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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the Fiscal Year Ended December 31, 1996
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
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
___________________ ___________________
Common Stock New York and Philadelphia Stock Exchanges
(no par value)
Number of shares of Common Stock (no par value) outstanding as of February
28, 1997: 1,209,992,221.
Aggregate market value of Common Stock (no par value) held by non-
affiliates on December 31, 1996 based on closing price on February 28, 1997:
$111,113,000,000.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
DOCUMENTS INCORPORATED BY REFERENCE:
Document Part of Form 10-K
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Annual Report to stockholders for the fiscal year Parts I and II
ended December 31, 1996
Proxy Statement for the Annual Meeting of Part III
Stockholders to be held April 23, 1997
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PART I
ITEM 1. BUSINESS.
Merck & Co., Inc. is a leading research-driven pharmaceutical company that
discovers, develops, manufactures and markets a broad range of human and animal
health products and services. The Company's industry segment is the Human and
Animal Health Products and Services segment, which includes Merck-Medco Managed
Care, L.L.C. (formerly Medco Containment Services, Inc.) ("Merck-Medco"),
acquired in November 1993.
The following table shows the sales of various classes of the Company's
products and services:
($ IN MILLIONS) 1996 1995 1994
--------------- ----- ---- ----
Elevated cholesterol $ 4,055.9 $ 3,211.1 $ 2,599.0
Hypertension/heart failure 3,512.4 3,021.3 2,752.6
Anti-ulcerants 1,143.6 1,019.8 1,565.7
Antibiotics 822.3 848.3 827.4
Ophthalmologicals 693.1 570.6 482.3
Vaccines/biologicals 586.8 529.9 485.3
Benign prostatic hyperplasia 450.1 405.8 322.7
Osteoporosis 281.8 45.2 4.6
Other Merck human health 71.3 221.3 376.7
Other human health 7,167.3 5,726.7 4,103.9
Animal health/crop protection 1,044.1 1,041.9 1,027.4
Specialty chemical - 39.2 422.2
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Total $19,828.7 $16,681.1 $14,969.8
========= ========= =========
Human health products include therapeutic and preventive agents, generally
sold by prescription, for the treatment of human disorders. Among these are
elevated cholesterol products, which include Zocor (simvastatin) and Mevacor
(lovastatin); hypertension/heart failure products which include Vasotec
(enalapril maleate), the largest-selling product among this group, Prinivil
(lisinopril) and Vaseretic (enalapril maleate and hydrochlorothiazide), as well
as Cozaar (losartan potassium) and Hyzaar (losartan potassium and
hydrochlorothiazide), both of which were launched in 1995; anti-ulcerants, of
which Pepcid (famotidine) is the largest-selling, succeeding Prilosec
(omeprazole), the largest-selling prior to its 1994 transfer to the Astra Merck
joint venture; antibiotics, of which Primaxin (imipenem and cilastatin sodium)
and Noroxin (norfloxacin) are the largest-selling; ophthalmologicals, of which
Timoptic (timolol maleate), Timoptic-XE (timolol maleate ophthalmic gel forming
solution) and Trusopt (dorzolamide hydrochloride) are the largest-selling;
vaccines/biologicals, of which M-M-R II (measles, mumps and rubella virus
vaccine live), Recombivax HB (hepatitis B vaccine recombinant) and Varivax
(varicella virus vaccine live (Oka/Merck)), a live virus vaccine for the
prevention of chickenpox, are the largest-selling; benign prostatic hyperplasia,
which includes Proscar (finasteride), a treatment for symptomatic benign
prostate enlargement; osteoporosis, which includes Fosamax (alendronate sodium),
for treatment in postmenopausal women, launched in the United States in October
1995; and other Merck human health products, which include Crixivan (indinavir
sulfate), an HIV protease inhibitor, cleared for marketing in the United States
by the U.S. Food and Drug Administration ("FDA") in March 1996, anti-
inflammatories/analgesics, psychotherapeutics and a muscle relaxant. Also
included in this category are rebates and discounts on Company pharmaceutical
products. Other human health primarily includes Merck-Medco sales of non-Merck
products and Merck-Medco human health services, principally managed prescription
drug programs.
Animal health/crop protection products include medicinals used to control
and alleviate disease in livestock, small animals and poultry. These products
are primarily antiparasitics, of which Ivomec (ivermectin), for the control of
internal and external parasites in livestock, and Heartgard-30 (ivermectin), for
the prevention of canine heartworm disease, are the largest-selling. The animal
health/crop protection group also includes crop protection products,
coccidiostats for the treatment of poultry diseases, and poultry breeding stock.
Specialty chemical products are used in health care, food processing, oil
exploration, paper, textiles and personal care. All specialty chemical
businesses were fully divested by the first quarter of 1995.
2
In January 1996, the Company submitted a New Drug Application ("NDA") to
the FDA for Crixivan. On March 1, 1996, an FDA Advisory Committee recommended
that the FDA, under the provisions of an accelerated review process, clear
Crixivan for marketing. On March 13, 1996, the FDA cleared Crixivan for
marketing in the United States for treatment of HIV infection in adults when
antiretroviral therapy is warranted. In April 1996, Vaqta (hepatitis A
vaccine), a new vaccine for the prevention of hepatitis A, was cleared for
marketing and launched in the United States. The Company has also submitted
licensing applications for Vaqta in Canada, China, the United Kingdom and
Germany (where it was cleared and launched in 1995). The Company filed on April
29, 1996 a supplement with the FDA for a new indication for Fosamax for the
prevention of osteoporosis in postmenopausal women. In February 1997, an FDA
Advisory Committee unanimously recommended that the FDA clear for marketing
Fosamax for this new indication. The FDA is not bound by the decision of its
advisory committee. Fosamax is licensed to the Company by Istituto Gentili of
Italy. On October 4, 1996, the FDA cleared Comvax (haemophilus b conjugate
-----------
(meningococcal protein conjugate) and hepatitis B (recombinant) vaccine), a
combination vaccine indicated for protection against diseases caused by
haemophilus influenzae type b and hepatitis B, for marketing in the United
- ----------- ----------
States.
Divestitures -- In January 1995, the Company sold its Calgon Vestal
Laboratories business to Bristol-Myers Squibb for $261.5 million. In February
1995, the Company sold its Kelco business to Monsanto Company for $1.075
billion. The decision to divest these specialty chemicals businesses, which
were not significant to the Company's financial position, liquidity or results
of operations, reflects the Company's intention to focus its resources more
fully on its core human and animal health business. Following these
divestitures, the Company is no longer engaged in the specialty chemicals
business.
