##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 o
    
    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.
    Incorporated in New Jersey
    
    I.R.S. Employer IdentificationNo. 22-1109110
  Class
    
    Number of Shares OutstandingCommon Stock
    
    2,108,669,357
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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TABLE OF CONTENTS  Part I  Financial InformationItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 4. Controls and ProceduresPART II   Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 6. ExhibitsSignaturesEXHIBIT INDEXEX-10.2EX-10.3EX-10.4EX-31.1EX-31.2EX-32.1EX-32.2    Table of Contents  
 Part I  Financial Information
 
 Item 1. Financial Statements
 MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF INCOME
(Unaudited, $ in millions except per share amounts)
 Three Months EndedMarch 31,2009
    
    2008Sales
    
    $
    5,385.2
    
    
    $
    5,822.1Costs, Expenses and OtherMaterials and production
    
    
    1,333.8
    
    
    
    1,238.1Marketing and administrative
    
    
    1,632.9
    
    
    
    1,854.4Research and development
    
    
    1,224.2
    
    
    
    1,078.3Restructuring costs
    
    
    64.3
    
    
    
    69.7Equity income from affiliates
    
    
    (585.8
    )
    
    
    (652.1
    )Other (income) expense, net
    
    
    (67.2
    )
    
    
    (2,209.2
    )3,602.2
    
    
    
    1,379.2Income Before Taxes
    
    
    1,783.0
    
    
    
    4,442.9Taxes on Income
    
    
    327.2
    
    
    
    1,108.4Net Income
    
    $
    1,455.8
    
    
    $
    3,334.5Less: Net Income Attributable to Noncontrolling Interest
    
    
    30.8
    
    
    
    31.9Net Income Attributable to Merck & Co. Inc.
    
    $
    1,425.0
    
    
    $
    3,302.6Basic
Earnings per Common Share Attributable to Merck & Co. Inc. Common Shareholders
    
    $
    0.67
    
    
    $
    1.52Earnings per Common Share Assuming Dilution Attributable

to Merck & Co. Inc. Common Shareholders
    
    $
    0.67
    
    
    $
    1.52Dividends Declared per Common Share
    
    $
    0.38
    
    
    $
    0.38
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##### Table of Contents



MERCK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited, $ in millions)
 March 31,
    
    December 31,2009
    
    2008AssetsCurrent AssetsCash and cash equivalents
    
    $
    6,017.1
    
    
    $
    4,368.3Short-term investments
    
    
    6,564.5
    
    
    
    1,118.1Accounts receivable (including non-trade receivables of $770.9
in 2009 and $871.2 in 2008)
    
    
    3,569.7
    
    
    
    3,778.9Inventories (excludes inventories of $674.3 in 2009 and $587.3
in 2008 classified in Other assets - see Note 8)
    
    
    2,127.8
    
    
    
    2,091.0Deferred income taxes and other current assets
    
    
    7,905.5
    
    
    
    7,756.3Total current assets
    
    
    26,184.6
    
    
    
    19,112.6Investments
    
    
    78.7
    
    
    
    6,491.3Property, Plant and Equipment, at cost, net of allowance for
depreciation of $12,452.5 in 2009 and $12,128.6 in 2008
    
    
    11,826.1
    
    
    
    11,999.6Goodwill
    
    
    1,439.0
    
    
    
    1,438.7Other Intangibles, Net
    
    
    614.2
    
    
    
    525.4Other Assets
    
    
    6,400.5
    
    
    
    7,628.1$
    46,543.1
    
    
    $
    47,195.7Liabilities and Stockholders EquityCurrent LiabilitiesLoans payable and current portion of long-term debt
    
    $
    2,798.9
    
    
    $
    2,297.1Trade accounts payable
    
    
    622.5
    
    
    
    617.6Accrued and other current liabilities
    
    
    8,710.7
    
    
    
    9,174.1Income taxes payable
    
    
    480.2
    
    
    
    1,426.4Dividends payable
    
    
    803.6
    
    
    
    803.5Total current liabilities
    
    
    13,415.9
    
    
    
    14,318.7Long-Term Debt
    
    
    3,939.1
    
    
    
    3,943.3Deferred Income Taxes and Noncurrent Liabilities
    
    
    7,186.6
    
    
    
    7,766.6Merck & Co., Inc. Stockholders EquityCommon stock, one cent par valueAuthorized - 5,400,000,000 shares
    
    
    
    
    
    
    .Issued - 2,983,508,675 shares
    
    
    29.8
    
    
    
    29.8Other paid-in capital
    
    
    8,386.8
    
    
    
    8,319.1Retained earnings
    
    
    44,320.4
    
    
    
    43,698.8Accumulated other comprehensive loss
    
    
    (2,472.8
    )
    
    
    (2,553.9
    )50,264.2
    
    
    
    49,493.8Less treasury stock, at cost874,839,318 shares at March 31, 2009875,818,333 shares at December 31, 2008
    
    
    30,701.2
    
    
    
    30,735.5Total Merck & Co., Inc. stockholders equity
    
    
    19,563.0
    
    
    
    18,758.3Noncontrolling Interest
    
    
    2,438.5
    
    
    
    2,408.8Total Equity
    
    
    22,001.5
    
    
    
    21,167.1$
    46,543.1
    
    
    $
    47,195.7
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MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, $ in millions)
 Three Months EndedMarch 31,2009
    
    2008Cash Flows from Operating ActivitiesNet income
    
    $
    1,455.8
    
    
    $
    3,334.5Adjustments to reconcile net income to net cash provided by operating activities:Gain on distribution from AstraZeneca LP
    
    
    
    
    
    
    (2,222.7
    )Equity income from affiliates
    
    
    (585.8
    )
    
    
    (652.1
    )Dividends and distributions from equity affiliates
    
    
    456.6
    
    
    
    2,669.8Depreciation and amortization
    
    
    443.3
    
    
    
    391.1Deferred income taxes
    
    
    153.6
    
    
    
    (227.4
    )Share-based compensation
    
    
    113.3
    
    
    
    91.0Other
    
    
    90.5
    
    
    
    (113.9
    )Net changes in assets and liabilities
    
    
    (1,414.7
    )
    
    
    (742.0
    )Net Cash Provided by Operating Activities
    
    
    712.6
    
    
    
    2,528.3Cash Flows from Investing ActivitiesCapital expenditures
    
    
    (235.1
    )
    
    
    (341.4
    )Purchases of securities and other investments
    
    
    (2,045.0
    )
    
    
    (3,088.4
    )Proceeds from sales of securities and other investments
    
    
    3,119.1
    
    
    
    3,269.4Acquisitions of subsidiaries, net of cash acquired
    
    
    (130.0
    )
    
    
    Distribution from AstraZeneca LP
    
    
    
    
    
    
    1,899.3Decrease in restricted assets
    
    
    684.5
    
    
    
    167.9Other
    
    
    (3.4
    )
    
    
    (4.0
    )Net Cash Provided by Investing Activities
    
    
    1,390.1
    
    
    
    1,902.8Cash Flows from Financing ActivitiesNet change in short-term borrowings
    
    
    511.7
    
    
    
    (22.6
    )Payments on debt
    
    
    (7.5
    )
    
    
    (1,382.6
    )Purchases of treasury stock
    
    
    
    
    
    
    (1,377.8
    )Dividends paid to stockholders
    
    
    (803.5
    )
    
    
    (830.8
    )Proceeds from exercise of stock options
    
    
    0.4
    
    
    
    79.7Other
    
    
    (93.0
    )
    
    
    (49.5
    )Net Cash Used by Financing Activities
    
    
    (391.9
    )
    
    
    (3,583.6
    )Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    (62.0
    )
    
    
    105.8Net Increase in Cash and Cash Equivalents
    
    
    1,648.8
    
    
    
    953.3Cash and Cash Equivalents at Beginning of Year
    
    
    4,368.3
    
    
    
    5,336.1Cash and Cash Equivalents at End of Period
    
    $
    6,017.1
    
    
    $
    6,289.4
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Notes to Consolidated Financial Statements (unaudited)
 1.
    
    Basis of PresentationThe accompanying unaudited interim consolidated financial statements have been prepared pursuant
to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and
disclosures required by accounting principles generally accepted in the United States for
complete consolidated financial statements are not included herein. The interim statements
should be read in conjunction with the financial statements and notes thereto included in Merck
& Co., Inc.s (Merck or the Company) latest Annual Report on Form 10-K.The results of operations of any interim period are not necessarily indicative of the results of
operations for the full year. In the Companys opinion, all adjustments necessary for a fair
presentation of these interim statements have been included and are of a normal and recurring
nature.Certain reclassifications have been made to prior year
amounts to conform with the current year presentation.Recently Adopted Accounting Standards On January 1, 2009, the Company adopted Financial
Accounting Standards Board (FASB) Statement No. 141R, Business Combinations(FAS 141R),
Statement No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of
ARB No. 51(FAS 160), Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities(FAS 161), Emerging Issues Task Force (EITF) Issue No. 07-1 (EITF 07-1),
Accounting for Collaborative Arrangements,EITF Issue No. 08-6, Equity Method Investment
Accounting Considerations(EITF 08-6), EITF Issue No. 08-7, Accounting for Defensive
Intangible Assets(EITF 08-7) and FASB Staff Position EITF 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities(FSP EITF
03-6-1).FAS 141R expands the scope of acquisition accounting to all transactions under which control of
a business is obtained. This standard requires an acquirer to recognize the assets acquired and
liabilities assumed at the acquisition date fair values with limited exceptions. Additionally,
FAS 141R requires that contingent consideration as well as contingent assets and liabilities be
recorded at fair value on the acquisition date, that acquired in-process research and
development be capitalized and recorded as intangible assets at the acquisition date, and also
requires transaction costs and costs to restructure the acquired company be expensed.
Transactions are now being accounted for under this standard. On April 1, 2009, the FASB issued
Staff Position FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies,which is effective January 1, 2009, and
amends the guidance in FAS 141R to require that assets acquired and liabilities assumed in a
business combination that arise from contingencies be recognized at fair value if fair value can
reasonably be estimated. If the acquisition date fair value of an asset acquired or liability
assumed that arises from a contingency cannot be determined, the asset or liability would be
recognized in accordance with FASB Statement No. 5, Accounting for Contingencies(FAS 5),and
FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss.If the fair value is
not determinable and the FAS 5 criteria are not met, no asset or liability would be recognized.FAS 160 provides guidance for the accounting, reporting and disclosure of noncontrolling
interests and requires, among other things, that noncontrolling interests be recorded as equity
in the consolidated financial statements. The adoption of this standard resulted in the
reclassification of $2.4 billion of Minority Interests (now referred to as noncontrolling
interests) to a separate component of Stockholders Equity on the Consolidated Balance Sheet
(see Note 12). Additionally, net income attributable to noncontrolling interests is now shown
separately from parent net income in the Consolidated Statement of Income. Prior periods have
been restated to reflect the presentation and disclosure requirements of FAS 160.EITF 07-1 defines collaborative arrangements and establishes reporting requirements for
transactions between participants in a collaborative arrangement and between participants in the
arrangement and third parties. The effect of adoption of EITF 07-1 was not material to the
Companys financial position or results of operations. See Note 5 for the associated
disclosures of the Companys collaborative arrangements.FAS 161 requires enhanced disclosures about derivative instruments and hedging activities to
allow for a better understanding of their effects on an entitys financial position, financial
performance, and cash flows. Among other things, FAS 161 requires disclosure of the fair values
of derivative instruments and associated gains and losses in a tabular format (see Note 7).
Since FAS 161 requires only additional disclosures about the Companys derivatives and hedging
activities, the adoption of FAS 161 did not affect the Companys financial position or results
of operations.FSP EITF 03-6-1 clarifies that share-based payment awards that entitle holders to receive
nonforfeitable dividends before they vest will be considered participating securities and
included in the earnings per share calculation pursuant to the two class method. The effect of
adoption of FSP EITF 03-6-1 was not material to the Companys results of operations (see Note
17).
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Notes to Consolidated Financial Statements (unaudited)
 EITF 08-6, which is effective January 1, 2009, clarifies the accounting for certain transactions
and impairment considerations involving equity method investments and is applied on a
prospective basis to future transactions.EITF 08-7, which is effective January 1, 2009, clarifies that a defensive intangible asset (an
intangible asset that the entity does not intend to actively use, but intends to hold to prevent
others from obtaining access to the asset) should be accounted for as a separate unit of
accounting and should be assigned a useful life that reflects the entitys consumption of the
expected benefits related to the asset. EITF 08-7 is applied on a prospective basis to future
transactions.Recently Issued Accounting Standards- The FASB recently issued Staff Position FAS 132(R)-1,
Employers Disclosures about Postretirement Benefit Plan Assets(FSP FAS 132(R)-1), Staff
Position FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset
or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly
(FSP FAS 157-4), Staff Position FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments(FSP FAS 115-2/124-2) and Staff Position FAS 107-1 and APB
28-1, Interim Disclosures about Fair Value of Financial Instruments(FSP FAS 107-1/APB 28-1).FSP FAS 132(R)-1, which is effective December 31, 2009, amends FASB Statement No. 132R,
Employers Disclosures about Pensions and other Postretirement Benefits,to provide guidance on
an employers disclosures about plan assets of a defined pension or other postretirement plan.
FSP FAS 132(R)-1 requires disclosures about plan assets including how investment allocation
decisions are made, the major categories of plan assets, the inputs and valuation techniques
used to measure the fair value of plan assets, the effect of fair value measurements using
significant unobservable inputs (Level 3) on changes in plan assets for the period, and
significant concentrations of risk within plan assets. Since FSP FAS 132(R)-1 requires only
additional disclosures about the Companys pension and other postretirement plan assets, the
adoption of FSP FAS 132(R)-1 will not affect the Companys financial position or results of
operations.Under FSP FAS 157-4, if an entity determines that there has been a significant decrease in the
volume and level of activity for an asset or liability in relation to the normal market activity
for the asset or liability (or similar assets or liabilities), then transactions or quoted
prices may not accurately reflect fair value. In addition, if there is evidence that the
transaction for the asset or liability is not orderly, the entity shall place little, if any,
weight on that transaction price as an indicator of fair value. The Company will adopt the
provisions of FSP FAS 157-4 during the second quarter of 2009 and is currently assessing the
impact of adoption on its financial position and results of operations.FSP FAS 115-2/124-2 changes existing guidance for determining whether debt securities are
other-than-temporarily impaired and replaces the existing requirement that the entitys
management assert it has both the intent and ability to hold an impaired security until recovery
with a requirement that management assert: (a) it does not have the intent to sell the security;
and (b) it is more likely than not it will not have to sell the security before recovery of its
cost basis. FSP FAS 115-2/124-2 requires entities to separate an other-than-temporary
impairment of a debt security into two components when there are credit related losses
associated with the impaired debt security for which management asserts that it does not have
the intent to sell the security, and it is more likely than not that it will not be required to
sell the security before recovery of its cost basis. The amount of the other-than-temporary
impairment related to a credit loss is recognized in earnings, and the amount of the
other-than-temporary impairment related to other factors is recorded in other comprehensive
loss. The Company will adopt the provisions of FSP FAS 115-2/124-2 during the second quarter of
2009 and is currently assessing the impact of adoption on its financial position and results of
operations.FSP FAS 107-1/APB 28-1 requires disclosures about fair values of financial instruments in
interim and annual financial statements. Prior to the issuance of FSP FAS 107-1/APB 28-1,
disclosures about fair values of financial instruments were only required to be disclosed
annually. FSP FAS 107-1/APB 28-1 requires disclosures about fair value of financial instruments
in interim and annual financial statements. The Company will adopt FSP FAS 107-1/APB 28-1 in
the second quarter 2009. Since FSP FAS 107-1/APB 28-1 requires only additional disclosures of
fair values of financial instruments in interim financial statements, the adoption will not
affect the Companys financial position or results of operations.
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Notes to Consolidated Financial Statements (unaudited)
 2.
    
