subsidiary of the Company
June, 1997 -- Executive Vice President/Chief Operating Officer, Merck-Medco
Managed Care, L.L.C.
April, 1997 -- Senior Vice President, Quality Commercial Affairs, Merck
Manufacturing Division (MMD)
May, 1996 -- Senior Vice President, North American Operations, MMD
October, 1994 -- Vice President, North American Operations, MMD
CELIA A. COLBERT -- Age 43
January, 1997 -- Vice President, Secretary and Assistant General Counsel
November, 1993 -- Secretary (since September, 1993) and Assistant General
Counsel
LINDA M. DISTLERATH -- Age 46
January, 1999 -- Vice President, Public Affairs -- responsible for public
affairs and The Merck Company Foundation (a not-for-profit charitable
organization affiliated with the Company)
October, 1997 -- Executive Director, Public Policy and Merck Research
Laboratories (MRL) Public Affairs
April, 1995 -- Executive Director, MRL Public Affairs
October, 1990 -- Senior Director, Science & Technology Policy -- responsible
for public policy strategies in support of the Company's research and
development programs
13
CAROLINE DORSA -- Age 40
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
January, 1994 -- Treasurer
KENNETH C. FRAZIER -- Age 45
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 and Assistant General
Counsel -- responsible for public affairs, corporate legal activities and
The Merck Company Foundation
April, 1994 -- Vice President, Public Affairs
RICHARD C. HENRIQUES JR. -- Age 44
February, 1999 -- 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)
January, 1998 -- Vice President & Controller, The Americas
January, 1997 -- Controller, The Americas
January, 1994 -- Controller, North America Pharmaceutical Care
BERNARD J. KELLEY -- Age 58
December, 1993 -- President, Merck Manufacturing Division
JUDY C. LEWENT -- Age 51
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 (since
January, 1993) -- responsible for financial and public affairs functions,
The Merck Company Foundation (a not-for-profit charitable organization
affiliated with the Company) (since December, 1993), internal auditing and
the Company's joint venture relationships
14
PER G. H. LOFBERG -- Age 52
January, 2000 -- Chairman, Merck-Medco Managed Care, L.L.C., a wholly-owned
subsidiary of the Company
December, 1995 -- President, Merck-Medco Managed Care, L.L.C.
January, 1994 -- President, Merck-Medco Managed Care Division
ADEL MAHMOUD -- Age 58
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)
ROGER M. PERLMUTTER -- Age 47
July, 1999 -- Executive Vice President, Worldwide Basic Research and
Preclinical Development, Merck Research Laboratories (MRL)
February, 1999 -- Executive Vice President, MRL
February, 1997 -- Senior Vice President, MRL
Prior to February, 1997, Dr. Perlmutter was Professor and Chairman,
Department of Immunology, University of Washington (1989-1997) and
Investigator, the Howard Hughes Medical Institute (1991-1997)
EDWARD M. SCOLNICK -- Age 59
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
PER WOLD-OLSEN -- Age 52
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
15
WENDY L. YARNO -- Age 45
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, other than Mr. Gilmartin, whose
employment agreement with the Company expired on October 31, 1999
(and is included as an exhibit to this Form 10-K). Mr. Gilmartin continues to
serve in his capacity as Chairman of the Board of Directors, President and Chief
Executive Officer of the Company. 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 41 and 58 of the Company's 1999 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 58
of the Company's 1999 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 31 through 41 of the Company's 1999 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 39 (under the caption "Analysis of Liquidity and Capital Resources") to 41
of the Company's 1999 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, 1999 and 1998, and the related consolidated statements of
income, retained earnings, comprehensive income and cash flows for each of the
three years in the period ended December 31, 1999 and the report dated January
26, 2000 of Arthur Andersen LLP, independent public accountants, are
incorporated by reference to pages 42 through 55 and page 56 of the Company's
1999 Annual Report to stockholders.
(b) Supplementary Data
Selected quarterly financial data for 1999 and 1998 are incorporated by
reference to the data contained in the Condensed Interim Financial Data table on
page 41 of the Company's 1999 Annual Report to stockholders.
16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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") to 6
of the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held April 25, 2000. Information on executive officers is set forth in Part I
of this document on pages 13 to 16. The required information on compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to page 29 (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 25, 2000.
Item 11. Executive Compensation.
The information required for this item is incorporated by reference to
page 8 (under the caption "Compensation of Directors"), and 10 (beginning with
the caption "Compensation and Benefits Committee Report on Executive
Compensation") through 19 of the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held April 25, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required for this item is incorporated by reference to
pages 9 (under the caption "Security Ownership of Directors and Executive
Officers") to 10 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held April 25, 2000.