In a continued effort to focus on its core business, in October 1995, the
Company sold Medco Behavioral Care Corporation ("MBC"), a managed mental health
care service business which was acquired as part of Medco, to MBC management and
Kohlberg Kravis Roberts & Co. for $340.0 million.
Strategic Alliances -- In 1982, the Company entered into an agreement with
Astra AB ("Astra") to develop and market Astra products in the United States.
In July 1993, the Company's total sales of Astra products reached the level that
triggered the first step in the establishment of a separate entity for
operations related to Astra products in the United States. On November 1, 1994,
Astra paid the Company $820.0 million for an interest in a joint venture
business carried on by Astra Merck Inc., in which the Company and Astra each own
a 50% share. The joint venture develops and markets Astra's new prescription
medicines in the United States. Joint venture sales consist primarily of
Prilosec, the first of a class of medications known as proton pump inhibitors
which slow the production of acid from the cells of the stomach lining. In
December 1996, the FDA cleared Prilosec for use as initial therapy in the
treatment of heartburn and other symptoms associated with gastroesophageal
reflux disease.
In 1989, the Company formed a joint venture with Johnson & Johnson to
develop, market and manufacture consumer healthcare products in the United
States. In April 1995, the joint venture obtained FDA clearance in the United
States for marketing Pepcid AC Acid Controller (famotidine), an over-the-counter
form of the Company's ulcer medication Pepcid. This 50% owned joint venture was
expanded into Europe in 1993, and Canada in 1996. The European extension
currently markets and sells over-the-counter pharmaceutical products in France,
Germany, Spain and the United Kingdom. In January 1994, the Company and Johnson
& Johnson acquired all of the stock of Laboratoires J.P. Martin, a leading self-
medication business in France.
In 1991, the Company and E.I. du Pont de Nemours and Company ("DuPont")
entered into a joint venture to form a worldwide pharmaceutical company for the
research, marketing, manufacturing and sale of pharmaceutical and imaging agent
products. DuPont contributed its entire worldwide pharmaceutical and
radiopharmaceutical imaging agents businesses and is providing administrative
services. The Company contributed cash and European marketing rights to several
of its prescription medicines and is providing research and development funding
and expertise and international industry expertise. In January 1995, the joint
venture began co-promotion of the Company's prescription medicines, Prinivil and
Prinzide (lisinopril and hydrochlorothiazide), in the United States.
3
In December 1994, the Company agreed to arrangements that, among other
things, eliminated the Company's right to offset the consequences of
disproportionate allocations of the DuPont Merck joint venture income and
expense against the Company's right to receive a disproportionate share of
income arising from its 1989 long-term research and marketing agreement with
DuPont. Accordingly, the Company recorded a $499.6 million provision for an
obligation to the joint venture. This obligation is a function of the favorable
performance of assets contributed by DuPont to the joint venture through
December 31, 1994 and certain Company contractual commitments. This obligation
was discharged in 1996.
Effective April 1992, the Company, through the Merck Vaccine Division, and
Connaught Laboratories, Inc. ("Connaught"), recently renamed Pasteur Merieux
Connaught USA ("PMC USA"), an affiliate of Pasteur Merieux Serums et Vaccins
("Pasteur Merieux"), recently renamed Pasteur Merieux Connaught ("PMC"), which
is part of the Rhone-Poulenc group, agreed to collaborate on the development and
marketing of combination pediatric vaccines and to promote selected vaccines in
the United States. The research and marketing collaboration enables the
companies to pool their resources to expedite the development of vaccines
combining several different antigens to protect children against a variety of
diseases, including haemophilus influenzae type b, hepatitis B, diphtheria,
----------- ----------
tetanus, pertussis and poliomyelitis. In addition, the Company and Connaught
have agreed that PMC USA will promote selected Company vaccine products.
In 1994, the Company, through the Merck Vaccine Division, and PMC formed a
joint venture to market human vaccines and to collaborate in the development of
new combination vaccines for distribution in the European Union ("EU") and the
European Free Trade Association. The Company and PMC contributed, among other
things, their European vaccine businesses for equal shares in the joint venture,
known as Pasteur Merieux MSD, S.N.C. The joint venture is subject to monitoring
by the EU, to which the partners made certain undertakings in return for an
exemption from European Competition Law, effective until December 2006. The
joint venture is active through affiliates in Belgium, Denmark, Italy, Germany,
Spain and the United Kingdom, and through distributors throughout the rest of
Europe.
In 1995, Merck-Medco entered into a joint venture with Wyeth-Ayerst
Laboratories, a division of American Home Products Corporation, to develop,
market and implement health management programs for certain conditions,
including several involving women's health. The joint venture company,
Innovative Health Solutions, L.P., will introduce its first health management
programs in 1997.
In December 1996, Merck and Rhone-Poulenc announced plans to combine their
respective animal health and poultry genetics businesses to form an equally
owned joint venture to be called Merial. The joint venture, which is subject to
approval by European, French and U.S. authorities, is expected to be fully
operational by the second quarter of 1997. The Company also announced in
December 1996 that it intends to divest its crop protection business.
Competition -- The markets in which the Company's business is conducted are
highly competitive and, in many cases, highly regulated. Such competition
involves an intensive search for technological innovations and 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
4
have significantly reduced the sales of certain of the Company's products no
longer protected by patents, such as Clinoril (sulindac) and Aldomet
(methyldopa), and slowed the growth of certain other products. In 1992, the
Company formed a new division, West Point Pharma, to market the generic form of
its product Dolobid (diflunisal). In 1993, West Point Pharma began marketing an
additional 11 off-patent Company drugs in more than 20 different packages. In
December 1994, the Company entered into a distribution agreement with Endo
Laboratories, L.L.C. ("Endo"), a wholly-owned subsidiary of The DuPont Merck
Pharmaceutical Company, effectively transferring most of its generics business
to Endo.
Merck-Medco's pharmacy benefit management business is highly competitive.
Merck-Medco competes with other pharmacy benefit managers, insurance companies
and other providers of health care and/or administrators of healthcare programs.
Merck-Medco competes primarily on the basis of its ability to design and
administer innovative programs which contain a plan sponsor's overall
prescription drug costs, its flexibility in handling integrated prescription
drug programs resulting from its ability to dispense drugs through mail service
and act as retail prescription drug manager, and the sophistication and quality
of its systems, procedures and services.
See also the description of the effect upon competition of the Drug Price
Competition and Patent Term Restoration Act of 1984 ("PTRA") on page 7.
It is generally the Company's position to limit individual product price
increases of its human health products in the United States to the projected
Consumer Price Index ("CPI") plus 1 percent on an annual basis and to limit the
net weighted average price change for all human health products to the projected
general rate of inflation as measured by the CPI.