    Merger Agreement with Schering-Plough CorporationIn March 2009, Merck and Schering-Plough Corporation (Schering-Plough) announced that their
Boards of Directors unanimously approved a definitive merger agreement under which Merck and
Schering-Plough will combine in a stock and cash transaction. The transaction will be
structured as a reverse merger in which Schering-Plough, renamed Merck, will continue as the
surviving public corporation. Under the terms of the agreement, each issued and outstanding
share of Schering-Plough common stock will be converted into the right to receive a combination
of $10.50 in cash and 0.5767 of a share of the combined company. Each Merck share will
automatically be converted into a share of the combined company. The cash portion of the
consideration will be funded with a combination of existing cash, the sale or redemption of
short-and long-term investments and the issuance of debt. Upon completion of the merger, each
issued and outstanding share of Schering-Plough 6% Mandatory Convertible Preferred Stock not
converted in accordance with the preferred stock designations shall remain outstanding as one
share of 6% Mandatory Convertible Preferred Stock of the newly combined company having
designations, preferences, qualifications, limitations and other rights identical to those of
the Schering-Plough 6% Mandatory Convertible Preferred Stock. The transaction remains subject
to Merck and Schering-Plough shareholder approvals and the satisfaction of customary closing
conditions and regulatory approvals. The transaction is expected to close in the fourth quarter
of 2009.3.
    
    Restructuring2008 Global Restructuring ProgramAs previously disclosed, in October 2008, the Company announced a global restructuring program
(the 2008 Restructuring Program) to reduce its cost structure, increase efficiency, and
enhance competitiveness. As part of the 2008 Restructuring Program, the Company expects to
eliminate approximately 7,200 positions  6,800 active employees and 400 vacancies  across all
areas of the Company worldwide by the end of 2011. About 40% of the total reductions will occur
in the United States. As part of the 2008 Restructuring Program, the Company is streamlining
management layers by reducing its total number of senior and mid-level executives globally by
approximately 25%. As of March 31, 2009, the Company has eliminated approximately 2,800
positions in connection with this program, comprised of employee separations and the elimination
of contractors and vacant positions. Merck is rolling out a new, more customer-centric selling
model designed to provide Merck with a meaningful competitive advantage and help physicians,
patients and payers improve patient outcomes. The Company is now operating its new commercial
selling models in the United States and other markets around the world. The Company also will
make greater use of outside technology resources, centralize common sales and marketing
activities, and consolidate and streamline its operations. Mercks manufacturing division will
further focus its capabilities on core products and outsource non-core manufacturing. Also,
Merck is expanding its access to worldwide external science through a basic research global
operating strategy, which is designed to provide a sustainable pipeline and is focused on
translating basic research productivity into late-stage clinical success. To increase
efficiencies, basic research operations will consolidate work in support of a given therapeutic
area into one of four locations. This will provide a more efficient use of research facilities
and result in the closure of three basic research sites located in Tsukuba, Japan; Pomezia,
Italy; and Seattle by the end of 2009.Separation costs are accounted for under FASB Statement No. 112, Employers Accounting for
Postemployment Benefits  an amendment of FASB Statement No. 5 and 43(FAS 112), and FASB
Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities(FAS 146).
In connection with the 2008 Restructuring Program, separation costs under the Companys
existing severance programs worldwide were accounted for under FAS 112 and recorded in the third
quarter of 2008 to the extent such costs were probable and estimable. The Company commenced
accruing costs related to one-time termination benefits offered to employees under the 2008
Restructuring Program in the fourth quarter of 2008 as that is when the necessary criteria under
FAS 146 was met. The Company recorded pretax restructuring costs of $174.6 million related to
the 2008 Restructuring Program in the first quarter of 2009. The Company anticipates that total
costs for 2009 will be in the range of $400 million to $600 million. The 2008 Restructuring
Program is expected to be completed by the end of 2011 with the total pretax costs estimated to
be $1.6 billion to $2.0 billion. The Company estimates that two-thirds of the cumulative pretax
costs will result in future cash outlays, primarily from employee separation expense.
Approximately one-third of the cumulative pretax costs are non-cash, relating primarily to the
accelerated depreciation of facilities to be closed or divested.The 2008 Restructuring Program was put into place prior to the pending merger with
Schering-Plough and does not reflect any potential impacts of the merger.
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Notes to Consolidated Financial Statements (unaudited)
 2005 Global Restructuring ProgramIn November 2005, the Company announced a global restructuring program (the 2005 Restructuring
Program) designed to reduce the Companys cost structure, increase efficiency and enhance
competitiveness which was substantially complete at the end of 2008.For segment reporting, restructuring charges are unallocated expenses.The following tables summarize the charges related to restructuring activities by type of cost:
 Three Months Ended March 31, 2009Separation
    
    Accelerated($ in millions)
    
    Costs
    
    Depreciation
    
    Other
    
    Total2008 Restructuring ProgramMaterials and production
    
    $
    
    
    
    $
    21.4
    
    
    $
    0.8
    
    
    $
    22.2Research and development
    
    
    
    
    
    
    86.0
    
    
    
    2.1
    
    
    
    88.1Restructuring costs
    
    
    28.2
    
    
    
    
    
    
    
    36.1
    
    
    
    64.3$
    28.2
    
    
    $
    107.4
    
    
    $
    39.0
    
    
    $
    174.6
 Three Months Ended March 31, 2008Separation
    
    Accelerated($ in millions)
    
    Costs
    
    Depreciation
    
    Other
    
    Total2005 Restructuring ProgramMaterials and production
    
    $
    
    
    
    $
    15.3
    
    
    $
    (0.4
    )
    
    $
    14.9Research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring costs
    
    
    101.4
    
    
    
    
    
    
    
    (31.7
    )
    
    
    69.7$
    101.4
    
    
    $
    15.3
    
    
    $
    (32.1
    )
    
    $
    84.6
 Separation costs are associated with actual headcount reductions, as well as those headcount
reductions that were probable and could be reasonably estimated. In the first quarter of 2009,
approximately 1,050 positions were eliminated in connection with the 2008 Restructuring Program.
In the first quarter of 2008, approximately 900 positions were eliminated, all of which related
to the 2005 Restructuring Program. These position eliminations were comprised of actual
headcount reductions, and the elimination of contractors and vacant positions.Accelerated depreciation costs primarily relate to manufacturing and research facilities to be
sold or closed as part of the programs. All of the sites have and will continue to operate up
through the respective closure dates, and since future cash flows were sufficient to recover the
respective book values, Merck was required to accelerate depreciation of the site assets rather
than write them off immediately. The site assets include manufacturing and research facilities
and equipment.Other activity of $39.0 million and $(32.1) million for the first quarter of 2009 and 2008,
respectively, reflects costs that include termination charges associated with the Companys
pension and other postretirement benefit plans (see Note 14), asset abandonment, shut-down and
other related costs. Other activity for the first quarter of 2008 also reflects pretax gains of
$47.8 million resulting from sales of facilities and related assets.
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Notes to Consolidated Financial Statements (unaudited)
 The following table summarizes the charges and spending relating to restructuring activities for
the three months ended March 31, 2009:
 Separation
    
    Accelerated($ in millions)
    
    Costs
    
    Depreciation
    
    Other
    
    Total2008 ProgramRestructuring reserves as of January 1, 2009
    
    $
    607.7
    
    
    $
    
    
    
    $
    
    
    
    $
    607.7Expense
    
    
    28.2
    
    
    
    107.4
    
    
    
    39.0
    
    
    
    174.6(Payments) receipts, net
    
    
    (66.5
    )
    
    
    
    
    
    
    (34.6
    )
    
    
    (101.1
    )Non-cash activity
    
    
    
    
    
    
    (107.4
    )
    
    
    (4.4
    )
    
    
    (111.8
    )Restructuring reserves as of March 31, 2009 (1)
    
    $
    569.4
    
    
    $
    
    
    
    $
    
    
    
    $
    569.42005 ProgramRestructuring reserves as of January 1, 2009
    
    $
    114.8
    
    
    $
    
    
    
    $
    
    
    
    $
    114.8Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Payments) receipts, net
    
    
    (57.2
    )
    
    
    
    
    
    
    
    
    
    
    (57.2
    )Non-cash activity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring reserves as of March 31,2009 (1)
    
    $
    57.6
    
    
    $
    
    
    
    $
    
    
    
    $
    57.6
 (1)
    
    The cash outlays associated with the remaining restructuring reserve for
the 2008 Restructuring Program are expected to be completed by the end of 2011. The cash
outlays associated with the remaining restructuring reserve for the 2005 Restructuring Program
are expected to be largely completed by the end of 2009.
 4.
    
    Research Collaborations, Acquisitions and License AgreementsIn April 2009, Merck, Medarex, Inc. (Medarex) and Massachusetts Biologic Laboratories (MBL)
of the University of Massachusetts Medical School announced an exclusive worldwide license
agreement for CDA-1 and CDB-1 (also known as MDX-066/MDX-1388 and MBL-CDA1/MBL-CDB1), an
investigational fully human monoclonal antibody combination developed to target and neutralize
Clostridium difficiletoxins A and B, for the treatment of C. difficileinfection. CDA-1 and
CDB-1 were co-developed by Medarex and MBL. Under the terms of the agreement, Merck gains
worldwide rights to develop and commercialize CDA-1 and CDB-1. Medarex and MBL will receive an
aggregate upfront payment of $60 million upon closing, which the Company will record as research
and development expense, and are potentially eligible to receive additional cash payments up to
$165 million in the aggregate upon achievement of certain milestones associated with the
development and approval of a drug candidate covered by this agreement. Upon commercialization,
Medarex and MBL will also be eligible to receive double-digit royalties on product sales and
milestones if certain sales targets are met. In accordance with the co-development agreement
between Medarex and MBL, all payments will be divided equally. The closing of the transaction
is subject to clearance under the Hart-Scott-Rodino Antitrust Improvement Act (HSR Act), as
well as other customary closing conditions. The term of the agreement will commence on the
closing date, which will occur upon satisfaction of the closing conditions and, unless
terminated earlier, will continue until there are no remaining royalty payment obligations in a
country, at which time the agreement will expire in its entirety in such country. Either party
may terminate this agreement for uncured material breach by the other party, or bankruptcy or
insolvency of the other party. Merck may terminate this agreement at any time upon providing
180 days prior written notice to Medarex and MBL.Also, in April 2009, Merck and Santen Pharmaceutical Co., Ltd. (Santen) announced a worldwide
licensing agreement for tafluprost, a prostaglandin analogue under investigation in the United
States. Tafluprost, preserved and preservative-free formulations, has received marketing
approval for the reduction of elevated intraocular pressure in open-angle glaucoma and ocular
hypertension in several European and Nordic countries as well as Japan and has been filed for
approval in additional European and Asia Pacific markets. Under the terms of the agreement,
Merck paid a fee, which was capitalized and will be amortized to materials and production costs
over the life of the underlying patent, and will pay milestones and royalty payments based on
future sales of tafluprost (both preserved and preservative-free formulations) in exchange for
exclusive commercial rights to tafluprost in Western Europe (excluding Germany), North America,
South America and Africa. Santen will retain commercial rights to tafluprost in most countries
in Eastern Europe, Northern Europe and Asia Pacific, including Japan. Merck will provide
promotion support to Santen in Germany and Poland. If tafluprost is approved in the United
States, Santen has an option to co-promote it there. The agreement between Merck and Santen
expires on a country-by-country basis on the last to
occur of (a) the expiry of the last to expire valid patent claim; or (b) the expiration of the
last to expire royalty. Merck may terminate the agreement at any time upon 90 days prior
written notice and also at any time upon 60 days prior written notice if Merck determines that
the product presents issues of safety or tolerability. In addition, Merck may terminate the
agreement in the event that any of the enumerated agreements between Santen and the
co-owner/licensor of certain intellectual property terminate
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Notes to Consolidated Financial Statements (unaudited)
 or expire and this materially
adversely affects Merck. If either Merck or Santen materially breaches the agreement and fails
to cure after receiving notice, then the non-breaching party may terminate the agreement. The
agreement provides for termination by the non-insolvent party due to bankruptcy by the other
party. Finally, the agreement will terminate if, during the term, Merck develops or
commercializes a competitive product (as that term is defined in the agreement).In addition, in April 2009, Merck and Cardiome Pharma Corp. (Cardiome) announced a
collaboration and license agreement for the development and commercialization of vernakalant, an
investigational candidate for the treatment of atrial fibrillation. The agreement provides
Merck with exclusive global rights to the oral formulation of vernakalant (vernakalant (oral))
for the maintenance of normal heart rhythm in patients with atrial fibrillation, and provides a
Merck affiliate, Merck Sharp & Dohme (Switzerland) GmbH, with exclusive rights outside of the
United States, Canada and Mexico to the intravenous (IV) formulation of vernakalant
(vernakalant (IV)) for rapid conversion of acute atrial fibrillation to normal heart rhythm.
Under the terms of the agreement, Merck will pay Cardiome an initial fee of $60 million upon
closing, which the Company will record as research and development expense. In addition,
Cardiome is eligible to receive up to $200 million in payments based on achievement of certain
milestones associated with the development and approval of vernakalant products (including a
total of $35 million for initiation of a planned Phase III program for vernakalant (oral) and
submission for regulatory approval in Europe of vernakalant (IV)), and up to $100 million for
milestones associated with approvals in other subsequent indications of both the intravenous and
oral formulations. Also, Cardiome will receive tiered royalty payments on sales of any approved
products and has the potential to receive up to $340 million in milestone payments based on
achievement of significant sales thresholds. Cardiome has retained an option to co-promote
vernakalant (oral) with Merck through a hospital-based sales force in the United States. Merck
will be responsible for all future costs associated with the development, manufacturing and
commercialization of these candidates. Merck has granted Cardiome a secured, interest-bearing
credit facility of up to $100 million that Cardiome may access in tranches over several years
commencing in 2010. Cardiomes co-development partner in North America, Astellas Pharma U.S.,
Inc., submitted a New Drug Application with the U.S. Food and Drug Administration (FDA) for
Kynapid (vernakalant hydrochloride) Injection in December 2006 that included results from two
pivotal Phase III clinical trials. In December 2007, the Cardiovascular and Renal Drugs
Advisory Committee recommended that the FDA approve vernakalant (IV) for rapid conversion of
atrial fibrillation. In August 2008, the FDA issued an Approvable action letter requesting
additional information. A Phase IIb double-blind, placebo-controlled, randomized, dose-ranging
clinical trial in patients at risk of recurrent atrial fibrillation showed that, at the 500 mg
dose, vernakalant (oral) significantly reduced the rate of atrial fibrillation relapse as
compared to placebo. The effectiveness of the collaboration agreement is subject to the
expiration or earlier termination of the waiting period under the HSR Act, if applicable, as
well as other customary closing conditions. This agreement continues in effect until the
expiration of Cardiomes co-promotion rights and all royalty and milestone payment obligations.
This agreement may be terminated in the event of insolvency or a material uncured breach by
either party. Additionally, the collaboration may be terminated by Merck in the event that
Merck determines (in good faith) that it is not advisable to continue the development or
commercialization of a vernakalant product as a result of a serious safety issue. In addition,
Merck may terminate the agreement at any time upon 12 months prior written notice. Cardiome may
terminate the agreement in the event that Merck challenges any Cardiome patent covering
vernakalant. Upon termination of the agreement, depending upon the circumstances, the parties
have varying rights and obligations with respect to the continued development and
commercialization of vernakalant and in some cases continuing royalty obligations.In March 2009, Merck acquired Insmed Inc.s (Insmed) portfolio of follow-on biologic
therapeutic candidates and its commercial manufacturing facilities located in Boulder, Colorado.
Under the terms of the agreement, Merck paid Insmed an aggregate of $130 million in cash to
acquire all rights to the Boulder facilities and Insmeds pipeline of follow-on biologic
candidates. Insmeds follow-on biologics portfolio includes two clinical candidates: INS-19, an
investigational recombinant granulocyte-colony stimulating factor (G-CSF) that will be
evaluated for its ability to prevent infections in patients with cancer receiving chemotherapy,
and INS-20, a pegylated recombinant G-CSF designed to allow for less frequent dosing. The
transaction is being accounted for as a business combination pursuant to FAS 141R, which
requires assets acquired and liabilities assumed be recorded at their respective fair values as
of the acquisition date in the Companys financial statements. The determination of fair value
requires management to make significant estimates and assumptions. In connection with the
acquisition, the Company allocated substantially all of the purchase price to Insmeds follow-on
biologics portfolio (INS-19 and INS-20) and recorded an indefinite-lived intangible asset. The
fair value was determined based upon the present value of expected future cash flows of new
product candidates resulting from Insmeds follow-on biologics portfolio adjusted for the
probability of their technical and marketing success utilizing an income approach reflecting
appropriate risk-adjusted discount rates. The Company will assess the indefinite-lived
intangible assets for recoverability at least on an annual basis or as events and circumstances
warrant a review. The ongoing activity related to INS-19 and INS-20 is not expected to be
material to the Companys research and development expense. The remaining net assets acquired
were not material and there were no other milestone or royalty obligations associated with the
acquisition. This transaction closed on March 31, 2009, and accordingly, the results of
operations of the acquired business will be included in the Companys results of operations
beginning April 1, 2009.
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##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 5.
    