Item 13. Certain Relationships and Related Transactions.
Not applicable.
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 1999 Annual Report to stockholders, as
noted on page 16 of this document:
Consolidated statement of income for the years ended December
31, 1999, 1998 and 1997
Consolidated statement of retained earnings for the years ended
December 31, 1999, 1998 and 1997
Consolidated statement of comprehensive income for the years
ended December 31, 1999, 1998 and 1997
Consolidated balance sheet as of December 31, 1999 and 1998
Consolidated statement of cash flows for the years ended December
31, 1999, 1998 and 1997
Notes to consolidated financial statements
17
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 four consolidated subsidiaries.
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)
3(a) -- Restated Certificate of Incorporation of Incorporated by reference to
Merck & Co., Inc. (May 6, 1992) Form 10-K Annual Report
for the fiscal year ended
December 31, 1992
3(b) -- Certificate of Amendment to the Certificate of Incorporated by reference to
Incorporation of Merck & Co., Inc. Form 10-K Annual Report for
(as amended January 14, 1999, effective the fiscal year ended
February 16, 1999) December 31, 1998
3(c) -- 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 **
effective February 27, 1996)
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) -- 1987 Incentive Stock Plan (as amended Incorporated by reference to
effective May 6, 1992) Form 10-K Annual Report
for the fiscal year ended
December 31, 1992
10(d) -- 1991 Incentive Stock Plan (as amended *
effective February 23, 1994)
10(e) -- 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
18
Exhibit
Number Description Method of Filing
------ ----------- ----------------
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) -- Supplemental Retirement Plan (as amended *
effective January 1, 1995)
10(i) -- 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(j) -- Plan for Deferred Payment of Directors' Incorporated by reference to
Compensation (restated as of Form 10-Q Quarterly Report
June 1, 1999) for the period ended June 30,
1999
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 to
Lofberg and Merck-Medco dated April 1, Form 10-K Annual Report of
1993 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
10(n) -- Letter Agreement dated May 24, 1996 with Incorporated by reference to
respect to the Employment Agreement Form 10-Q Quarterly Report
between Per G.H. Lofberg and Merck-Medco for the period ended June 30, 1996
dated April 1, 1993 and amended July 27,
1993
10(o) -- Employment Agreement between Incorporated by reference to
Raymond V. Gilmartin and the Company Form 10-Q Quarterly Report
dated June 9, 1994 for the period ended June 30, 1994
10(p) -- Amended and Restated License and Option ***
Agreement dated as of July 1, 1998 between
Astra AB and Astra Merck Inc.
10(q) -- KBI Shares Option Agreement dated as of ***
July 1, 1998 by and among Astra AB,
Merck & Co., Inc. and Merck Holdings, Inc.
10(r) -- 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.
19
Exhibit
Number Description Method of Filing
------ ----------- ----------------
10(s) -- 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(t) -- 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(u) -- Limited Partnership Agreement dated as of ***
July 1, 1998 between KB USA, L.P. and
KBI Sub Inc.
10(v) -- Distribution Agreement dated as of July 1, 1998 ***
between Astra Merck Enterprises Inc. and
Astra Pharmaceuticals, L.P.
10(w) -- 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.
10(x) -- Stock Purchase Agreement between Incorporated by reference to
Raymond V. Gilmartin and the Company Form 10-Q Quarterly Report
dated June 16, 1999 for the period ended June 30, 1999
12 -- Computation of Ratios of Earnings to Fixed Filed with this document
Charges
13 -- 1999 Annual Report to stockholders (only Filed with this document
those portions incorporated by reference in
this document are deemed "filed")
21 -- List of subsidiaries Filed with this document
23 -- Consent of Independent Public Accountants Contained on page 23 of
this Report
24 -- Power of Attorney and Certified Resolution Filed with this document
of Board of Directors
27 -- Financial Data Schedule Filed with this document
______________
* 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 Form 10-Q Quarterly Report for the period
ended June 30, 1998
**** 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.
20
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, 1999, one Current
Report was filed on Form 8-K under Item 5 -- Other Events regarding the
Company's business briefing to analysts. This report was dated December 9, 1999
and filed December 16, 1999.