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. Animal health/crop protection products are sold to
veterinarians, distributors, wholesalers, retailers, feed manufacturers,
veterinary suppliers and laboratories.
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 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, although revised
regulations are designed to reduce somewhat the time for approval of new
products. In 1992, the Prescription Drug User Fee Act was passed, under which
the FDA collects revenues through user fees. The FDA has pledged to devote these
revenues to its process for reviewing and approving applications for new drugs,
antibiotics and biological products.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the healthcare system, either nationally or at the state
level. Although a federal reform bill has not been enacted by Congress, some
states have passed reform legislation and further federal and state developments
are expected. In 1995, Congress did pass certain measures, which were vetoed by
President Clinton, restructuring the existing Medicaid program and substituting
block grants to the states for many federal entitlements, including the Vaccines
for Children program. The debate on reforms to the healthcare system will be
protracted. Although the Company is positioned to respond to evolving market
forces, it cannot predict the outcome or effect of legislation resulting from
the reform process.
For some years the pharmaceutical industry has been under federal and state
oversight with the new drug approval system, drug safety, advertising and
promotion, drug purchasing and reimbursement programs and formularies variously
under review. The Company believes that it will continue to be able to bring new
drugs to
5
market in this regulatory environment. One federal initiative to contain costs
is the prospective payment system, established under the Social Security
Amendments of 1983 to hold down the growth of Medicare payments to hospitals,
which provides a flat rate for reimbursement to hospitals in advance of the care
for patients. The system establishes a number of patient classifications --
Diagnosis Related Group(s) ("DRG"). A hospital receives the flat rate as full
payment for each Medicare patient treated within a given DRG regardless of
whether the hospital's actual costs are higher or lower than the flat rate. This
system and other cost-cutting programs have caused hospitals, health maintenance
organizations and other customers of the Company to be more cost conscious in
their treatment programs and to implement cost-containment measures, including
cost containment for the drugs they administer.
Additionally, Congress and the regulatory agencies have sought to reduce
the cost of drugs paid for with federal funds. In 1990, the Company initiated
its Equal Access to Medicines Program ("EAMP") on its single source products,
under which it generally offered its "best price" discount to state Medicaid
programs that grant open access to the Company's products. The Omnibus Budget
Reconciliation Act of 1990 ("OBRA") largely reflects the Company's best price
approach. As a result of a national agreement, effective January 1, 1991,
signed by the Company with the Secretary of Health and Human Services and
administered by the Health Care Financing Administration ("HCFA") pursuant to
OBRA, Medicaid received a minimum rebate of 12.5% off average manufacturer's
price ("AMP") through September 30, 1992, and has received a minimum rebate of
15.1% off AMP since January 1, 1996, on the Company's outpatient drugs
reimbursed under Medicaid. In conjunction with implementation of the federal
program under OBRA, the Company's separate EAMP agreements with individual
states have been permitted to lapse or have been terminated. Effective in 1992,
the terms of the federal HCFA rebate agreement were generally substituted for
the EAMP agreements.
In January 1992, the Company announced that it would provide discounts on
its single-source prescription medicines to non-profit health centers for the
poor that are federally funded under sections 329-330 of the Public Health
Service Act that qualify for the Company's program and agree to assure access to
the Company's drugs. The discounts were largely based on those that the Company
provided Medicaid under the federal "best price" legislation. The discounts were
ultimately provided to such centers for single-source, outpatient prescription
drugs (not reimbursed by Medicaid) purchased directly from the Company by the
centers for their patients.
The Federal Veterans Health Care Act of 1992 was enacted on November 4,
1992, superseding the Company's Public Health Service initiative and mandating
Medicaid rebate-equivalent discounts on covered outpatient drugs purchased by
certain Public Health Service entities and "disproportionate share hospitals"
(hospitals meeting certain qualification criteria). The Act further mandates
minimum discounts of 24% off non-federal AMP to the Veterans Administration,
Federal Supply Schedule and certain other federal sector purchasers on their
pharmaceutical drug purchases.
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 five CDC contracts in 1996 for the supply of its pediatric
vaccines for this program.
The Company encounters similar regulatory and legislative issues in most of
the foreign countries where it does business. There, too, the primary thrust of
governmental inquiry and action is toward determining drug safety and
effectiveness, often with mechanisms for controlling the prices of prescription
drugs and the profits of prescription drug companies. The EU has adopted
directives concerning the classification, labeling, advertising, wholesale
distribution and approval for marketing of medicinal products for human use. The
Company's policies and procedures are already consistent with the substance of
these directives; consequently, it is believed that they will not have any
material effect on the Company's business.
The Company is subject to the jurisdiction of various regulatory agencies
and is, therefore, subject to potential administrative actions. Such actions
may include product recalls, seizures of products and other civil and criminal
sanctions. Under certain circumstances, the Company may deem it advisable to
initiate product recalls voluntarily. Although it is difficult to predict the
ultimate effect of these activities and legislative, administrative
6
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 non-compliance. The policies and procedures of the Company comply
with these regulations.
Patents, Trademarks and Licenses -- Patent protection is considered, in the
aggregate, to be of material importance in the Company's marketing of human and
animal health products in the United States and in most major foreign markets.
Patents may cover products per se, pharmaceutical formulations, processes for or
intermediates useful in the manufacture of products or the uses of products.
Protection for individual products extends for varying periods in accordance
with the date of grant and the legal life of patents in the various countries.
The protection afforded, which may also vary from country to country, depends
upon the type of patent and its scope of coverage.
Patent portfolios developed for products introduced by the Company normally
provide marketing exclusivity. This is the case with the following major
products in the United States: Chibroxin (norfloxacin), Cozaar, Crixivan,
Enacard (enalapril maleate) for use in dogs, ivermectin-containing products,
Fosamax, Hyzaar, Mefoxin (cefoxitin sodium), Mevacor, Noroxin, PedvaxHIB
(haemophilus b conjugate vaccine), Pepcid, Primaxin, Proscar, Timoptic, Trusopt,
-----------
Vaseretic, Vasotec and Zocor. Prinivil is subject to a license to a third party
and is not marketed exclusively by the Company.
Product patent protection in the United States has expired for the
following human and animal pharmaceutical products: Aldomet, Aldoril (methyldopa
and hydrochlorothiazide), Amprol (amprolium), Blocadren (timolol maleate),
Clinoril, Decadron (dexamethasone), Diuril (chlorothiazide), Dolobid, Flexeril
(cyclobenza-prine hydrochloride), HydroDiuril (hydrochlorothiazide), Indocin
(indomethacin), Moduretic (amiloride HCl and hydrochlorothiazide), Sinemet
(carbidopa and levodopa), and TBZ and Thibenzole (thiabendazole).