    Collaborative ArrangementsMerck continues its strategy of establishing strong external alliances to complement its
substantial internal research capabilities, including research collaborations, acquisitions,
licensing pre-clinical and clinical compounds and technology platforms to drive both near- and
long-term growth. The Company supplements its internal research with an aggressive licensing
and external alliance strategy focused on the entire spectrum of collaborations from early
research to late-stage compounds, as well as new technologies. The Company executes a number of
external arrangements including research and development collaborations, preclinical and
clinical compounds, and technology platforms across a broad range of therapeutic categories.
These arrangements often require upfront milestone and royalty or profit share payments,
contingent upon the occurrence of certain future events linked to the success of the asset in
development, as well as expense reimbursements or payments to the third party.The Company reviews its third party arrangements to determine if the arrangement is within the
scope of EITF 07-01. For arrangements that are determined to be collaborative arrangements, the
Company reviews costs incurred and revenues generated on sales to third parties, reported by the
partners in their respective income statements, on a gross or net basis depending on whether the
partner is deemed the principal or agent for the given transaction pursuant to EITF 99-19,
Reporting Revenue Gross as a Principal Versus Net as an Agent.Furthermore, payments between
Merck and its partner are each assessed based on the nature and terms of the arrangements and
are generally determined to be cost sharing expenses recorded in the applicable expense line
items in the Consolidated Statement of Operations. Royalty payments Merck makes to its partners
are recorded within Materials and production costs in the Companys Consolidated Statement of
Operations.Merck recorded revenues of $3.0 billion and $3.2 billion in the aggregate for its existing
collaborative arrangements for the three months ended March 2009 and 2008, respectively.
Expenses incurred related to these arrangements, such as materials and production costs,
marketing and administrative, and research and development are reflected in the overall results
of the Company.Each arrangement is unique in nature and the Companys more significant arrangements are
discussed below.GardasilMerck has entered into several license agreements with respect to Gardasil, a vaccine for girls
and women ages 9 to 26 to help prevent cervical, vulvar and vaginal cancers, precancerous or
dysplastic lesions and genital warts caused by human papillomavirus (HPV) types 6, 11, 16,
and 18. The most significant arrangements are with GlaxoSmithKline (GSK) and CSL Ltd.
(CSL). Gardasilis also the subject of other third-party licensing agreements. As a
consequence of these agreements, the Company pays royalties on the worldwide sales of Gardasil.
Sales of Gardasil, as recorded by Merck, were $262.0 million and $390.4 million for the three
months ended March 2009 and 2008, respectively. Sales of vaccines in most major European
markets are sold through Sanofi Pasteur MSD, the Companys joint venture with Sanofi Pasteur.GlaxoSmithKlineIn 2005, the Company entered into a cross-license and settlement agreement with GSK for certain
patent rights related to HPV vaccines. Pursuant to the agreement, GSK received an upfront
payment and is receiving royalties from the Company based upon sales of Gardasil. The agreement
resolved competing intellectual property claims related to the HPV vaccines.CSL LimitedIn 1995, the Company entered into a license agreement and collaboration with CSL relating to
certain technology used in the development of Gardasil. CSL, a global specialty
biopharmaceutical company, provided some early research collaborative support for the
development of Gardasil. The Company licensed worldwide patent rights to Gardasilfrom CSL,
which maintains marketing rights in Australia and New Zealand.
 - 11 -




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##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 Cozaar/Hyzaar
In 1989, the Company and E.I. duPont de Nemours and Company (DuPont) agreed to form a
long-term research and marketing collaboration to develop a class of therapeutic agents for high
blood pressure and heart disease, discovered by DuPont, called angiotensin II receptor
antagonists, which include Cozaarand Hyzaar. In return, the Company provided DuPont marketing
rights in the United States and Canada to its prescription medicines, Sinemetand Sinemet CR.
Pursuant to a 1994 agreement with DuPont, the Company has an exclusive licensing agreement to
market Cozaarand Hyzaar, which are both registered
trademarks of DuPont, in return for royalties
and profit share payments. Sales of Cozaarand Hyzaarwere $839.2 million and $846.9 million
for the three months ended March 31, 2009 and 2008, respectively.6.
    
    Fair Value MeasurementsOn January 1, 2008, the Company adopted FASB Statement No. 157, Fair Value Measurements(FAS
157), which clarifies the definition of fair value, establishes a framework for measuring fair
value, and expands the disclosures on fair value measurements. In February 2008, the FASB
issued Staff Position 157-2, Effective Date of FASB Statement No. 157(FSP FAS 157-2), that
deferred the effective date of FAS 157 for one year for nonfinancial assets and liabilities
recorded at fair value on a nonrecurring basis. The effect of adoption on January 1, 2009 of
FAS 157 for nonfinancial assets and liabilities recorded at fair value on a nonrecurring basis
did not have a material impact on the Companys financial position and results of operations.
FAS 157 describes three levels of inputs that may be used to measure fair value:Level 1- Quoted prices in active markets for identical assets or liabilities. The Companys
Level 1 assets include equity securities that are traded in an active exchange market.Level 2- Observable inputs other than Level 1 prices, such as quoted prices for similar assets
or liabilities, or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities. The Companys Level 2 assets
and liabilities primarily include debt securities with quoted prices that are traded less
frequently than exchange-traded instruments, corporate notes and bonds, U.S. and foreign
government and agency securities, certain mortgage-backed and asset-backed securities, municipal
securities, and derivative contracts whose values are determined using pricing models with
inputs that are observable in the market or can be derived principally from or corroborated by
observable market data.Level 3- Unobservable inputs that are supported by little or no market activity and that are
financial instruments whose values are determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for which the determination of fair
value requires significant judgment or estimation. The Companys Level 3 assets mainly include
mortgage-backed and asset-backed securities, as well as certain corporate notes and bonds with
limited market activity. At March 31, 2009, $75.0 million, or approximately 0.8%, of the
Companys investment securities were categorized as Level 3 fair value assets ($48.2 million of
which were pledged under certain collateral arrangements (see Note 16)). All of the assets
classified as Level 3 at March 31, 2009 were acquired when the Company elected to be
redeemed-in-kind from a short-term fixed income fund that restricted cash redemptions as
described below.If the inputs used to measure the financial assets and liabilities fall within more than one
level described above, the categorization is based on the lowest level input that is significant
to the fair value measurement of the instrument.
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##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 Financial assets and liabilities measured at fair value on a recurring basis are summarized
below:
 Fair Value Measurements Using
    
    Fair Value Measurements UsingQuoted Prices
    
    Significant
    
    
    
    
    
    
    
    
    
    Quoted Prices
    
    SignificantIn Active
    
    Other
    
    Significant
    
    
    
    
    
    In Active
    
    Other
    
    SignificantMarkets for
    
    Observable
    
    Unobservable
    
    
    
    
    
    Markets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    Inputs
    
    
    
    
    
    Identical Assets
    
    Inputs
    
    Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    Total
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    Total($ in millions)
    
    March 31, 2009
    
    December 31, 2008AssetsInvestmentsCorporate notes and bonds
    
    $
    
    
    
    $
    3,394.0
    
    
    $
    26.8
    
    
    $
    3,420.8
    
    
    $
    
    
    
    $
    3,093.2
    
    
    $
    
    
    
    $
    3,093.2U.S. government and
agency securities
    
    
    
    
    
    
    1,589.3
    
    
    
    
    
    
    
    1,589.3
    
    
    
    
    
    
    
    2,885.7
    
    
    
    
    
    
    
    2,885.7Mortgage-backed securities (1)
    
    
    
    
    
    
    655.0
    
    
    
    
    
    
    
    655.0
    
    
    
    
    
    
    
    723.9
    
    
    
    
    
    
    
    723.9Commercial paper
    
    
    
    
    
    
    361.1
    
    
    
    
    
    
    
    361.1
    
    
    
    
    
    
    
    133.0
    
    
    
    
    
    
    
    133.0Asset-backed securities(1)
    
    
    
    
    
    
    284.4
    
    
    
    
    
    
    
    284.4
    
    
    
    
    
    
    
    306.7
    
    
    
    
    
    
    
    306.7Foreign government bonds
    
    
    
    
    
    
    213.6
    
    
    
    
    
    
    
    213.6
    
    
    
    
    
    
    
    319.4
    
    
    
    
    
    
    
    319.4Equity securities
    
    
    82.8
    
    
    
    33.3
    
    
    
    
    
    
    
    116.1
    
    
    
    71.1
    
    
    
    73.6
    
    
    
    
    
    
    
    144.7Other debt securities
    
    
    
    
    
    
    2.9
    
    
    
    
    
    
    
    2.9
    
    
    
    
    
    
    
    2.8
    
    
    
    
    
    
    
    2.8Total investments
    
    $
    82.8
    
    
    $
    6,533.6
    
    
    $
    26.8
    
    
    $
    6,643.2
    
    
    $
    71.1
    
    
    $
    7,538.3
    
    
    
    
    
    
    $
    7,609.4Other assets(2)
    
    
    
    
    
    
    2,396.9
    
    
    
    48.2
    
    
    
    2,445.1
    
    
    
    
    
    
    
    2,877.9
    
    
    
    96.6
    
    
    
    2,974.5Derivative assets (3)
    
    
    
    
    
    
    578.7
    
    
    
    
    
    
    
    578.7
    
    
    
    
    
    
    
    548.4
    
    
    
    
    
    
    
    548.4Total Assets
    
    $
    82.8
    
    
    $
    9,509.2
    
    
    $
    75.0
    
    
    $
    9,667.0
    
    
    $
    71.1
    
    
    $
    10,964.6
    
    
    $
    96.6
    
    
    $
    11,132.3LiabilitiesDerivative liabilities (3)
    
    $
    
    
    
    $
    84.0
    
    
    $
    
    
    
    $
    84.0
    
    
    $
    
    
    
    $
    275.0
    
    
    $
    
    
    
    $
    275.0
 (1)
    
    Mortgage-backed securities represent AAA rated securities issued or
unconditionally guaranteed as to payment of principal and interest by U.S. government agencies.
Substantially all of the asset-backed securities are highly-rated (Standard & Poors rating of
AAA and Moodys Investors Service rating of Aaa), secured primarily by credit card, auto loan,
and home equity receivables, with weighted-average lives of primarily 5 years or less.(2)
    
    Other assets represent a portion of the pledged collateral discussed in Notes 10
and 16. At March 31, 2009, Level 2 Other assets are comprised of $770.7 million in municipal
securities, $568.1 million in corporate notes and bonds, $510.8 million in commercial paper,
$222.9 million in mortgage-backed securities, $168.2 million of U.S. government and agency
securities and $156.2 million of asset-backed securities. At December 31, 2008, Level 2 Other
assets are comprised of $987.4 million of corporate notes and bonds, $792.5 million of municipal
securities, $357.3 million of commercial paper, $276.0 million of mortgage-backed securities,
$240.1 million of U.S. government and agency securities and $224.6 million of asset-backed
securities.(3)
    
    The fair value determination of derivatives includes an assessment of the credit
risk of counterparties to the derivatives and the Companys own credit risk, the effects of
which were not significant.
 Level 3 Valuation Techniques:Financial assets are considered Level 3 when their fair values are determined using pricing
models, discounted cash flow methodologies or similar techniques and at least one significant
model assumption or input is unobservable. Level 3 financial assets also include certain
investment securities for which there is limited market activity such that the determination of
fair value requires significant judgment or estimation. The Companys Level 3 investment
securities at March 31, 2009, primarily include mortgage-backed and asset-backed securities, as
well as certain corporate notes and bonds for which there was a decrease in the observability of
market pricing for these investments. These securities were valued primarily using pricing
models for which management understands the methodologies. These models incorporate transaction
details such as contractual terms, maturity, timing and amount of future cash inflows, as well
as assumptions about liquidity and credit valuation adjustments of marketplace participants at
March 31, 2009.
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Notes to Consolidated Financial Statements (unaudited)
 The table below provides a summary of the changes in fair value, including net transfers in
and/or out, of all financial assets measured at fair value on a recurring basis using
significant unobservable inputs (Level 3):
 Three Months Ended March 31, 2009Total Realized and
    
    
    
    
    
    
    LossesUnrealized Gains/
    
    
    
    
    
    
    Recorded inNet
    
    Purchases,
    
    (Losses) Included in:
    
    
    
    
    
    
    Earnings forBeginning
    
    Transfers
    
    Sales,
    
    
    
    
    