21
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 22, 2000
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 22, 2000
President and Chief Executive
Officer; Principal Executive
Officer; Director
JUDY C. LEWENT Senior Vice President and Chief March 22, 2000
Financial Officer; Principal
Financial Officer
RICHARD C. HENRIQUES JR. Vice President, Controller; March 22, 2000
Principal Accounting Officer
H. BREWSTER ATWATER JR. Director March 22, 2000
DEREK BIRKIN Director March 22, 2000
LAWRENCE A. BOSSIDY Director March 22, 2000
WILLIAM G. BOWEN Director March 22, 2000
CAROLYNE K. DAVIS Director March 22, 2000
LLOYD C. ELAM Director March 22, 2000
CHARLES E. EXLEY JR. Director March 22, 2000
WILLIAM B. HARRISON JR. Director March 22, 2000
WILLIAM N. KELLEY Director March 22, 2000
EDWARD M. SCOLNICK Director March 22, 2000
ANNE M. TATLOCK Director March 22, 2000
SAMUEL O. THIER Director March 22, 2000
DENNIS WEATHERSTONE Director March 22, 2000
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)
22
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 26, 2000 included in
the Company's Annual Report to stockholders for the fiscal year ended December
31, 1999, 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 and 333-31762), on Form S-4
(No. 33-50667) and on Form S-3 (Nos. 33-39349, 33-60322, 33-51785, 33-57421,
333-17045, 333-36383 and 333-77569). It should be noted that we have not audited
any financial statements of the Company subsequent to December 31, 1999 or
performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
New York, New York
March 22, 2000
23
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. (May 6, 1992) Form 10-K Annual Report
for the fiscal year ended
December 31, 1992
3(b) -- Certificate of Amendment to the Certificate of Incorporated by reference to
Incorporation of Merck & Co., Inc. Form 10-K Annual Report for
(as amended January 14, 1999, effective the fiscal year ended
February 16, 1999) December 31, 1998
3(c) -- 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 **
effective February 27, 1996)
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) -- 1987 Incentive Stock Plan (as amended Incorporated by reference to
effective May 6, 1992) Form 10-K Annual Report
for the fiscal year ended
December 31, 1992
10(d) -- 1991 Incentive Stock Plan (as amended *
effective February 23, 1994)
10(e) -- 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
Exhibit
Number Description Method of Filing
------ ----------- ----------------
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) -- Supplemental Retirement Plan (as amended *
effective January 1, 1995)
10(i) -- 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(j) -- Plan for Deferred Payment of Directors' Incorporated by reference to
Compensation (restated as of Form 10-Q Quarterly Report
June 1, 1999) for the period ended June 30,
1999
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 to
Lofberg and Merck-Medco dated April 1, Form 10-K Annual Report of
1993 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
10(n) -- Letter Agreement dated May 24, 1996 with Incorporated by reference to
respect to the Employment Agreement Form 10-Q Quarterly Report
between Per G.H. Lofberg and Merck-Medco for the period ended June 30, 1996
dated April 1, 1993 and amended July 27,
1993
10(o) -- Employment Agreement between Incorporated by reference to
Raymond V. Gilmartin and the Company Form 10-Q Quarterly Report
dated June 9, 1994 for the period ended June 30, 1994
10(p) -- Amended and Restated License and Option ***
Agreement dated as of July 1, 1998 between
Astra AB and Astra Merck Inc.
10(q) -- KBI Shares Option Agreement dated as of ***
July 1, 1998 by and among Astra AB,
Merck & Co., Inc. and Merck Holdings, Inc.
10(r) -- 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.
Exhibit
Number Description Method of Filing
------ ----------- ----------------
10(s) -- 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(t) -- 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(u) -- Limited Partnership Agreement dated as of ***
July 1, 1998 between KB USA, L.P. and
KBI Sub Inc.
10(v) -- Distribution Agreement dated as of July 1, 1998 ***
between Astra Merck Enterprises Inc. and
Astra Pharmaceuticals, L.P.
10(w) -- 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.
10(x) -- Stock Purchase Agreement between Incorporated by reference to
Raymond V. Gilmartin and the Company Form 10-Q Quarterly Report
dated June 16, 1999 for the period ended June 30, 1999
12 -- Computation of Ratios of Earnings to Fixed Filed with this document
Charges
13 -- 1999 Annual Report to stockholders (only Filed with this document
those portions incorporated by reference in
this document are deemed "filed")
21 -- List of subsidiaries Filed with this document
23 -- Consent of Independent Public Accountants Contained on page 23 of
this Report
24 -- Power of Attorney and Certified Resolution Filed with this document
of Board of Directors
27 -- Financial Data Schedule Filed with this document
_________________
* 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 Form 10-Q Quarterly Report for the period
ended June 30, 1998
**** 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.