While the expiration of a product patent normally results in the loss of
marketing exclusivity for the covered product, commercial benefits may continue
to be derived from: (i) later-granted patents on processes and intermediates
related to the most economical method of manufacture of the active ingredient of
such product; (ii) patents relating to the use of such product; (iii) patents
relating to special compositions and formulations; and (iv) marketing
exclusivity that may be available under the PTRA. The effect of product patent
expiration also depends upon many other factors such as the nature of the market
and the position of the product in it, the growth of the market, the
complexities and economics of the process for manufacture of the active
ingredient of the product and the requirements of new drug provisions of the
Federal Food, Drug and Cosmetic Act or similar laws and regulations in other
countries.
The PTRA in the United States permits restoration of up to five years of
the patent term for new products to compensate for patent term lost during the
regulatory review process. Additionally, under the PTRA new chemical entities
approved after September 24, 1984 receive a period of five years' exclusivity
from the date of NDA approval, during which time an "abbreviated NDA" or "paper
NDA" may not be submitted to the FDA. Similarly, in the case of non-new chemical
entities approved after September 24, 1984, the applications for which include
the new data of clinical investigations conducted or sponsored by the applicant
essential to approval, no abbreviated NDA or paper NDA may become effective
before three years from NDA approval. However, the PTRA has also resulted in a
general increase in the number and use of generic products marketed in the
United States because the regulatory requirements for approval of generic
versions of off-patent pioneer drugs have significantly lessened. Additionally,
the PTRA has increased the incentive for abbreviated NDA applicants to challenge
the validity of U.S. patents claiming pioneer drugs because such a challenge
could result in an earlier effective approval date for the generic version of
the pioneer drug and a six-month period during which other generic versions of
the pioneer drug could not be marketed.
7
In Japan, a patent term restoration law enacted in 1988 provides, under
specific conditions, up to five years of additional patent life for
pharmaceuticals. In 1992, the Council of the European Communities published a
regulation which created supplementary protection certificates for medicinal
products. Thus, as of January 1993, certain medicinal products sold in the EU
became eligible for up to five years of market exclusivity after patent
expiration. However, this market exclusivity will expire throughout the EU 15
years after the first product approval in the EU. In February 1993, Canada
enacted Bill C91 which significantly modified Canadian patent law by eliminating
compulsory licensing of pharmaceutical products after December 20, 1991. Thus,
patented pharmaceutical products will have market exclusivity for the full 20-
year patent life in Canada.
The North American Free Trade Agreement was passed in November 1993.
Pursuant to the agreement, Mexico improved its patent law to meet international
standards and to provide full patent protection to pharmaceutical products. The
General Agreement on Tariff and Trade ("GATT") negotiations were concluded in
December 1993 and the U.S. implementing legislation was enacted in December
1994. The required changes in U.S. law became effective in June 1995. The GATT
implementing law changed the patent term of new inventions to 20 years from the
date of patent filing. Existing patents were granted a patent term of the
greater of 17 years from issue or 20 years from filing. Patents on several
products of the Company obtained longer life as a result. In a related matter,
the Company and several other research-based pharmaceutical companies received a
favorable ruling from a Federal District Court in a lawsuit which challenged the
U.S. Patent and Trademark Office ("PTO") and the FDA on their interpretation of
the new law. The Court held that the PTO and FDA were in error in interpreting
the GATT implementing legislation to disallow the adding of previously obtained
patent term restoration (as compensation for regulatory delays) to the new GATT
20-year term. Patents on several products of the Company are impacted. The
favorable ruling of the Federal District Court was affirmed on appeal to the
Federal Circuit Court. A petition for a writ of certiorari to the U.S. Supreme
Court filed by other companies was recently denied.
The GATT agreement also requires countries to upgrade their intellectual
property laws to meet minimum international standards and to provide full patent
protection for pharmaceutical products not later than the end of a ten-year
transition period. Many countries are in the process of upgrading their patent
laws due to the GATT agreement.
The Generic Animal Drug and Patent Term Restoration Act, enacted in
November 1988, provides for the extension of term of patents claiming new animal
drugs approved after enactment. This legislation also establishes a process by
which generic versions of new animal drugs can be approved via an Abbreviated
New Animal Drug Application procedure. The provisions of this legislation, in
general, are parallel to those found in the PTRA covering human health products.
Worldwide, all of the Company's important products are sold under
trademarks that are considered in the aggregate to be of material importance.
Trademark protection continues in some countries as long as used; in other
countries, as long as registered. Registration is for fixed terms and can be
renewed indefinitely.
Royalties received during 1996 on patent and know-how licenses and other
rights amounted to $105.9 million. The Company also paid royalties amounting to
$214.7 million in 1996 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 6,995 people are employed in the Company's research
activities. Expenditures for the Company's research and development programs
were $1,487.3 million in 1996, $1,331.4 million in 1995 and $1,230.6 million in
1994 and will be approximately $1.7 billion in 1997. 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 1987 through 1996 exceeded $10.0 billion with a compound annual growth
rate of 12%. Research and development costs incurred by the joint ventures in
which the Company participates, totaling $440.7 million in 1996, are not
included in the Company's consolidated research and development expenses.
8
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, inflammation, ulcer therapy, kidney
function, mental health, the nervous system, ophthalmic research, prostate
therapy, the respiratory system, bone diseases, animal nutrition and production
improvement, endoparasitic and ectoparasitic diseases and poultry genetics.
In the development of human and animal health products, industry practice
and government regulations in the United States and most foreign countries
provide for the determination of effectiveness and safety of new chemical
compounds through pre-clinical tests and controlled clinical evaluation. Before
a new drug may be marketed in the United States, recorded data on the experience
so gained are included in the NDA, the biological Product License Application or
the New Animal Drug Application to the FDA for the approval required. The
development of certain other products, such as insecticides, 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 Propecia (finasteride), a treatment for male pattern baldness, for which
the Company submitted an NDA to the FDA in December 1996; Singulair (montelukast
sodium), an oral leukotriene D4 receptor antagonist for the treatment of
asthma, for which the Company filed an NDA with the FDA on February 21, 1997;
Aggrastat (tirofiban hydrochloride), an intravenous platelet blocker for the
treatment of cardiovascular disorders; Maxalt (rizatriptan), a migraine
treatment; and Cosopt (dorzolamide hydrochloride and timolol maleate), a
combination of Timoptic-XE and Trusopt. Other products in development include
an oral growth hormone secretagogue, a new product to treat arthritis pain and
inflammation, an injectable antibiotic, an antifungal agent and certain new
vaccines.