    Compre-
    
    Ending
    
    
    Level 3 AssetsBalance
    
    In to (Out of)
    
    Settlements,
    
    
    
    
    
    hensive
    
    Balance
    
    
    Still Held at($ in millions)
    
    January 1
    
    Level 3 (1)
    
    Net
    
    Earnings (2)
    
    Income
    
    March 31
    
    
    March 31Available-for-sale
investments
    
    $
    
    
    
    $
    26.6
    
    
    $
    
    
    
    $
    
    
    
    $
    0.2
    
    
    $
    26.8
    
    
    
    $
    Other assets
    
    
    96.6
    
    
    
    (23.8
    )
    
    
    (26.3
    )
    
    
    (1.7
    )
    
    
    3.4
    
    
    
    48.2
    
    
    
    
    (1.8
    )Total
    
    $
    96.6
    
    
    $
    2.8
    
    
    $
    (26.3
    )
    
    $
    (1.7
    )
    
    $
    3.6
    
    
    $
    75.0
    
    
    
    $
    (1.8
    )
 Three Months Ended March 31, 2008Total Realized and
    
    
    
    
    
    
    LossesUnrealized Losses
    
    
    
    
    
    
    Recorded inNet
    
    Purchases,
    
    Included in:
    
    
    
    
    
    
    Earnings forBeginning
    
    Transfers
    
    Sales,
    
    
    
    
    
    Compre-
    
    Ending
    
    
    Level 3 AssetsBalance
    
    (Out of)
    
    Settlements,
    
    
    
    
    
    hensive
    
    Balance
    
    
    Still Held at($ in millions)
    
    January 1
    
    Level 3 (1)
    
    Net
    
    Earnings (2)
    
    Income
    
    March 31
    
    
    March 31Other assets
    
    $
    958.6
    
    
    $
    (785.2
    )
    
    $
    (8.8
    )
    
    $
    (2.3
    )
    
    $
    (1.1
    )
    
    $
    161.2
    
    
    
    $
    (2.3
    )Other debt securities
    
    
    314.5
    
    
    
    (314.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,273.1
    
    
    $
    (1,099.7
    )
    
    $
    (8.8
    )
    
    $
    (2.3
    )
    
    $
    (1.1
    )
    
    $
    161.2
    
    
    
    $
    (2.3
    )
 (1)
    
    Transfers in and out of Level 3 are deemed to occur at the beginning of the
quarter in which the transaction takes place.(2)
    
    Amounts are recorded in Other (income) expense, net, in the Consolidated
Statement of Income.
 On January 1, 2008, the Company had investments in a short-term fixed income fund (the Fund).
Due to market liquidity conditions, cash redemptions from the Fund were restricted. As a result
of this restriction on cash redemptions, the Company did not consider the Fund to be traded in
an active market with observable pricing on January 1, 2008 and these amounts were categorized
as Level 3. On January 7, 2008, the Company elected to be redeemed-in-kind from the Fund and
received its share of the underlying securities of the Fund. As a result, the majority of the
underlying securities were transferred out of Level 3 as it was determined these securities had
observable markets. On March 31, 2009, $75.0 million of the investment securities associated
with the redemption-in-kind were classified in Level 3 as the securities contained at least one
significant input which was unobservable. These securities account for the entire balance of
the Companys Level 3 assets at March 31, 2009. During the first quarter of 2009, investments
in the aggregate amount of $26.6 million, which were no longer pledged as collateral, were
reclassified from Other assets to available-for-sale investments.The Company has cost method investments associated with certain research and licensing
agreements which are measured at fair value on a nonrecurring basis. During the first quarter
of 2009, two cost method investments with an aggregate carrying value of $24.7 million were
other-than-temporarily impaired and written down to their respective fair values, resulting in
an aggregate impairment charge of $8.2 million which was recorded within Other income, expense,
net. These investments are traded on a public stock exchange in active markets, therefore, the
observable quoted prices were utilized as the fair value amount (Level 1).Concentrations of Credit RiskOn an ongoing basis, the Company monitors concentrations of credit risk associated with
corporate issuers of securities and financial institutions with which it conducts business.
Credit exposure limits are established to limit a concentration with any single issuer or
institution. Cash and investments are placed in instruments that meet high credit quality
standards, as specified in the Companys investment policy guidelines.
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Notes to Consolidated Financial Statements (unaudited)
 7.
    
    Derivative Instruments and Hedging ActivitiesOn January 1, 2009, the Company adopted FAS 161 which requires expanded disclosures on (i) how
and why an entity uses derivative instruments, (ii) how derivative instruments and related
hedged items are accounted for, and (iii) how derivative instruments and related hedged items
affect the Companys financial statements.The Company uses derivative instruments to manage certain risks relating to its ongoing business
operations, including risks relating to foreign currencies as well as interest rate changes.
The Company has established revenue hedging and balance sheet risk management programs to
protect against volatility of future foreign currency cash flows and changes in fair value
caused by volatility in foreign exchange rates. The Company may use interest rate swap contracts
on certain investing and borrowing transactions to manage its net exposure to interest rate
changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps
and, in general, does not leverage any of its investment activities that would put principal
capital at risk. The objectives and accounting related to the Companys foreign currency risk
management and interest rate risk management programs are discussed below.Foreign Currency Risk ManagementThe objective of the revenue hedging program is to reduce the potential for longer-term
unfavorable changes in foreign exchange to decrease the U.S. dollar value of future cash flows
derived from foreign currency denominated sales, primarily the euro and Japanese yen. To
achieve this objective, the Company will partially hedge anticipated third-party sales that are
expected to occur over its planning cycle, typically no more than three years into the future.
The Company will layer in hedges over time, increasing the portion of sales hedged as it gets
closer to the expected date of the transaction, such that it is probable that the hedged
transaction will occur. The portion of sales hedged is based on assessments of cost-benefit
profiles that consider natural offsetting exposures, revenue and exchange rate volatilities and
correlations, and the cost of hedging instruments. The hedged anticipated sales are a specified
component of a portfolio of similarly denominated foreign currency-based sales transactions,
each of which responds to the hedged risk in the same manner. Merck manages its anticipated
transaction exposure with purchased local currency put options, which provide the Company with a
right, but not an obligation, to sell foreign currencies in the future at a predetermined price.
If the U.S. dollar strengthens relative to the currency of the hedged anticipated sales, total
changes in the options cash flows offset the decline in the expected future U.S. dollar cash
flows of the hedged foreign currency sales. Conversely, if the U.S. dollar weakens, the
options value reduces to zero, but the Company benefits from the increase in the value of the
anticipated foreign currency cash flows. The Company also utilizes forward contracts in its
revenue hedging program. If the U.S. dollar strengthens relative to the currency of the hedged
anticipated sales, the increase in the fair value of the forward contracts offsets the decrease
in the expected future U.S. dollar cash flows of the hedged foreign currency sales. Conversely,
if the U.S. dollar weakens, the decrease in the fair value of the forward contracts offsets the
increase in the value of the anticipated foreign currency cash flows.These derivative instruments are designated as cash flow hedges under FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities(FAS 133), and the fair value of
these contracts are recorded as either assets (gain positions) or liabilities (loss positions)
in the Consolidated Balance Sheet. Accordingly, the effective portion of these unrealized gains
or losses on these contracts are recorded in Accumulated Other Comprehensive Income (AOCI) and
reclassified into Sales when the hedged anticipated revenue is recognized. The hedge
relationship is highly effective and hedge ineffectiveness has been de minimis. The cash flows
from these contracts are reported as operating activities in the Consolidated Statement of Cash
Flows.The primary objective of the balance sheet risk management program is to protect the U.S. dollar
value of foreign currency denominated net monetary assets from the effects of volatility in
foreign exchange that might occur prior to their conversion to U.S. dollars. Merck principally
utilizes forward exchange contracts, which enable the Company to buy and sell foreign currencies
in the future at fixed exchange rates and economically offset the consequences of changes in
foreign exchange on the amount of U.S. dollar cash flows derived from the net assets. Merck
routinely enters into contracts to offset the effects of exchange on exposures denominated in
developed country currencies, primarily the euro and Japanese yen. For exposures in developing
country currencies, the Company will enter into forward contracts to partially offset the
effects of exchange on exposures when it is deemed economical to do so based on a cost-benefit
analysis that considers the magnitude of the exposure, the volatility of the exchange rate and
the cost of the hedging instrument. The Company will also minimize the effect of exchange on
monetary assets and liabilities by managing operating activities and net asset positions at the
local level.Foreign currency denominated monetary assets and liabilities are remeasured at spot rates in
effect on the balance sheet date with the effects of changes in spot rates reported in Other
(income) expense, net. The forward contracts are not designated as hedges and are marked to
market through Other (income) expense, net. Accordingly, fair value changes in the forward
contracts help mitigate the changes in the value of the remeasured assets and liabilities
attributable to changes in foreign currency exchange rates, except to the extent of the
spot-forward differences. These differences are not significant due to the short-term nature of
the contracts, which typically have average maturities at inception of less than one year.
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Notes to Consolidated Financial Statements (unaudited)
 The Company uses forward contracts to hedge the changes in fair value of certain foreign
currency denominated available-for-sale securities attributable to fluctuations in foreign
currency exchange rates. These derivative contracts are designated and qualify as fair value
hedges under FAS 133. Accordingly, changes in the fair value of the hedged securities due to
fluctuations in spot rates are offset in Other (income) expense, net, by the fair value changes
in the forward contracts attributable to spot rate fluctuations. Changes in the contracts fair
value due to spot-forward differences are excluded from the designated hedge relationship and
recognized in Other (income) expense, net. These amounts as well as hedge ineffectiveness were
not significant. The cash flows from these contracts are reported as operating activities in
the Consolidated Statement of Cash Flows.Interest Rate Risk ManagementAt March 31, 2009, the Company was a party to two pay-floating, receive-fixed interest rate swap
contracts maturing in 2011 with notional amounts of $125 million each designated as fair value
hedges of fixed-rate notes in which the notional amounts match the amount of the hedged
fixed-rate notes. The swaps are designated and qualify as fair value hedges under FAS 133 and
effectively convert the fixed-rate obligations to floating-rate instruments. The fair value
changes in the notes are offset in interest expense by the fair value changes in the swap
contracts. The cash flows from these contracts are reported as operating activities in the
Consolidated Statement of Cash Flows.Presented in the table below is the fair value of derivatives segregated between those
derivatives that are designated as hedging instruments under FAS 133 and those that are not
designated as hedging instruments under FAS 133 as of March 31, 2009.
 Fair Value of Derivative
    
    
    U.S. Dollar($ in millions)
    
    Balance Sheet Caption
    
    Asset
    
    
    Liability
    
    
    NotionalDerivatives Designated as Hedging InstrumentsForeign Exchange Contracts (current)
    
    Accounts Receivable
    
    $
    159.0
    
    
    $
    
    
    
    $
    2,397.8Foreign Exchange Contracts (non-current)
    
    Other assets
    
    
    346.5
    
    
    
    
    
    
    
    3,191.1Foreign Exchange Contracts (current)
    
    Accrued and Other current liabilities
    
    
    
    
    
    
    43.2
    
    
    
    895.0Foreign Exchange Contracts (non-current)
    
    Noncurrent liabilities
    
    
    
    
    
    
    1.1
    
    
    
    15.0Interest Rate Swaps (non-current)
    
    Other assets
    
    
    26.6
    
    
    
    
    
    
    
    250.0$
    532.1
    
    
    $
    44.3Derivatives Not Designated as Hedging InstrumentsForeign Exchange Contracts (current)
    
    Accounts Receivable
    
    $
    46.6
    
    
    $
    
    
    
    $
    1,934.4Foreign Exchange Contracts (current)
    
    Accrued and Other current liabilities
    
    
    
    
    
    
    39.7
    
    
    
    1,668.9$
    46.6
    
    
    $
    39.7$
    578.7
    
    
    $
    84.0
 The table below provides information on the location and pretax (gain) or loss amounts for
derivatives that are: (i) designated in a FAS 133 cash flow hedging relationship, (ii)
designated in a FAS 133 fair value hedging relationship, and (iii) not designated in a FAS 133
hedging relationship for the quarter ended March 31, 2009.
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Notes to Consolidated Financial Statements (unaudited)
 ($ in Millions)Pretax(Gain)/LossDerivatives Designated in a FAS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognized in133 Cash Flow Hedging
    
Location and Pretax Amount of
    
    
    Location and Pretax Amount of (Gain)/Loss
    
    
    OCI onRelationship
    

(Gain)/Loss Reclassified from AOCI into Income
    
    
    Recognized in Income on Derivatives
    
    
    DerivativesForeign Exchange Contracts
    
    Sales
    
    $
    0.9
    
    
    Other (income) expense, net

    $
    
    

    
    $
    (71.2
    )
 Derivatives Designated in a FAS133 Fair Value Hedging
    
    Location and Amount of Pretax (Gain)/Loss
    
    Location and Amount of Pretax (Gain)/LossRelationship
    
    Recognized in Income on Derivatives
    
    Recognized in Income on Hedged ItemInterest Rate Swap contracts
    
    Other (income) expense, net
    
    $
    (2.7
    )
    
    Other (income) expense, net
    
    $
    2.7Foreign Exchange Contracts
    
    Other (income) expense, net
    
    
    (55.6
    )
    
    Other (income) expense, net
    
    
    58.7$
    (58.3
    )
    
    
    
    $
    61.4
 Derivatives not Designated in a
    
    Location and Amount of Pretax (Gain)/LossFAS 133 Hedging Relationship
    
    Recognized in Income on Derivatives (1)Foreign Exchange Contracts
    
    Other (income) expense, net $(165.7)
 (1)
    
    These derivative contracts mitigate changes in the value of remeasured
foreign currency denominated monetary assets and liabilities attributable to changes in foreign
currency exchange rates.
 At March 31, 2009, the Company estimates $72.2 million of the pretax net unrealized gain on
derivatives maturing within the next 12 months that hedge foreign currency denominated sales
over that same period will be reclassified from AOCI to Sales.8.
    
    InventoriesInventories consisted of:
 March 31,
    
    December 31,($ in millions)
    
    2009
    
    2008Finished goods
    
    $
    492.2
    
    
    $
    432.6Raw materials and work in process
    
    
    2,241.5
    
    
    
    2,147.1Supplies
    
    
    93.7
    
    
    
    98.6Total (approximates current cost)
    
    
    2,827.4
    
    
    
    2,678.3Reduction to LIFO cost for domestic inventories
    
    
    (25.3
    )
    
    
    $
    2,802.1
    
    
    $
    2,678.3Recognized as:Inventories
    
    $
    2,127.8
    
    
    $
    2,091.0Other assets
    
    $
    674.3
    
    
    $
    587.3
 Amounts recognized as Other assets are comprised entirely of raw materials and work in process
inventories, the majority of which are noncurrent vaccine inventories.9.
    