All product or service marks appearing in type form different from that of
the surrounding text are trademarks or service marks owned by or licensed to
Merck & Co., Inc., its subsidiaries or affiliates; except that Cozaar and Hyzaar
are registered trademarks of E.I. du Pont de Nemours and Company, Wilmington,
DE.
EMPLOYEES
At the end of 1996, the Company had 49,100 employees worldwide, with 30,400
employed in the United States, including Puerto Rico. Approximately 29.5% of the
Company's worldwide employees are represented by various collective bargaining
groups.
ENVIRONMENTAL MATTERS
The Company believes that it is in compliance in all material respects with
applicable environmental laws and regulations. The Company has maintained a
leadership role in supporting environmental initiatives and fostering pollution
prevention by actions including the elimination of, or the application of best
available technology to reduce air emissions of known or suspect carcinogens at
its facilities worldwide. In 1996, the Company evaluated emission data reported
in accordance with Superfund Amendments and Reauthorization Act ("SARA")
regulations to the Environmental Protection Agency ("EPA") as adjusted for
foreign operations using SARA criteria to determine if the voluntary goal of a
90% reduction from a 1987 baseline of emissions had been attained. Despite a 60%
increase in production since 1987, the Company did reduce emissions 90% from the
baseline year. In 1996, the Company incurred capital expenditures of
approximately $29.2 million for environmental protection facilities. Capital
expenditures for this purpose are forecasted to exceed $350.0 million for the
years 1997 through 2001. In addition, the Company's operating and maintenance
expenditures for pollution control were approximately $78.4 million in 1996.
Expenditures for this purpose for the years 1997 through 2001 are forecasted to
exceed $492.0 million. The Company is also remediating environmental
contamination resulting from past industrial activity at certain of its sites.
Expenditures for environmental purposes were $18.9 million in 1996 and are
estimated at $136.0 million for the years 1997 through 2001. The Company has
taken an active role in identifying and providing for these costs; and
therefore, management does not believe that these expenditures should result in
a materially adverse effect on the Company's financial position, results of
operations, liquidity or capital resources.
9
GEOGRAPHIC AREA INFORMATION
The Company's operations outside the United States are conducted primarily
through subsidiaries. Sales by subsidiaries outside the United States were 30%
of sales in 1996 and 32% of sales in 1995 and 1994.
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.
Over the years, the Company has divested and restructured to reduce its
operational exposure in countries where economic conditions or government
policies make it difficult to earn fair returns. At the same time, the Company
is actively pursuing opportunities in Latin America, Eastern Europe, Asia
Pacific and other regions where changes in government, fiscal and regulatory
policies are making it possible for the Company to earn fair economic returns.
While none of these actions individually has significantly affected operations,
the overall impact has been favorable.
Financial information about geographic areas of the Company's business is
incorporated by reference to page 53 of the Company's 1996 Annual Report to
stockholders.
ITEM 2. PROPERTIES.
The Company's corporate headquarters is located in Whitehouse Station, New
Jersey. The human and animal health business is conducted through divisional or
subsidiary headquarters located in Montvale, New Jersey; Rahway, New Jersey;
Walpole, New Hampshire; West Point, Pennsylvania; and Woodbridge, New Jersey.
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 12 locations in the United States. Branch
warehouses are conveniently located to provide services throughout the country.
Merck-Medco operates its primary businesses through owned or leased facilities
in various locations throughout the United States. Outside the United States,
through subsidiaries, the Company owns or has an interest in manufacturing
plants or other properties in Australia, Canada, countries in Western Europe,
Central and South America, Africa and the Far East.
Capital expenditures for 1996 were $1,196.7 million compared with $1,005.5
million for 1995. In the United States, these amounted to $937.8 million for
1996 and $793.5 million for 1995. Abroad, such expenditures amounted to $258.9
million for 1996 and $212.0 million for 1995.
The Company and its subsidiaries own their principal facilities and
manufacturing plants under titles which they consider to be satisfactory. The
Company considers that its properties are in good operating condition and that
its machinery and equipment have been well maintained. Plants for the
manufacture of products are suitable for their intended purposes and have
capacities and projected capacities adequate for current and projected needs for
existing Company products. Some capacity of the plants is being converted, with
any needed modification, to the requirements of newly introduced and future
products.
ITEM 3. LEGAL PROCEEDINGS.
The Company, including Merck-Medco, is party to a number of antitrust
suits, certain of which have been certified as class actions, instituted by most
of the nation's retail pharmacies and consumers in several states, alleging
conspiracies in restraint of trade and challenging the pricing and/or purchasing
practices of the Company and Merck-Medco, respectively. A significant number of
other pharmaceutical companies and wholesalers have also been sued in the same
or similar litigation. These actions, except for several actions pending in
state courts, have been consolidated for pre-trial purposes in the United States
District Court for the Northern District of Illinois. The Company and several
other defendants have entered into an agreement to settle the federal class
action alleging conspiracy, which represents the single largest group of retail
pharmacy claims, pursuant to which the Company is obligated to pay $51.8
million, in four equal annual installments. In April 1996, the court declined
to approve the settlement. Subsequently, the Company and several other
defendants entered into an amended settlement agreement, which provides for the
same monetary payment and addresses the court's concerns
10
as expressed in its April 1996 opinion. In June 1996, the court granted approval
of the amended settlement agreement, to which objecting retail class members
filed appeals in July 1996. The Company has not engaged in any conspiracy and no
admission of wrongdoing has been made or is included in the amended agreement,
which was entered into in order to avoid the cost of litigation and the risk of
an inaccurate adverse verdict by a jury presented with a case of this size and
complexity. While it is not feasible to predict the final outcome of these
proceedings, in the opinion of the Company, such proceedings should not
ultimately result in any liability which would have a material adverse effect on
the financial position, liquidity or results of operations of the Company. In
addition, prior to the Company's merger with Merck-Medco, the Company and Merck-
Medco were named in an action by a retail pharmacy seeking to enjoin such
merger. This proceeding was settled by the Company in March 1995. The settlement
includes a consent order that imposes certain restrictions on the exchange of
information between the Company and Merck-Medco and requires that Merck-Medco
offer an open formulary. In the opinion of the Company, compliance with the
consent order will not have a material adverse effect on the financial position,
liquidity or results of operations of the Company.