    Joint Ventures and Other Equity Method AffiliatesEquity income from affiliates reflects the performance of the Companys joint ventures and other
equity method affiliates and was comprised of the following:
 Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Merck/Schering-Plough
    
    $
    290.9
    
    
    $
    392.8AstraZeneca LP
    
    
    168.3
    
    
    
    131.1Other (1)
    
    
    126.6
    
    
    
    128.2$
    585.8
    
    
    $
    652.1
 (1)
    
    Primarily reflects results from Merial Limited, Sanofi Pasteur MSD and Johnson &
Johnson°Merck Consumer Pharmaceuticals Company.
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Notes to Consolidated Financial Statements (unaudited)
 Merck/Schering-PloughIn 2000, the Company and Schering-Plough Corporation (Schering-Plough) (collectively the
Partners) entered into agreements to create an equally-owned partnership to develop and market
in the United States new prescription medicines in the cholesterol-management therapeutic area.
These agreements generally provide for equal sharing of development costs and for co-promotion
of approved products by each company. In 2001, the cholesterol-management partnership
agreements were expanded to include all the countries of the world, excluding Japan. In 2002,
ezetimibe, the first in a new class of cholesterol-lowering agents, was launched in the United
States as Zetia(marketed as Ezetroloutside the United States). In 2004, a combination product
containing the active ingredients of both Zetiaand Zocorwas approved in the United States as
Vytorin(marketed as Inegyoutside of the United States).The cholesterol agreements provide for the sharing of operating income generated by the
Merck/Schering-Plough cholesterol partnership (the MSP Partnership) based upon percentages
that vary by product, sales level and country. In the U.S. market, the Partners share profits
on Zetiaand Vytorinsales equally, with the exception of the first $300 million of annual Zetia
sales on which Schering-Plough receives a greater share of profits. Operating income includes
expenses that the Partners have contractually agreed to share, such as a portion of
manufacturing costs, specifically identified promotion costs (including direct-
to-consumer advertising and direct and identifiable out-of-pocket promotion) and other agreed
upon costs for specific services such as on-going clinical research, market support, market
research, market expansion, as well as a specialty sales force and physician education programs.
Expenses incurred in support of the MSP Partnership but not shared between the Partners, such
as marketing and administrative expenses (including certain sales force costs), as well as
certain manufacturing costs, are not included in Equity income from affiliates. However, these
costs are reflected in the overall results of the Company. Certain research and development
expenses are generally shared equally by the Partners, after adjusting for earned milestones.See Note 11 for information with respect to litigation involving the MSP Partnership and the
Partners related to the sale and promotion of Zetiaand Vytorin.Summarized financial information for the MSP Partnership is as follows:
 Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Sales
    
    $
    945.3
    
    
    $
    1,232.9Vytorin
    
    
    466.0
    
    
    
    651.2Zetia
    
    
    479.3
    
    
    
    581.7Materials and production costs
    
    
    42.0
    
    
    
    52.4Other expense, net
    
    
    242.2
    
    
    
    326.8Income before taxes
    
    $
    661.1
    
    
    $
    853.7Mercks share of income before taxes (1)
    
    $
    293.8
    
    
    $
    394.6
 (1)
    
    Mercks share of the MSP Partnerships income before taxes differs from the
equity income recognized from the MSP Partnership primarily due to the timing of
recognition of certain transactions between the Company and the MSP Partnership, including
milestone payments.
 AstraZeneca LPAs previously disclosed, the 1999 AstraZeneca merger triggered a partial redemption in March
2008 of Mercks interest in certain AstraZeneca LP (AZLP) product rights. Upon this
redemption, Merck received $4.3 billion from AZLP. This amount was based primarily on a
multiple of Mercks average annual variable returns derived from sales of the former Astra USA,
Inc. products for the three years prior to the redemption (the Limited Partner Share of Agreed
Value). Merck recorded a $1.5 billion pretax gain on the partial redemption in the first
quarter of 2008. The partial redemption of Mercks interest in the product rights did not
result in a change in Mercks 1% limited partnership interest.Also, as a result of the 1999 AstraZeneca merger, in exchange for Mercks relinquishment of
rights to future Astra products with no existing or pending U.S. patents at the time of the
merger, Astra paid $967.4 million (the Advance Payment). The Advance Payment was deferred as
it remained subject to a true-up calculation (the True-Up Amount) that was directly dependent
on the fair market value in March 2008 of the Astra product rights retained by the Company. The
calculated True-Up Amount of $243.7 million was returned to AZLP in March 2008 and Merck
recognized a pretax gain of $723.7 million related to the residual Advance Payment balance.
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Notes to Consolidated Financial Statements (unaudited)
 In 1998, Astra purchased an option (the Asset Option) for a payment of $443.0 million, which
was recorded as deferred revenue, to buy Mercks interest in the KBI Inc. (KBI) products, excluding
the gastrointestinal medicines Nexiumand Prilosec(the Non-PPI Products). The Asset Option
is exercisable in the first half of 2010 at an exercise price equal to the net present value as
of March 31, 2008 of projected future pretax revenue to be received by the Company from the
Non-PPI Products (the Appraised Value). Merck also had the right to require Astra to purchase
such interest in 2008 at the Appraised Value. In February 2008, the Company advised AZLP that
it would not exercise the Asset Option, thus the $443.0 million remains deferred.The sum of the Limited Partner Share of Agreed Value, the Appraised Value and the True-Up
Amount was guaranteed to be a minimum of $4.7 billion. Distribution of the Limited Partner
Share of Agreed Value less payment of the True-Up Amount resulted in cash receipts to Merck of
$4.0 billion and an aggregate pretax gain of $2.2 billion which is included in Other (income)
expense, net. AstraZenecas purchase of Mercks interest in the Non-PPI Products is contingent
upon the exercise of the Asset Option by AstraZeneca in 2010 and, therefore, payment of the
Appraised Value may or may not occur.Summarized financial information for AZLP is as follows:
 Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Sales
    
    $
    1,315.7
    
    
    $
    1,326.8Materials and production costs
    
    
    620.6
    
    
    
    696.3Other expense, net
    
    
    348.1
    
    
    
    384.7Income before taxes (1)
    
    $
    347.0
    
    
    $
    245.8
 (1)
    
    Mercks partnership returns from AZLP are generally
contractually determined and are not based on a percentage of income from AZLP.
 10.
    
    Debt and Financial InstrumentsIn connection with the planned merger with Schering-Plough (see Note 2), on March 8, 2009, Merck
entered into a financing commitment letter with JPMorgan Chase Bank, N.A. and J.P. Morgan
Securities Inc. (collectively JPMorgan), under which JPMorgan committed to provide $7 billion
of financing under the following new credit facilities:
 
    
    a $3 billion 364-day senior unsecured interim term loan facility (the bridge loan
facility);
    
    a $3 billion 364-day asset sale revolving credit facility (the asset sale
facility); and
    
    a $1 billion 364-day corporate revolving credit facility (the incremental
facility).
 On March 23, 2009, Merck and JPMorgan completed a preliminary syndication pursuant to which
eight co-arrangers committed to provide a total of $6.125 billion of financing under the bridge
loan facility, the asset sale facility and the incremental facility. As a result of this
syndication, under the terms of the commitment letter, JPMorgan was released from $6.125 billion
of its $7 billion commitment to provide financing under the bridge loan facility, the asset sale
facility and the incremental facility. In addition, in April 2009, Merck amended its existing
$1.5 billion five-year revolving credit facility maturing in 2013 which will allow this existing
facility to remain in place after the merger. Merck, JPMorgan and the co-arrangers are working together toward completion  of  a general syndication of the new credit facilities. The new
credit facilities and the amended $1.5 billion five-year revolving credit facility will be used
to fund, or backstop commercial paper used to fund, the merger and for other general corporate
purposes. However, the Company may replace or refinance certain of the facilities with a
combination of short- and long-term permanent debt financing. Merck has incurred commitment
fees of approximately $100 million associated with these facilities which are being amortized
over the commitment period. The Company may incur up to an additional $100 million in
commitment fees. The Company has not yet drawn funding from any of these facilities.In August 2008, the Company executed a $4.1 billion letter of credit agreement with a financial
institution which satisfied certain conditions set forth in the U.S. VioxxSettlement Agreement
(see Note 11). The Company pledged collateral to the financial institution of approximately
$5.1 billion pursuant to the terms of the letter of credit agreement. Although the amount of
assets pledged as collateral is set by the letter of credit agreement and such assets are held
in custody by a third party, the assets are managed by the Company. The Company considers the
assets pledged under the letter of credit agreement to be restricted. The letter of credit
amount and required collateral balances will decline as payments (after the first $750 million)
under the Settlement Agreement are made. (See Note 16 for a discussion of other restricted
asset activities.) As of March 31, 2009, $4.8 billion was recorded within Deferred income taxes
and other current assets and $409 million was classified as Other assets. As of December 31,
2008, $3.8 billion was recorded within Deferred income taxes and other current assets and $1.3
billion was classified in Other assets.
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Notes to Consolidated Financial Statements (unaudited)
 11.
    