The Company is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act, commonly
known as Superfund. These proceedings seek to require the operators of hazardous
waste disposal facilities, transporters of waste to the sites and generators of
hazardous waste disposed of at the sites to clean up the sites or to reimburse
the government for cleanup costs. The Company has been made a party to these
proceedings as an alleged generator of waste disposed of at the sites. In each
case, the government alleges that the defendants are jointly and severally
liable for the cleanup costs. Although joint and several liability is alleged,
these proceedings are frequently resolved so that the allocation of cleanup
costs among the parties more nearly reflects the relative contributions of the
parties to the site situation. The Company's potential liability varies greatly
from site to site. For some sites the potential liability is de minimis and for
others the costs of cleanup have not yet been determined. While it is not
feasible to predict the outcome of many of these proceedings brought by federal
or state agencies or private litigants, in the opinion of the Company, such
proceedings should not ultimately result in any liability which would have a
material adverse effect on the financial position, results of operations,
liquidity or capital resources of the Company. The Company has accrued for these
costs and such accruals 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 May 1994, Kelco received a Notice of Violation from the EPA Region 9
alleging that Kelco failed to obtain agency pre-construction approvals required
by the Clean Air Act for physical and/or process modifications made at its San
Diego facility. In November 1996, the Company reached a settlement of this
matter with the EPA which included (i) a $1.85 million civil penalty and (ii)
capital improvements to be made at the facility in the amount of approximately
$5.0 million to establish satisfactory environmental controls. Under the terms
of the Kelco Sale Agreement, the Company retained responsibility for the cost of
the settlement.
In November 1994, the Company, along with other pharmaceutical
manufacturers and pharmaceutical benefits managers ("PBMs"), received a notice
from the Federal Trade Commission ("FTC") that the FTC intended to investigate
agreements, alliances, activities and acquisitions involving pharmaceutical
manufacturers and PBMs. In March 1996, the Company, along with other
pharmaceutical manufacturers, received a notice from the FTC that it was
conducting an investigation into pricing practices. The Company has cooperated
fully with these investigations, and believes that it is currently operating in
all material respects in accordance with applicable standards. Accordingly,
although the Company cannot predict the outcome of the investigations, it does
not believe that either investigation will have a material adverse effect on the
financial position, liquidity or results of operations of the Company.
There are various other legal proceedings, principally product liability
and intellectual property suits involving the Company, which are pending. While
it is not feasible to predict the outcome of these proceedings, in the opinion
of the Company, all such proceedings are either adequately covered by insurance
or, if not so covered, should not ultimately result in any liability which would
have a material adverse effect on the financial position, liquidity or results
of operations of the Company.
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
_________________
EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF MARCH 1, 1997)
RAYMOND V. GILMARTIN -- Age 55
November, 1994 -- Chairman of the Board, President and Chief Executive Officer
June, 1994 -- President and Chief Executive Officer
Prior to June, 1994, Mr. Gilmartin was President and Chief Executive Officer
(1989 to 1992) and Chairman, President and Chief Executive Officer (1992 to
1994) of Becton Dickinson and Company (medical supplies and devices and
diagnostic systems).
DAVID W. ANSTICE -- Age 48
January, 1997 -- President, Human Health-The Americas -- responsible for the
Company's prescription drug business in the United States, Canada and Latin
America, worldwide coordination of marketing policies and medical and scientific
affairs
September, 1994 -- President, Human Health-U.S./Canada -- responsible for the
Company's prescription drug business in the United States and Canada, worldwide
coordination of marketing policies and medical and scientific affairs
January, 1994 -- President, Human Health-Europe
January, 1993 -- Senior Vice President, Merck Human Health Division (MHHD)-
Europe
April, 1991 -- Senior Vice President, MHHD and President, U.S. Human Health
PAUL R. BELL -- Age 51
Effective April, 1997 -- President, Human Health-Asia Pacific -- responsible for
the Company's prescription drug business in the Far East, Australia, New Zealand
and Japan
March, 1994 -- Vice President and Managing Director, Merck Sharp & Dohme
(Australia) Pty. Limited (MSD Australia), a wholly-owned subsidiary of the
Company
September, 1988 -- Managing Director, MSD Australia
CELIA A. COLBERT -- Age 40
January, 1997 -- Vice President, Secretary and Assistant General Counsel
November, 1993 -- Secretary and Assistant General Counsel
September, 1993 -- Secretary
February, 1993 -- Secretary, New Products Committee
October, 1992 -- Counsel, Corporate Staff
May, 1991 -- Associate Counsel, Corporate Staff
CAROLINE DORSA -- Age 37
January, 1997 -- Vice President and Treasurer
January, 1994 -- Treasurer
July, 1993 -- Executive Director, Customer Marketing, U. S. Human Health (USHH)
June, 1992 -- Executive Director, Pricing and Strategic Planning, USHH
April, 1990 -- Executive Director, Financial Evaluation and Analysis
12
R. GORDON DOUGLAS JR. -- Age 62
January, 1994 -- President, Merck Vaccines
April, 1991 -- President, Merck Vaccine Division
KENNETH C. FRAZIER -- Age 42
January, 1997 -- Vice President, Public Affairs and Assistant General Counsel --
responsible for public affairs, corporate legal activities and The Merck Company
Foundation
April, 1994 -- Vice President, Public Affairs
May, 1992 -- Vice President, General Counsel and Secretary, Astra/Merck Group
Prior to May, 1992, Mr. Frazier was a partner at the law firm Drinker, Biddle &
Reath for more than five years.
BERNARD J. KELLEY -- Age 55
December, 1993 -- President, Merck Manufacturing Division (MMD)
August, 1993 -- Senior Vice President, Operations, MMD
September, 1991 -- Senior Vice President, Administration, Planning and Quality,
MMD
JUDY C. LEWENT -- Age 48
January, 1997 -- Senior Vice President and Chief Financial Officer --
responsible for financial and corporate development functions, internal auditing
and the Company's joint venture relationships
September, 1994 -- Senior Vice President and Chief Financial Officer --
responsible for financial and public affairs functions, The Merck Company
Foundation, internal auditing and the Company's joint venture relationships
December, 1993 -- Senior Vice President and Chief Financial Officer --
responsible for financial and public affairs functions and The Merck Company
Foundation
June, 1993 -- Senior Vice President, Chief Financial Officer and Controller
January, 1993 -- Senior Vice President and Chief Financial Officer
April, 1990 -- Vice President, Finance and Chief Financial Officer
HENRI LIPMANOWICZ -- Age 58
January, 1997 -- President, Human Health-Asia Pacific -- responsible for the
Company's prescription drug business in the Far East, Australia, New Zealand and
Japan
January, 1995 -- President, Human Health-Intercontinental Region and Japan --
responsible for the Company's prescription drug business in the Near East, the
Far East, Eastern Europe, Africa, Latin America, Australia, New Zealand and
Japan
January, 1994 -- President, Human Health-Merck Intercontinental Region
(MIR)/Japan
June, 1991 -- Senior Vice President, MIR, Merck Human Health Division
13
PER G. H. LOFBERG -- Age 49
December, 1995 -- President, Merck-Medco Managed Care, L.L.C., a wholly-owned
subsidiary of the Company
January, 1994 -- President, Merck-Medco Managed Care Division
April, 1991 -- Senior Executive Vice President, Strategic Planning and
Marketing, Medco Containment Services, Inc.