    ContingenciesThe Company is involved in various claims and legal proceedings of a nature considered normal to
its business, including product liability, intellectual property, and commercial litigation, as
well as additional matters such as antitrust actions.VioxxLitigationProduct Liability LawsuitsAs previously disclosed, individual and putative class actions have been filed against the
Company in state and federal courts alleging personal injury and/or economic loss with respect
to the purchase or use of Vioxx. All such actions filed in federal court are coordinated in a
multidistrict litigation in the U.S. District Court for the Eastern District of Louisiana (the
MDL) before District Judge Eldon E. Fallon. A number of such actions filed in state court are
coordinated in separate coordinated proceedings in state courts in New Jersey, California and
Texas, and the counties of Philadelphia, Pennsylvania and Washoe and Clark Counties, Nevada. As
of March 31, 2009, the Company had been served or was aware that it had been named as a
defendant in approximately 10,625 lawsuits, which include approximately 25,675 plaintiff groups,
alleging personal injuries resulting from the use of Vioxx, and in approximately 242 putative
class actions alleging personal injuries and/or economic loss. (All of the actions discussed in
this paragraph and in Other Lawsuits below are collectively referred to as the VioxxProduct
Liability Lawsuits.) Of these lawsuits, approximately 8,750 lawsuits representing
approximately 21,200 plaintiff groups are or are slated to be in the federal MDL and
approximately 135 lawsuits representing approximately 135 plaintiff groups are included in a
coordinated proceeding in New Jersey Superior Court before Judge Carol E. Higbee.Of the plaintiff groups described above, most are currently in the VioxxSettlement Program,
described below. As of March 31, 2009, approximately 70 plaintiff groups who were otherwise
eligible for the Settlement Program have not participated and their claims remained pending
against Merck. In addition, the claims of approximately 400 plaintiff groups who are not
eligible for the Settlement Program remain pending against Merck. A number of these 400
plaintiff groups are subject to various motions to dismiss for failure to comply with
court-ordered deadlines.In addition to the VioxxProduct Liability Lawsuits discussed above, the claims of over 28,500
plaintiffs had been dismissed as of March 31, 2009. Of these, there have been over 5,775
plaintiffs whose claims were dismissed with prejudice (i.e., they cannot be brought again)
either by plaintiffs themselves or by the courts. Over 22,700 additional plaintiffs have had
their claims dismissed without prejudice (i.e., subject to the applicable statute of
limitations, they can be brought again). Of these, approximately 13,750 plaintiff groups
represent plaintiffs who had lawsuits pending in the New Jersey Superior Court at the time of
the Settlement Agreement described below and who enrolled in the program established by the
Settlement Agreement (the Settlement Program). Judge Higbee has dismissed these cases without
prejudice for administrative reasons.On November 9, 2007, Merck announced that it had entered into an agreement (the Settlement
Agreement) with the law firms that comprise the executive committee of the Plaintiffs Steering
Committee (PSC) of the federal VioxxMDL, as well as representatives of plaintiffs counsel in
the Texas, New Jersey and California state coordinated proceedings, to resolve state and federal
myocardial infarction (MI) and ischemic stroke (IS) claims filed as of that date in the
United States. The Settlement Agreement, which also applies to tolled claims, was signed by the
parties after several meetings with three of the four judges overseeing the coordination of more
than 95% of the U.S. VioxxProduct Liability Lawsuits. The Settlement Agreement applies only to
U.S. legal residents and those who allege that their MI or IS occurred in the United States.Under the Settlement Agreement, Merck will pay a fixed aggregate amount of $4.85 billion into
two funds ($4.0 billion for MI claims and $850 million for IS claims) for qualifying claims that
enter into the Settlement Program. Individual claimants will be examined by administrators of
the Settlement Program to determine qualification based on objective, documented facts provided
by claimants, including records sufficient for a scientific evaluation of independent risk
factors. The conditions in the Settlement Agreement also require claimants to pass three gates:
an injury gate, a duration gate, and a proximity gate (each as defined in the Settlement
Agreement).The Settlement Agreement provides that Merck does not admit causation or fault. The Settlement
Agreement also provided that Mercks payment obligations would be triggered only if, among other
conditions, (1) law firms on the federal and state PSCs and firms that have tried cases in the
coordinated proceedings elect to recommend enrollment in the program to 100% of their clients
who allege either MI or IS, and (2) by June 30, 2008, plaintiffs enroll in the Settlement
Program at least 85% of each of all currently pending and tolled (i) MI claims, (ii) IS claims,
(iii) eligible MI and IS claims together which involve death, and (iv) eligible MI and IS claims
together which allege more than 12 months of use. Under the terms of the Settlement Agreement,
Merck could exercise a right to walk away from the Settlement Agreement if the thresholds and
other requirements were not met. The Company waived that right as of August 4, 2008. The
waiver of that right triggered Mercks obligation to pay a fixed total of $4.85 billion.
Payments will be made in installments into the settlement funds. The first payment of $500
million was made into the MI Settlement Fund in August 2008 and an additional payment of $250
million was made in October 2008. Interim payments have been made to certain plaintiffs who
alleged that they suffered an MI. Payments of $12 million and $3 million were made in
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Notes to Consolidated Financial Statements (unaudited)
 February
and March 2009, respectively, into the IS Settlement Fund. In addition, in April 2009, payments
of $110 million and
$12 million were made into the MI and IS Settlement Funds, respectively. Interim payments to IS
claimants began on February 27, 2009. Additional payments will be made on a periodic basis
going forward, when and as needed to fund payments of claims and administrative expenses.
During 2009, the Company anticipates that it will make total payments of $3.4 billion into the
Vioxxsettlement funds pursuant to the Settlement Agreement. However, if the pending merger
with Schering-Plough is completed in 2009, as expected, the Company expects it will also pay the
remaining approximately $700 million into the IS Settlement Fund.Mercks total payment for both funds of $4.85 billion is a fixed amount to be allocated among
qualifying claimants based on their individual evaluation. The distribution of interim payments
to qualified claimants began in August 2008 and will continue on a rolling basis until all
claimants who qualify for an interim payment are paid. Final payments will be made after the
examination of all of the eligible claims has been completed.After the Settlement Agreement was announced on November 9, 2007, judges in the Federal MDL,
California, Texas and New Jersey State Coordinated Proceedings entered a series of orders. The
orders: (1) temporarily stayed their respective litigations; (2) required plaintiffs to register
their claims by January 15, 2008; (3) required plaintiffs with cases pending as of November 9,
2007 to preserve and produce records and serve expert reports; and (4) required plaintiffs who
file thereafter to make similar productions on an accelerated schedule. The Clark County,
Nevada and Washoe County, Nevada coordinated proceedings were also generally stayed.As of October 30, 2008, the deadline for enrollment in the Settlement Program, more than 48,100
of the approximately 48,325 individuals who were eligible for the Settlement Program and whose
claims were not 1) dismissed, 2) expected to be dismissed in the near future, or 3) tolled
claims that appear to have been abandoned had submitted some or all of the materials required
for enrollment in the Settlement Program. This represents approximately 99.8% of the eligible
MI and IS claims previously registered with the Settlement Program.On April 14, 2008 and June 3, 2008, two groups of various private insurance companies and health
plans filed suit against BrownGreer, the claims administrator for the Settlement Program (the
Claims Administrator), and U.S. Bancorp, escrow agent for the Settlement Program (the AvMed
and Greater New York Benefit Fund suits). The private insurance companies and health plans
claim to have paid healthcare costs on behalf of some of the enrolling claimants and seek to
enjoin the Claims Administrator from paying enrolled claimants until their claims for
reimbursement from the enrolled claimants are resolved. Each group sought temporary restraining
orders and preliminary injunctions. Judge Fallon denied these requests. In AvMed, the
defendants moved to sever the claims of the named plaintiffs and, in Greater New York Benefit
Fund, to strike the class allegations. Judge Fallon granted these motions. AvMed appealed both
of these decisions. The Fifth Circuit heard argument on AvMeds appeal on November 4, 2008. On
November 17, 2008, the Court of Appeals affirmed the district courts ruling that denied the two
motions for preliminary injunctive relief. Greater New York Benefit Fund has served a notice of
appeal. On January 22, 2009, the PSC and counsel for certain private insurers announced that
they reached a settlement agreement. The agreement provides a program for resolution of liens
asserted by private insurers against payments received by certain claimants who have enrolled in
the Settlement Program. The agreement can be terminated by the private insurers if fewer than
90% of eligible claimants participate. The plaintiffs in the AvMed and Greater New York Benefit
Fund lawsuits have agreed to participate in the settlement.There is one U.S. VioxxProduct Liability Lawsuit currently scheduled for trial in 2009. The
Company has previously disclosed the outcomes of several VioxxProduct Liability Lawsuits that
were tried prior to 2009.Juries have now decided in favor of the Company twelve times and in plaintiffs favor five
times. One Merck verdict was set aside by the court and has not been retried. Another Merck
verdict was set aside and retried, leading to one of the five plaintiffs verdicts. There have
been two unresolved mistrials. With respect to the five plaintiffs verdicts, Merck filed an
appeal or sought judicial review in each of those cases. In one of those five, an intermediate
appellate court overturned the trial verdict and directed that judgment be entered for Merck,
and in another, an intermediate appellate court overturned the trial verdict, entering judgment
for Merck on one claim and ordering a new trial on the remaining claims.All but the following three cases that went to trial are now resolved: McDarby v. Merck, Ernst
v. Merck, and Garza v. Merck.The first, McDarby, was originally tried along with a second plaintiff, Cona, in April 2006, in
the Superior Court of New Jersey, Law Division, Atlantic County. The jury returned a split
verdict. The jury determined that Vioxxdid not substantially contribute to the heart attack of
Mr. Cona, but did substantially contribute to the heart attack of Mr. McDarby. The jury also
concluded that, in each case, Merck violated New Jerseys consumer fraud statute, which allows
plaintiffs to receive their expenses for purchasing the drug, trebled, as well as reasonable
attorneys fees. The jury awarded $4.5 million in compensatory damages to Mr. McDarby and his
wife, who also was a plaintiff in that case, as well as punitive damages of $9 million. On June
8, 2007, Judge Higbee denied Mercks motion for a new trial. On June 15, 2007, Judge Higbee
awarded approximately $4 million in the aggregate in attorneys fees and costs. The Company has
appealed the judgments in both cases and the Appellate Division held
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Notes to Consolidated Financial Statements (unaudited)
 oral argument on both cases
on January 16, 2008. On May 29, 2008, the New Jersey Appellate Division vacated the consumer
fraud awards in both cases on the grounds that the Product Liability Act provides the sole
remedy for personal injury claims. The
Appellate Division also vacated the McDarby punitive damage award on the grounds of federal
preemption and vacated the attorneys fees and costs awarded under the Consumer Fraud Act in
both cases. The Court upheld the McDarby compensatory award. The Company has filed with the
Supreme Court of New Jersey a petition to appeal those parts of the trial courts rulings that
the Appellate Division affirmed. Plaintiffs filed a cross-petition to appeal those parts of the
trial courts rulings that the Appellate Division reversed. On October 8, 2008, the Supreme
Court of New Jersey granted Mercks petition for certification of appeal, limited solely to the
issue of whether the Federal Food, Drug and Cosmetic Act preempts state law tort claims
predicated on the alleged inadequacy of warnings contained in Vioxxlabeling that was approved
by the FDA. The court denied the plaintiffs cross-petition. On December 4, 2008, the New
Jersey Supreme Court granted Mercks motion to stay the appeal pending the issuance of a
decision from the United States Supreme Court in Wyeth v. Levine. On March 4, 2009, the U.S.
Supreme Court issued its opinion in Wyeth v. Levine. On April 6, 2009, Merck filed a
supplemental brief.As previously reported, in September 2006, Merck filed a notice of appeal of the August 2005
jury verdict in favor of the plaintiff in the Texas state court case, Ernst v. Merck. On May
29, 2008, the Texas Court of Appeals reversed the trial courts judgment and issued a judgment
in favor of Merck. The Court of Appeals found the evidence to be legally insufficient on the
issue of causation. Plaintiffs have filed a motion for rehearing en bancin the Court of
Appeals. Merck filed a response in October 2008. In January 2009, plaintiffs filed a reply in
support of their rehearing motion. On February 11, 2009, Merck filed a reply.As previously reported, in April 2006, in Garza v. Merck, a jury in state court in Rio Grande
City, Texas returned a verdict in favor of the family of decedent Leonel Garza. The jury
awarded a total of $7 million in compensatory damages to Mr. Garzas widow and three sons. The
jury also purported to award $25 million in punitive damages even though under Texas law, in
this case, potential punitive damages were capped at $750,000. On May 14, 2008, the San Antonio
Court of Appeals reversed the judgment and rendered a judgment in favor of Merck. On December
10, 2008, the Court of Appeals, on rehearing, vacated its prior ruling and issued a replacement.
In the new ruling, the Court ordered a take-nothing judgment for Merck on the design defect
claim, but reversed and remanded for a new trial as to the strict liability claim because of
juror misconduct. On January 26, 2009, Merck filed a petition for review with the Texas Supreme
Court. Plaintiffs filed their response on February 25, 2009.Other LawsuitsAs previously disclosed, on July 29, 2005, a New Jersey state trial court certified a nationwide
class of third-party payors (such as unions and health insurance plans) that paid in whole or in
part for the Vioxxused by their plan members or insureds. The named plaintiff in that case
sought recovery of certain Vioxxpurchase costs (plus penalties) based on allegations that the
purported class members paid more for Vioxxthan they would have had they known of the products
alleged risks. On March 31, 2006, the New Jersey Superior Court, Appellate Division, affirmed
the class certification order. On September 6, 2007, the New Jersey Supreme Court reversed the
certification of a nationwide class action of third-party payors, finding that the suit did not
meet the requirements for a class action. Claims of certain individual third-party payors
remain pending in the New Jersey court. Judge Higbee lifted the stay in these cases and the
cases are currently in the discovery phase. A status conference with the court took place in
January 2009 to discuss scheduling issues in these cases, including the selection of early trial
pool cases.The New Jersey Superior Court heard argument on plaintiffs motion for class certification in
Martin-Kleinman v. Merck, which is a putative consumer class action, on December 5, 2008. On
March 17, 2009, the Court denied the motion for class certification.There are also pending in various U.S. courts putative class actions purportedly brought on
behalf of individual purchasers or users of Vioxxasserting claims for reimbursement of alleged
economic loss. The majority of these cases are at early procedural stages. On June 12, 2008, a
Missouri state court certified a class of Missouri plaintiffs seeking reimbursement for
out-of-pocket costs relating to Vioxx.The plaintiffs do not allege any personal injuries from
taking Vioxx.The Missouri Court of Appeals heard oral argument in the case on March 31, 2009.
During the pendency of the appeal, discovery is proceeding in the lower court. On February 3,
2009, Judge Fallon dismissed the master personal injury/wrongful death class action master
complaint and the medical monitoring class action master complaint in the MDL.Plaintiffs also have filed a class action in California state court seeking certification of a
class of California third-party payors and end-users. The court heard oral argument on
plaintiffs motion for class certification on February 19, 2009.The Company has also been named as a defendant in eighteen separate lawsuits brought by
government entities, including the Attorneys General of ten states, five counties, the City of
New York, and private citizens (who have brought qui tamand taxpayer derivative suits). These
actions allege that the Company misrepresented the safety of Vioxxand seek (i) recovery of the
cost of Vioxxpurchased or reimbursed by the state and its agencies; (ii) reimbursement of all
sums paid by the state and its agencies for medical services for the treatment of persons
injured by Vioxx; (iii) damages under various common law theories; and/or (iv) remedies under
various state statutory theories, including state consumer fraud and/or fair business practices
or Medicaid fraud
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Notes to Consolidated Financial Statements (unaudited)
 statutes, including civil penalties. One of the lawsuits brought by the
counties is a class action filed by Santa Clara County, California on behalf of all similarly
situated California counties.With the exception of a case filed by the Texas Attorney General (which remains in Texas state
court and is currently scheduled for trial in January 2010), a case filed by the Michigan
Attorney General (which was remanded to state court in January 2009), and one case that has not
been removed to federal court, the rest of the actions described in the above paragraph have
been transferred to the federal MDL and are in the discovery phase. Merck  filed a motion to
dismiss the Michigan Attorney General case which was denied.Shareholder LawsuitsAs previously disclosed, in addition to the VioxxProduct Liability Lawsuits, the Company and
various current and former officers and directors are defendants in various putative class
actions and individual lawsuits under the federal securities laws and state securities laws (the
VioxxSecurities Lawsuits). All of the VioxxSecurities Lawsuits pending in federal court
have been transferred by the Judicial Panel on Multidistrict Litigation (the JPML) to the
United States District Court for the District of New Jersey before District Judge Stanley R.
Chesler for inclusion in a nationwide MDL (the Shareholder MDL). Judge Chesler has
consolidated the VioxxSecurities Lawsuits for all purposes. The putative class action, which
requested damages on behalf of purchasers of Company stock between May 21, 1999 and October 29,
2004, alleged that the defendants made false and misleading statements regarding Vioxxin
violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and sought
unspecified compensatory damages and the costs of suit, including attorneys fees. The
complaint also asserted claims under Section 20A of the Securities and Exchange Act against
certain defendants relating to their sales of Merck stock and under Sections 11, 12 and 15 of
the Securities Act of 1933 against certain defendants based on statements in a registration
statement and certain prospectuses filed in connection with the Merck Stock Investment Plan, a
dividend reinvestment plan. On April 12, 2007, Judge Chesler granted defendants motion to
dismiss the complaint with prejudice. Plaintiffs appealed Judge Cheslers decision to the
United States Court of Appeals for the Third Circuit. On September 9, 2008, the Third Circuit
issued an opinion reversing Judge Cheslers order and remanding the case to the District Court.
On September 23, 2008, Merck filed a petition seeking rehearing en banc,which was denied. The
case was remanded to the District Court in October 2008, and plaintiffs have filed their
Consolidated and Fifth Amended Class Action Complaint. Merck filed a petition for a writ of
certiorari with the United States Supreme Court on January 15, 2009. On March 23, 2009,
plaintiffs filed a response to Mercks petition and, on April 7, 2009, Merck filed a reply
brief. Merck expects to file a motion to dismiss the Fifth Amended Class Action Complaint.In October 2005, a Dutch pension fund filed a complaint in the District of New Jersey alleging
violations of federal securities laws as well as violations of state law against the Company and
certain officers. Pursuant to the Case Management Order governing the Shareholder MDL, the
case, which is based on the same allegations as the VioxxSecurities Lawsuits, was consolidated
with the VioxxSecurities Lawsuits. Defendants motion to dismiss the pension funds complaint
was filed on August 3, 2007. In September 2007, the Dutch pension fund filed an amended
complaint rather than responding to defendants motion to dismiss. In addition in 2007, six new
complaints were filed in the District of New Jersey on behalf of various foreign institutional
investors also alleging violations of federal securities laws as well as violations of state law
against the Company and certain officers. Defendants are not required to respond to these
complaints until after Judge Chesler resolves any motion to dismiss in the consolidated
securities action.As previously disclosed, various shareholder derivative actions filed in federal court were
transferred to the Shareholder MDL and consolidated for all purposes by Judge Chesler (the
VioxxDerivative Lawsuits). On May 5, 2006, Judge Chesler granted defendants motion to
dismiss and denied plaintiffs request for leave to amend their complaint. Plaintiffs appealed,
arguing that Judge Chesler erred in denying plaintiffs leave to amend their complaint with
materials acquired during discovery. On July 18, 2007, the United States Court of Appeals for
the Third Circuit reversed the District Courts decision on the grounds that Judge Chesler
should have allowed plaintiffs to make use of the discovery material to try to establish demand
futility, and remanded the case for the District Courts consideration of whether, even with the
additional materials, plaintiffs request to amend their complaint would still be futile.
Plaintiffs filed their brief in support of their request for leave to amend their complaint in
November 2007. The Court denied the motion in June 2008 and closed the case. Plaintiffs have
appealed Judge Cheslers decision to the United States Court of Appeals for the Third Circuit.
The appeal has now been fully briefed.In addition, as previously disclosed, various putative class actions filed in federal court
under the Employee Retirement Income Security Act (ERISA) against the Company and certain
current and former officers and directors (the VioxxERISA Lawsuits and, together with the
VioxxSecurities Lawsuits and the VioxxDerivative Lawsuits, the VioxxShareholder Lawsuits)
have been transferred to the Shareholder MDL and consolidated for all purposes. The
consolidated complaint asserts claims on behalf of certain of the Companys current and former
employees who are participants in certain of the Companys retirement plans for breach of
fiduciary duty. The lawsuits make similar allegations to the allegations contained in the Vioxx
Securities Lawsuits. On July 11, 2006, Judge Chesler granted in part and denied in part
defendants motion to dismiss the ERISA complaint. In October 2007, plaintiffs moved for
certification of a class of individuals who were participants in and beneficiaries of the
Companys retirement savings plans at any time between October 1, 1998 and September 30, 2004
and whose plan accounts included
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Notes to Consolidated Financial Statements (unaudited)
 investments in the Merck Common Stock Fund and/or Merck common
stock. On February 9, 2009, the Court denied the motion for certification of a class as to one
count and granted the motion as to the remaining counts. The Court also limited the class to
those individuals who were participants in and beneficiaries of the Companys retirement savings
plans who suffered a loss due to their investments in Merck stock through the plans and who did
not execute a settlement releasing their claims. On October 6,
2008, defendants filed a motion for judgment on the pleadings seeking dismissal of the
complaint. Judge Chesler entered an order denying the motion on March 24, 2009. On December
24, 2008, plaintiffs filed a motion for partial summary judgment against certain individual
defendants. Plaintiffs motion is fully briefed and pending. Discovery is ongoing in this
litigation.As previously disclosed, on October 29, 2004, two individual shareholders made a demand on the
Companys Board to take legal action against Mr. Raymond Gilmartin, former Chairman, President
and Chief Executive Officer, and other individuals for allegedly causing damage to the Company
with respect to the allegedly improper marketing of Vioxx. In December 2004, the Special
Committee of the Board of Directors retained the Honorable John S. Martin, Jr. of Debevoise &
Plimpton LLP to conduct an independent investigation of, among other things, the allegations set
forth in the demand. Judge Martins report was made public in September 2006. Based on the
Special Committees recommendation made after careful consideration of the Martin report and the
impact that derivative litigation would have on the Company, the Board rejected the demand. On
October 11, 2007, the shareholders filed a lawsuit in state court in Atlantic County, New Jersey
against current and former executives and directors of the Company alleging that the Boards
rejection of their demand was unreasonable and improper, and that the defendants breached
various duties to the Company in allowing Vioxxto be marketed. The current and former
executive and director defendants filed motions to dismiss the complaint in June 2008. On
October 30, 2008, proceedings in the case were stayed through March 1, 2009. On November 21,
2008, the pending motions to dismiss were denied without prejudice in light of the stay.
Defendants have informed the Court that they will renew their motions to dismiss and the Court
has scheduled a conference for June 2, 2009.International LawsuitsAs previously disclosed, in addition to the lawsuits discussed above, the Company has been named
as a defendant in litigation relating to Vioxxin various countries (collectively, the Vioxx
Foreign Lawsuits) in Europe, as well as Canada, Brazil, Argentina, Australia, Turkey, and
Israel, as well as in The Philippines and Singapore.On May 30, 2008, the provincial court of Queens Bench in Saskatchewan, Canada entered an order
certifying a class of Vioxxusers in Canada, except those in Quebec. The class includes
individual purchasers who allege inducement to purchase by unfair marketing practices;
individuals who allege Vioxxwas not of acceptable quality, defective or not fit for the purpose
of managing pain associated with approved indications; or ingestors who claim Vioxxcaused or
exacerbated a cardiovascular or gastrointestinal condition. On June 17, 2008, the Court of
Appeal for Saskatchewan granted the Company leave to appeal the certification order and the
appeal was argued before that court in September and November 2008. On March 30, 2009, the
Court of Appeal released its decision granting the Companys appeal and quashing the
certification order. On July 28, 2008, the Superior Court in Ontario denied the Companys
motion to stay class proceedings in Ontario, which had been based on the earlier certification
order entered in Saskatchewan, and decided to certify an overlapping class of Vioxxusers in
Canada, except those in Quebec and Saskatchewan, who allege negligence and an entitlement to
elect to waive the tort. On November 24, 2008, the Ontario Divisional Court granted the
Companys motion for leave to appeal the Superior Courts decision denying the stay of the
Ontario class proceedings and denied the Companys motion to appeal the certification order.
The Companys appeal was heard by the Ontario Divisional Court in February 2009. On February
13, 2009, the Divisional Court declined to set aside the order denying the stay. The Company
has filed a motion for leave to appeal to the Ontario Court of Appeal, which is pending before
that court. Earlier, in November 2006, the Superior Court in Quebec authorized the institution
of a class action on behalf of all individuals who, in Quebec, consumed Vioxxand suffered
damages arising out of its ingestion. The plaintiffs have not instituted an action based upon
that authorization.A trial in a representative action in Australia commenced on March 30, 2009, in the Federal
Court of Australia. The named plaintiff, who alleges he suffered an MI, seeks to represent
others in Australia who ingested Vioxxand suffered an MI, thrombotic stroke, unstable angina,
transient ischemic attack or peripheral vascular disease. On November 24, 2008, the Company
filed a motion for an order that the proceeding no longer continue as a representative
proceeding. During a hearing on December 5, 2008, the court dismissed that motion and, on
January 9, 2009, issued its reasons for that decision. On February 17, 2009, the Companys
motion for leave to appeal that decision to the full Federal Court was denied and the parties
were directed to prepare proposed lists of issues to be tried. On March 11, 2009, the full
Federal Court allowed the Companys appeal of that part of the trial judges order that had
declined to specify the matters to be tried and directed further proceedings on remand on that
issue. On March 30, 2009, the trial judge entered an order directing that, in advance of all
other issues in the proceeding, the issues to be determined during the trial are those issues of
fact and law in the named plaintiffs individual case, and those issues of fact and law that the
trial judge finds, after hearing the evidence, are common to the claims of the group members
that the named plaintiff has alleged that he represents.
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Notes to Consolidated Financial Statements (unaudited)
 Additional LawsuitsBased on media reports and other sources, the Company anticipates that additional VioxxProduct
Liability Lawsuits, VioxxShareholder Lawsuits and VioxxForeign Lawsuits (collectively, the
VioxxLawsuits) may be filed against it and/or certain of its current and former officers and
directors in the future.InsuranceAs previously disclosed, the Company has Directors and Officers insurance coverage applicable to
the VioxxSecurities Lawsuits and VioxxDerivative Lawsuits with stated upper limits of
approximately $190 million. The Company has Fiduciary and other insurance for the VioxxERISA
Lawsuits with stated upper limits of approximately $275 million.
As a result of the previously disclosed
arbitration, additional insurance coverage for these claims should also be available, if needed,
under upper-level excess policies that provide coverage for a variety of risks. There are
disputes with the insurers about the availability of some or all of the Companys insurance
coverage for these claims and there are likely to be additional disputes. The amounts actually
recovered under the policies discussed in this paragraph may be less than the stated upper
limits.InvestigationsAs previously disclosed, in November 2004, the Company was advised by the staff of the SEC that
it was commencing an informal inquiry concerning Vioxx.On January 28, 2005, the Company
announced that it received notice that the SEC issued a formal notice of investigation. Also,
the Company has received subpoenas from the U.S. Department of Justice (the DOJ) requesting
information related to the Companys research, marketing and selling activities with respect to
Vioxxin a federal health care investigation under criminal statutes. This investigation
includes subpoenas for witnesses to appear before a grand jury. In March 2009, Merck received a
letter from the U.S. Attorneys Office for the District of Massachusetts identifying it as a
target of the grand jury investigation regarding Vioxx. Further, as previously disclosed,
investigations are being conducted by local authorities in certain cities in Europe in order to
determine whether any criminal charges should be brought concerning Vioxx. The Company is
cooperating with these governmental entities in their respective investigations (the Vioxx
Investigations). The Company cannot predict the outcome of these inquiries; however, they
could result in potential civil and/or criminal dispositions.In addition, the Company received a subpoena in September 2006 from the State of California
Attorney General seeking documents and information related to the placement of Vioxxon
Californias Medi-Cal formulary. The Company is cooperating with the Attorney General in
responding to the subpoena.ReservesAs discussed above, on November 9, 2007, Merck entered into the Settlement Agreement with the
law firms that comprise the executive committee of the PSC of the federal VioxxMDL as well as
representatives of plaintiffs counsel in the Texas, New Jersey and California state coordinated
proceedings to resolve state and federal MI and IS claims filed as of that date in the United
States. The Settlement Agreement, which also applies to tolled claims, was signed by the
parties after several meetings with three of the four judges overseeing the coordination of more
than 95% of the current claims in the VioxxLitigation. The Settlement Agreement applies only
to U.S. legal residents and those who allege that their MI or IS occurred in the United States.
In 2007, as a result of entering into the Settlement Agreement, the Company recorded a pretax
charge of $4.85 billion which represents the fixed aggregate amount to be paid to plaintiffs
qualifying for payment under the Settlement Program.The Company currently anticipates that one U.S. VioxxProduct Liability Lawsuit will be tried
in 2009. The Company cannot predict the timing of any other trials related to the Vioxx
Litigation. The Company believes that it has meritorious defenses to the VioxxLawsuits and
will vigorously defend against them. In view of the inherent difficulty of predicting the
outcome of litigation, particularly where there are many claimants and the claimants seek
indeterminate damages, the Company is unable to predict the outcome of these matters, and at
this time cannot reasonably estimate the possible loss or range of loss with respect to the
VioxxLawsuits not included in the Settlement Program. The Company has not established any
reserves for any potential liability relating to the VioxxLawsuits not included in the
Settlement Program or the VioxxInvestigations. Unfavorable outcomes in the VioxxLitigation could have a material adverse effect
on the Companys financial position, liquidity and results of operations.Legal defense costs expected to be incurred in connection with a loss contingency are accrued
when probable and reasonably estimable. As of December 31, 2008, the Company had an aggregate
reserve of approximately $4.379 billion (the VioxxReserve) for the Settlement Program and the
Companys future legal defense costs related to the VioxxLitigation.During the first quarter of 2009, the Company spent approximately $54 million in the aggregate
in legal defense costs worldwide related to (i) the VioxxProduct Liability Lawsuits, (ii) the
VioxxShareholder Lawsuits, (iii) the VioxxForeign Lawsuits, and (iv) the VioxxInvestigations
(collectively, the VioxxLitigation). In addition, in the first quarter of 2009, the Company
paid an additional $15 million into the settlement funds in connection with the Settlement
Program. Consequently, as of March 31, 2009, the aggregate amount of the VioxxReserve was
approximately $4.310 billion, which is included in Accrued and other current
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Notes to Consolidated Financial Statements (unaudited)
 liabilities on the
Consolidated Balance Sheet. Some of the significant factors considered in the review of the
VioxxReserve were
as follows: the actual costs incurred by the Company; the development of the Companys legal
defense strategy and structure in light of the scope of the VioxxLitigation, including the
Settlement Agreement and the expectation that certain lawsuits will continue to be pending; the
number of cases being brought against the Company; the costs and outcomes of completed trials
and the most current information regarding anticipated timing, progression, and related costs of
pre-trial activities and trials in the VioxxLitigation. The amount of the VioxxReserve as of
March 31, 2009 allocated solely to defense costs represents the Companys best estimate of the
minimum amount of defense costs to be incurred in connection with the remaining aspects of the
VioxxLitigation; however, events such as additional trials in the VioxxLitigation and other
events that could arise in the course of the VioxxLitigation could affect the ultimate amount
of defense costs to be incurred by the Company.The Company will continue to monitor its legal defense costs and review the adequacy of the
associated reserves and may determine to increase the VioxxReserve at any time in the future
if, based upon the factors set forth, it believes it would be appropriate to do so.Other Product Liability LitigationAs previously disclosed, the Company is a defendant in product liability lawsuits in the United
States involving Fosamax(the FosamaxLitigation). As of March 31, 2009, approximately 856
cases, which include approximately 1,237 plaintiff groups, had been filed and were pending
against Merck in either federal or state court, including one case which seeks class action
certification, as well as damages and/or medical monitoring. In these actions, plaintiffs
allege, among other things, that they have suffered osteonecrosis of the jaw, generally
subsequent to invasive dental procedures, such as tooth extraction or dental implants and/or
delayed healing, in association with the use of Fosamax. On August 16, 2006, the JPML ordered
that the Fosamaxproduct liability cases pending in federal courts nationwide should be
transferred and consolidated into one multidistrict litigation (the FosamaxMDL) for
coordinated pre-trial proceedings. The FosamaxMDL has been transferred to Judge John Keenan in
the United States District Court for the Southern District of New York. As a result of the JPML
order, approximately 699 of the cases are before Judge Keenan. Judge Keenan has issued a Case
Management Order (and various amendments thereto) setting forth a schedule governing the
proceedings which focused primarily upon resolving the class action certification motions in
2007 and completing fact discovery in an initial group of 25 cases by October 1, 2008. Briefing
and argument on plaintiffs motions for certification of medical monitoring classes were
completed in 2007 and Judge Keenan issued an order denying the motions on January 3, 2008. On
January 28, 2008, Judge Keenan issued a further order dismissing with prejudice all class claims
asserted in the first four class action lawsuits filed against Merck that sought personal injury
damages and/or medical monitoring relief on a class wide basis. In October 2008, Judge Keenan
issued an order requiring that Daubertmotions be filed in May 2009 and scheduling trials in the
first three cases in the MDL for August 2009, October 2009, and January 2010, respectively. A
trial is scheduled in Alabama state court later in 2009.In addition, in July 2008, an application was made by the Atlantic County Superior Court of New
Jersey requesting that all of the Fosamaxcases pending in New Jersey be considered for mass
tort designation and centralized management before one judge in New Jersey. On October 6, 2008,
the New Jersey Supreme Court ordered that all pending and future actions filed in New Jersey
arising out of the use of Fosamaxand seeking damages for existing dental and jaw-related
injuries, including osteonecrosis of the jaw, but not solely seeking medical monitoring, be
designated as a mass tort for centralized management purposes before Judge Higbee in Atlantic
County Superior Court. As a result of the New Jersey Supreme Courts order, approximately 130
cases were coordinated as of March 31, 2009 before Judge Higbee, who has begun setting various
case management deadlines during the second quarter of 2009.Discovery is ongoing in both the FosamaxMDL litigation as well as in various state court cases.
The Company intends to defend against these lawsuits.As of December 31, 2008, the Company had a remaining reserve of approximately $33 million solely
for its future legal defense costs for the FosamaxLitigation. During the first quarter of
2009, the Company spent approximately $9 million. Consequently, as of March 31, 2009, the
Company had a reserve of approximately $24 million solely for its future legal defense costs for
the FosamaxLitigation. Some of the significant factors considered in the establishment of the
reserve for the FosamaxLitigation legal defense costs were as follows: the actual costs
incurred by the Company thus far; the development of the Companys legal defense strategy and
structure in light of the creation of the FosamaxMDL; the number of cases being brought against
the Company; and the anticipated timing, progression, and related costs of pre-trial activities
in the FosamaxLitigation. The Company will continue to monitor its legal defense costs and
review the adequacy of the associated reserves. Due to the uncertain nature of litigation, the
Company is unable to estimate its costs beyond the completion of the first three federal trials
discussed above. The Company has not established any reserves for any potential liability
relating to the FosamaxLitigation. Unfavorable outcomes in the FosamaxLitigation could have a
material adverse effect on the Companys financial position, liquidity and results of
operations.
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Notes to Consolidated Financial Statements (unaudited)
 Vytorin/ZetiaLitigation
 As previously disclosed, the Company and its joint venture partner, Schering-Plough, have
received several letters addressed to both companies from the House Committee on Energy and
Commerce, its Subcommittee on Oversight and Investigations
(O&I), and the Ranking Minority Member of the Senate Finance Committee, collectively seeking a
combination of witness interviews, documents and information on a variety of issues related to
the ENHANCE clinical trial, the sale and promotion of Vytorin, as well as sales of stock by
corporate officers. In addition, since August 2008, the companies have received three
additional letters from O&I, including one dated February 19, 2009, seeking certain information
and documents related to the SEAS clinical trial. As previously disclosed, the companies have
each received subpoenas from the New York and New Jersey State Attorneys General Offices and a
letter from the Connecticut Attorney General seeking similar information and documents. In
addition, the Company has received six Civil Investigative Demands (CIDs) from a multistate
group of 34 State Attorneys General who are jointly investigating whether the companies violated
state consumer protection laws when marketing Vytorin. Finally, in September 2008, the Company
received a letter from the Civil Division of the DOJ informing it that the DOJ is investigating
whether the companies conduct relating to the promotion of Vytorincaused false claims to be
submitted to federal health care programs. The Company is cooperating with these investigations
and working with Schering-Plough to respond to the inquiries. In addition, the Company has
become aware of or been served with approximately 145 civil class action lawsuits alleging
common law and state consumer fraud claims in connection with the MSP Partnerships sale and
promotion of Vytorinand Zetia. Certain of those lawsuits allege personal injuries and/or seek
medical monitoring. These actions, which have been filed in or transferred to federal court,
are coordinated in a multidistrict litigation in the U.S. District Court for the District Court
of New Jersey before District Judge Dennis M. Cavanaugh. One similar lawsuit is pending in
Pennsylvania state court. The parties are presently engaged in motions practice and briefing.Also, as previously disclosed, on April 3, 2008, a Merck shareholder filed a putative class
action lawsuit in federal court in the Eastern District of Pennsylvania alleging that Merck and
its Chairman, President and Chief Executive Officer, Richard T. Clark, violated the federal
securities laws. This suit has since been withdrawn and re-filed in the District of New Jersey
and has been consolidated with another federal securities lawsuit under the caption In re Merck
& Co., Inc. VytorinSecurities Litigation. An amended consolidated complaint was filed on
October 6, 2008 and names as defendants Merck; Merck/Schering-Plough Pharmaceuticals, LLC; and
certain of the Companys officers and directors. Specifically, the complaint alleges that Merck
delayed releasing unfavorable results of a clinical study regarding the efficacy of Vytorinand
that Merck made false and misleading statements about expected earnings, knowing that once the
results of the Vytorinstudy were released, sales of Vytorinwould decline and Mercks earnings
would suffer. On April 22, 2008, a member of a Merck ERISA plan filed a putative class action
lawsuit against the Company and certain of its officers and directors alleging they breached
their fiduciary duties under ERISA. Since that time, there have been other similar ERISA
lawsuits filed against the Company in the District of New Jersey, and all of those lawsuits have
been consolidated under the caption In re Merck & Co., Inc. VytorinERISA Litigation. An
amended consolidated complaint was filed on February 5, 2009, and names as defendants Merck and
various members of Mercks Board of Directors and members of committees of Mercks Board of
Directors. Plaintiffs allege that the ERISA plans investment in Company stock was imprudent
because the Companys earnings are dependent on the commercial success of its cholesterol drug
Vytorinand that defendants knew or should have known that the results of a scientific study
would cause the medical community to turn to less expensive drugs for cholesterol management.
The Company intends to defend the lawsuits referred to in this section vigorously. Unfavorable
outcomes resulting from the government investigations or the civil litigation could have a
material adverse effect on the Companys financial position, liquidity and results of
operations.In November 2008, the individual shareholder who had previously delivered a letter to the
Companys Board of Directors demanding that the Board take legal action against the responsible
individuals to recover the amounts paid by the Company in 2007 to resolve certain governmental
investigations delivered another letter to the Board demanding that the Board or a subcommittee
thereof commence an investigation into the matters raised by various civil suits and
governmental investigations relating to Vytorin.Patent LitigationFrom time to time, generic manufacturers of pharmaceutical products file Abbreviated New Drug
Applications (ANDAs) with the FDA seeking to market generic forms of the Companys products
prior to the expiration of relevant patents owned by the Company. Generic pharmaceutical
manufacturers have submitted ANDAs to the FDA seeking to market in the United States a generic
form of Fosamax, Nexium, Singulair, Primaxinand Emendprior to the expiration of the Companys
(and AstraZenecas in the case of Nexium) patents concerning these products. In addition, an
ANDA has been submitted to the FDA seeking to market in the United States a generic form of
Zetiaprior to the expiration of Schering-Ploughs patent concerning that product. The generic
companies ANDAs generally include allegations of non-infringement, invalidity and
unenforceability of the patents. The Company has filed patent infringement suits in federal
court against companies filing ANDAs for generic alendronate (Fosamax), montelukast
(Singulair), imipenem/cilastatin (Primaxin) and AstraZeneca and the Company have filed patent
infringement suits in federal court against companies filing ANDAs for generic esomeprazole
(Nexium). Also, the Company and Schering-Plough have filed a patent infringement suit in
federal court against companies filing ANDAs for generic ezetimibe (Zetia). Similar patent
challenges exist in certain foreign jurisdictions. The Company intends to vigorously defend its
patents, which it believes are valid, against infringement by generic companies attempting to
market products prior to the
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Notes to Consolidated Financial Statements (unaudited)
 expiration dates of such patents. As with any litigation, there
can be no assurance of the outcomes, which, if adverse, could result in significantly shortened
periods of exclusivity for these products.As previously disclosed, in February 2007, the Company received a notice from Teva
Pharmaceuticals, Inc. (Teva), a generic company, indicating that it had filed an ANDA for
montelukast and that it is challenging the U.S. patent that is listed for Singulair. On April
2, 2007, the Company filed a patent infringement action against Teva. The lawsuit automatically
stays FDA approval of Tevas ANDA until August 2009 or until an adverse court decision, if any,
whichever may occur earlier. A trial in this matter was held in February 2009. The Company is
awaiting the courts decision which the Company expects to receive before the stay expires in
August 2009.As previously disclosed, in September 2004, the Company appealed a decision of the Opposition
Division of the European Patent Office (EPO) that revoked the Companys patent in Europe that
covers the once-weekly administration of alendronate. On March 14, 2006, the Board of Appeal of
the EPO upheld the decision of the Opposition Division revoking the patent. On March 28, 2007,
the EPO issued another patent in Europe to the Company that covers the once-weekly
administration of alendronate. Under its terms, this new patent is effective until July 2018.
The Company has sued multiple parties in European countries asserting its European patent
covering once-weekly dosing of Fosamax. Oppositions have been filed in the EPO against this
patent. In a hearing held March 17-18, 2009, the Opposition Division of the EPO issued an
appealable decision revoking this patent. The Company is currently considering its options.In January 2009, the Company received notice that an ANDA was filed with the FDA for aprepitant
which contained a Paragraph IV challenge to patents on Emend. The Company is evaluating the
information provided with the notice to determine what action should be taken.Other LitigationThere 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 such proceedings or the proceedings discussed in this Note, 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 that would have a material adverse effect on the
financial position, liquidity or results of operations of the Company, other than proceedings
for which a separate assessment is provided in this Note.12.
    