MARY M. MCDONALD -- Age 52
January, 1997 -- Senior Vice President and General Counsel -- responsible for
legal and public affairs functions and The Merck Company Foundation
January, 1993 -- Senior Vice President and General Counsel
April, 1991 -- Vice President and General Counsel
PETER E. NUGENT -- Age 54
September, 1993 -- Vice President, Controller
July, 1989 -- Vice President, Corporate Taxes
JOHN M. PRESTON -- Age 50
April, 1993 -- President, Merck AgVet Division
July, 1992 -- Executive Vice President, Merck AgVet Division
September, 1991 -- Vice President, Business Affairs, MSD AGVET Division
EDWARD M. SCOLNICK -- Age 56
September, 1994 -- Executive Vice President, Science and Technology and
President, Merck Research Laboratories (MRL) -- responsible for worldwide
research function and activities of Merck Manufacturing Division (MMD), computer
resources and corporate licensing
December, 1993 -- Executive Vice President, Science and Technology and
President, MRL -- responsible for worldwide research function and activities of
MMD and computer resources
January, 1993 -- Executive Vice President and President, MRL -- responsible for
worldwide research function and activities of Merck AgVet Division and computer
resources
April, 1991 -- Senior Vice President and President, MRL -- responsible for
worldwide research function and activities of Merck Frosst Canada, Inc.
BENNETT M. SHAPIRO -- Age 57
September, 1990 -- Executive Vice President, Worldwide Basic Research, Merck
Research Laboratories
14
DEBORAH K. SMITH -- Age 49
June, 1996 -- Senior Vice President, Human Resources
Prior to June, 1996, Ms. Smith held numerous senior human resources positions
(1972 to 1995) at Xerox Corporation and most recently was Senior Vice President,
Human Resources (1995 to 1996) of Bausch & Lomb Incorporated.
PER WOLD-OLSEN -- Age 49
January, 1997 -- President, Human Health-Europe, Middle East & Africa --
responsible for the Company's prescription drug business in Europe, the Middle
East and Africa
September, 1994 -- President, Human Health-Europe -- responsible for the
Company's European prescription drug business
January, 1994 -- Senior Vice President, Worldwide Human Health Marketing
September, 1991 -- Senior Vice President, Human Health Marketing, Merck Human
Health Division
All officers listed above serve at the pleasure of the Board of Directors.
None of these officers, other than Mr. Gilmartin (who has an employment
agreement with the Company which is an exhibit to this Form 10-K) was elected
pursuant to any arrangement or understanding between the officer and the Board.
There are no family relationships among the officers listed above.
15
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 55 of the Company's 1996 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 included on page
55 of the Company's 1996 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 32 through 41 of the Company's 1996 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, 1996 and 1995, and the related consolidated statements of income,
retained earnings and cash flows for each of the three years in the period ended
December 31, 1996 and the report dated January 28, 1997 of Arthur Andersen LLP,
independent public accountants, are incorporated by reference to pages 42
through 53 and page 54 of the Company's 1996 Annual Report to stockholders.
(b) SUPPLEMENTARY DATA
Selected quarterly financial data for 1996 and 1995 are incorporated by
reference to page 41 of the Company's 1996 Annual Report to stockholders.
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")
through 5 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held April 23, 1997. Information on executive officers is set
forth in Part I of this document on pages 12 (beginning with the caption
"Executive Officers of the Registrant") through 15. The required information on
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated by reference to pages 25 (beginning with the caption "Section 16(a)
Beneficial Ownership Reporting Compliance") to 26 of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held April 23, 1997.
ITEM 11. EXECUTIVE COMPENSATION.
The information required for this item is incorporated by reference to
page 7 (beginning with the caption "Compensation of Directors"), and 9 through
18 of the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held April 23, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required for this item is incorporated by reference to page
8 of the Company's Proxy Statement for the Annual Meeting of Stockholders to
be held April 23, 1997.
16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required for this item is incorporated by reference to page
7 (under the caption "Relationships with Outside Firms") of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held April 23,
1997.
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 1996 Annual Report to stockholders, as noted on page 16 of this
document:
Consolidated statement of income for the years ended December 31, 1996, 1995 and
1994
Consolidated statement of retained earnings for the years ended December 31,
1996, 1995 and 1994
Consolidated balance sheet, December 31, 1996 and 1995
Consolidated statement of cash flows for the years ended December 31, 1996, 1995
and 1994
Notes to financial statements
Report of independent public accountants
2. FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are either not required or not applicable.
The registrant is primarily an operating company and all of the subsidiaries
included in the consolidated financial statements filed are wholly owned except
for minority interests in six consolidated subsidiaries.
17
3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
3(a) -- Restated Certificate of Incorporation of *
Merck & Co., Inc. (May 6, 1992)
3(b) -- By-Laws of Merck & Co., Inc. (as amended **
effective June 9, 1994)
10(a) -- Executive Incentive Plan (as amended ***
effective February 27, 1996)
10(b) -- Base Salary Deferral Plan (as adopted on Filed with this document
October 22, 1996, effective January 1,
1997)
10(c) -- 1987 Incentive Stock Plan (as amended *
effective May 6, 1992)
10(d) -- 1991 Incentive Stock Plan (as amended **
effective February 23, 1994)
10(e) -- 1996 Incentive Stock Plan (as amended ***
on October 24, 1995, effective
January 1, 1996)
10(f) -- Non-Employee Directors Stock Option Plan *
(as adopted on April 28, 1992 and
restated May 6, 1992)
10(g) -- 1996 Non-Employee Directors Stock Option Plan Incorporated by reference to
(as adopted on April 23, 1996) Form 10-Q Quarterly Report
for the period ended June 30,
1996
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 (amended and Form 10-Q Quarterly Report
restated June 21, 1996) for the period ended June 30,
1996
10(k) -- Medco Class A 1983 Non-Qualified Stock ****
Option Plan
10(l) -- Medco Class A Non-Qualified Stock Option ***
Agreement dated July 1, 1991 between
Merck-Medco and Per G.H. Lofberg
(together with a list showing the number of
options held)
10(m) -- 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(n) -- 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
18
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
10(o) -- Amendment dated July 27, 1993 to ***
Employment Agreement between Per G.H.
Lofberg and Merck-Medco dated April 1,
1993
10(p) -- Letter Agreement dated May 24, 1996 with Incorporated by reference to Form
respect to the Employment Agreement 10-Q Quarterly Report for the
between Per G.H. Lofberg and Merck-Medco period ended June 30, 1996
dated April 1, 1993 and amended July 27,
1993
10(q) -- Employment Agreement between Raymond V. Incorporated by reference to Form
Gilmartin and the Company dated June 9, 10-Q Quarterly Report for the
1994 period ended June 30, 1994
11 -- Computation of Earnings per Common Share Filed with this document
12 -- Computation of Ratios of Earnings to Fixed Filed with this document
Charges
13 -- 1996 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
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, 1992
** Incorporated by reference to Form 10-K Annual Report for the fiscal year
ended December 31, 1994
*** Incorporated by reference to Form 10-K Annual Report for the fiscal year
ended December 31, 1995
**** Incorporated by reference to Post Effective Amendment No. 1 to
Registration Statement on Form S-8 to Form S-4 Registration Statement (No.
33-50667)
None of the instruments defining the rights of holders of long-term debt of
the Company and its subsidiaries (Exhibit Number 4) are being filed since the
total amount of securities authorized under any of such instruments taken
individually does not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. The Company agrees to furnish a copy of
such instruments to the Commission upon request.
Copies of the exhibits may be obtained by stockholders upon written request
directed to the Stockholder Services Department, Merck & Co., Inc., P.O. Box
100-WS 3AB-40, Whitehouse Station, New Jersey 08889-0100 accompanied by check in
the amount of $5.00 payable to Merck & Co., Inc. to cover processing and mailing
costs.
(b) REPORTS ON FORM 8-K
During the three-month period ended December 31, 1996, one Current Report
was filed on Form 8-K under Item 5 --Other Events regarding the Company's
announcement of its plans to combine its animal health and poultry genetics
business with those of Rhone-Poulenc to form a 50-50 joint venture, to be called
Merial. This report was dated December 19, 1996 and filed December 23, 1996.
19
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 17, 1997
By RAYMOND V. GILMARTIN
(Chairman of the Board,
President and Chief
Executive Officer)
By /s/ 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 17, 1997
President and Chief Executive
Officer; Principal Executive
Officer; Director
JUDY C. LEWENT Senior Vice President and Chief March 17, 1997
Financial Officer; Principal
Financial Officer
PETER E. NUGENT Vice President, Controller; March 17, 1997
Principal Accounting Officer
H. BREWSTER ATWATER, JR. Director March 17, 1997
DEREK BIRKIN Director March 17, 1997
LAWRENCE A. BOSSIDY Director March 17, 1997
WILLIAM G. BOWEN Director March 17, 1997
JOHNNETTA B. COLE Director March 17, 1997
LLOYD C. ELAM Director March 17, 1997
CHARLES E. EXLEY, JR. Director March 17, 1997
WILLIAM N. KELLEY Director March 17, 1997
EDWARD M. SCOLNICK Director March 17, 1997
SAMUEL O. THIER Director March 17, 1997
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 /s/ CELIA A. COLBERT
Celia A. Colbert
(Attorney-in-Fact)
20
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements on Form S-8 (Nos. 33-21087, 33-21088,
33-36101, 33-40177, 33-51235, 33-53463, 33-64273 and 33-64665), on Form S-4 (No.
33-50667) and on Form S-3 (Nos. 33-39349, 33-60322, 33-51785, 33-57421 and 333-
17045). It should be noted that we have not audited any financial statements of
the Company subsequent to December 31, 1996 or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
New York, New York
March 17, 1997
21
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
3(a) -- Restated Certificate of Incorporation of *
Merck & Co., Inc. (May 6, 1992)
3(b) -- By-Laws of Merck & Co., Inc. (as amended **
effective June 9, 1994)
10(a) -- Executive Incentive Plan (as amended ***
effective February 27, 1996)
10(b) -- Base Salary Deferral Plan (as adopted on Filed with this document
October 22, 1996, effective January 1,
1997)
10(c) -- 1987 Incentive Stock Plan (as amended *
effective May 6, 1992)
10(d) -- 1991 Incentive Stock Plan (as amended **
effective February 23, 1994)
10(e) -- 1996 Incentive Stock Plan (as amended ***
on October 24, 1995, effective
January 1, 1996)
10(f) -- Non-Employee Directors Stock Option Plan *
(as adopted on April 28, 1992 and
restated May 6, 1992)
10(g) -- 1996 Non-Employee Directors Stock Option Plan Incorporated by reference to
(as adopted on April 23, 1996) Form 10-Q Quarterly Report
for the period ended June 30,
1996
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 (amended and Form 10-Q Quarterly Report
restated June 21, 1996) for the period ended June 30,
1996
10(k) -- Medco Class A 1983 Non-Qualified Stock ****
Option Plan
10(l) -- Medco Class A Non-Qualified Stock Option ***
Agreement dated July 1, 1991 between
Merck-Medco and Per G.H. Lofberg
(together with a list showing the number of
options held)
10(m) -- 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(n) -- 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
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
10(o) -- Amendment dated July 27, 1993 to ***
Employment Agreement between Per G.H.
Lofberg and Merck-Medco dated April 1,
1993
10(p) -- Letter Agreement dated May 24, 1996 with Incorporated by reference to Form
respect to the Employment Agreement 10-Q Quarterly Report for the
between Per G.H. Lofberg and Merck-Medco period ended June 30, 1996
dated April 1, 1993 and amended July 27,
1993
10(q) -- Employment Agreement between Raymond V. Incorporated by reference to Form
Gilmartin and the Company dated June 9, 10-Q Quarterly Report for the
1994 period ended June 30, 1994
11 -- Computation of Earnings per Common Share Filed with this document
12 -- Computation of Ratios of Earnings to Fixed Filed with this document
Charges
13 -- 1996 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
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, 1992
** Incorporated by reference to Form 10-K Annual Report for the fiscal
year ended December 31, 1994
*** Incorporated by reference to Form 10-K Annual Report for the fiscal
year ended December 31, 1995
**** Incorporated by reference to Post Effective Amendment No. 1 to
Registration Statement on Form S-8 to Form S-4 Registration
Statement (No. 33-50667)