    Stockholders Equity
 CommonStock
    
    Common
    
    
    
    
    
    Treasury
    
    TreasuryShares
    
    Stock
    
    Other Paid-In
    
    Stock
    
    Stock(in millions)
    
    Issued
    
    at Cost
    
    Capital
    
    Shares
    
    at CostBalance at January 1, 2008
    
    
    2,983.5
    
    
    $
    29.8
    
    
    $
    8,014.9
    
    
    
    811.0
    
    
    $
    28,174.7Employee share-based compensation plans
    
    
    
    
    
    
    
    
    
    
    61.6
    
    
    
    (3.1
    )
    
    
    (110.1
    )Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29.1
    
    
    
    1,377.8Balance at March 31, 2008
    
    
    2,983.5
    
    
    $
    29.8
    
    
    $
    8,076.5
    
    
    
    837.0
    
    
    $
    29,442.4Balance at January 1, 2009
    
    
    2,983.5
    
    
    $
    29.8
    
    
    $
    8,319.1
    
    
    
    875.8
    
    
    $
    30,735.5Employee share-based compensation plans
    
    
    
    
    
    
    
    
    
    
    67.7
    
    
    
    (1.0
    )
    
    
    (34.3
    )Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at March 31, 2009
    
    
    2,983.5
    
    
    $
    29.8
    
    
    $
    8,386.8
    
    
    
    874.8
    
    
    $
    30,701.2
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Notes to Consolidated Financial Statements (unaudited)
 The accumulated balances related to each component of other comprehensive income (loss), net of
taxes, were as follows:
 AccumulatedEmployee
    
    Cumulative
    
    OtherBenefit
    
    Translation
    
    Comprehensive($ in millions)
    
    Derivatives
    
    Investments
    
    Plans
    
    Adjustment
    
    Income (Loss)Balance at January 1, 2008
    
    $
    (39.7
    )
    
    $
    143.6
    
    
    $
    (992.9
    )
    
    $
    62.9
    
    
    $
    (826.1
    )Other comprehensive income (loss)
    
    
    (17.5
    )
    
    
    10.6
    
    
    
    50.4
    
    
    
    18.2
    
    
    
    61.7Balance at March 31, 2008
    
    $
    (57.2
    )
    
    $
    154.2
    
    
    $
    (942.5
    )
    
    $
    81.1
    
    
    $
    (764.4
    )Balance at January 1, 2009
    
    $
    111.9
    
    
    $
    63.1
    
    
    $
    (2,754.6
    )
    
    $
    25.7
    
    
    $
    (2,553.9
    )Other comprehensive income (loss)
    
    
    43.6
    
    
    
    20.9
    
    
    
    24.8
    
    
    
    (8.2
    )
    
    
    81.1Balance at March 31, 2009
    
    $
    155.5
    
    
    $
    84.0
    
    
    $
    (2,729.8
    )
    
    $
    17.5
    
    
    $
    (2,472.8
    )
 Comprehensive income was $1,506.1 million and $3,364.3 million for the three months ended March
31, 2009 and 2008, respectively.The reconciliation of noncontrolling interest was as follows:
 ($ in millions)
    
    2009
    
    2008-Balance at January 1
    
    $
    2,408.8
    
    
    $
    2,406.7Net income attributable to noncontrolling interest
    
    
    30.8
    
    
    
    31.9Distributions
    
    
    (1.4
    )
    
    
    (1.5
    )Other
    
    
    0.3
    
    
    
    0.3-Balance at March 31
    
    $
    2,438.5
    
    
    $
    2,437.4
 In connection with the 1998 restructuring of Astra Merck Inc., the Company assumed $2.4 billion par value
preferred stock with a dividend rate of 5% per annum, which is carried by KBI and included in
Noncontrolling Interests with Stockholders Equity on the Consolidated Balance Sheet. The
increase in Noncontrolling Interests during the first quarter of 2009 is attributable to the
dividends for the quarter, which have been accrued, but not yet paid. While a small portion of
the preferred stock carried by KBI is convertible into KBI common shares, none of the preferred
securities are convertible into the Companys common shares and, therefore, are not included as
common shares issuable for purposes of computing Earnings per common share assuming dilution
(see Note 17).13.
    
    Share-Based CompensationThe Company has share-based compensation plans under which employees, non-employee directors and
employees of certain of the Companys equity method investees may be granted options to purchase shares of Company common stock at the fair market value at the time of grant. In addition to
stock options, the Company grants performance share units (PSUs) and restricted stock units
(RSUs) to certain management-level employees. The Company recognizes the fair value of
share-based compensation in net income on a straight-line basis over the requisite service
period.The following table provides amounts of share-based compensation cost recorded in the
Consolidated Statement of Income:
 Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Pretax share-based compensation expense
    
    $
    113.3
    
    
    $
    91.0Income tax benefits
    
    
    (36.4
    )
    
    
    (28.7
    )Total share-based compensation expense, net of tax
    
    $
    76.9
    
    
    $
    62.3
 During the first three months of 2009 and 2008, the Company granted 1.5 million options and 32.4
million options, respectively, related to its annual grant and other grants. The decrease in
the current year is due primarily to a change in the annual grant date, in which options will be
granted in second quarter of 2009 compared with the prior year when options were granted in the
first quarter of 2008. The weighted average fair value of options granted for the first three
months of 2009 and 2008 was $5.87 and $10.20 per option, respectively, and was determined using
the following assumptions:
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Notes to Consolidated Financial Statements (unaudited)
 Three Months EndedMarch 31,2009
    
    2008Expected dividend yield
    
    
    5.1
    %
    
    
    3.4
    %Risk-free interest rate
    
    
    2.1
    %
    
    
    2.7
    %Expected volatility
    
    
    34.0
    %
    
    
    30.8
    %Expected life (years)
    
    
    6.0
    
    
    
    6.1
 At March 31, 2009, there was $415.9 million of total pretax unrecognized compensation expense
related to nonvested stock options, RSU and PSU awards which will be recognized over a weighted
average period of 2.0 years. For segment reporting, share-based compensation costs are
unallocated expenses.14.
    
    Pension and Other Postretirement Benefit PlansThe Company has defined benefit pension plans covering eligible employees in the United States
and in certain of its international subsidiaries. The net cost of such plans consisted of the
following components:
 Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Service cost
    
    $
    95.3
    
    
    $
    92.7Interest cost
    
    
    101.9
    
    
    
    107.3Expected return on plan assets
    
    
    (151.1
    )
    
    
    (148.0
    )Net amortization
    
    
    30.9
    
    
    
    22.6Termination benefits
    
    
    22.6
    
    
    
    5.5Curtailments
    
    
    (3.5
    )
    
    
    Settlements
    
    
    3.0
    
    
    
    $
    99.1
    
    
    $
    80.1
 The Company provides medical, dental and life insurance benefits, principally to its eligible
U.S. retirees and similar benefits to their dependents, through its other postretirement benefit
plans. The net cost of such plans consisted of the following components:
 Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Service cost
    
    $
    18.9
    
    
    $
    22.2Interest cost
    
    
    25.7
    
    
    
    30.8Expected return on plan assets
    
    
    (23.8
    )
    
    
    (34.6
    )Net amortization
    
    
    5.6
    
    
    
    (3.8
    )Termination benefits
    
    
    6.4
    
    
    
    1.2Curtailments
    
    
    0.3
    
    
    
    (0.6
    )$
    33.1
    
    
    $
    15.2
 In connection with restructuring actions (see Note 3), the Company recorded termination charges
for the three months ended March 31, 2009 and 2008 on its pension and other postretirement
benefit plans related to expanded eligibility for certain employees exiting the Company. Also,
in connection with these restructuring actions, the Company recorded curtailments on its pension
plans for the three months ended March 31, 2009 and on its other postretirement benefit plans
for the three months ended March 31, 2009 and 2008. In addition, the Company recorded
settlement losses on its pension plans for the three months ended March 31, 2009.
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Notes to Consolidated Financial Statements (unaudited)
 15.
    
    Other (Income) Expense, NetOther (income) expense, net, consisted of:
 Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Interest income
    
    $
    (96.3
    )
    
    $
    (169.5
    )Interest expense
    
    
    60.7
    
    
    
    72.6Exchange losses (gains)
    
    
    16.5
    
    
    
    12.6Other, net
    
    
    (48.1
    )
    
    
    (2,124.9
    )$
    (67.2
    )
    
    $
    (2,209.2
    )
 Other, net in 2008 primarily reflects an aggregate gain from AZLP of $2.2 billion (see Note 9)
and a gain of $249 million related to the sale of the Companys remaining worldwide rights to
Aggrastat, partially offset by a $300 million expense for a contribution to the Merck Company
Foundation, and a $55 million charge related to the resolution of an investigation into whether
the Company violated state consumer protection laws with respect to the sales and marketing of
Vioxx. Interest paid for the three months ended March 31, 2009 and 2008 was $59.7 million and
$68.9 million, respectively.16.
    
    Taxes on IncomeThe effective tax rate of 18.4% for the first quarter of 2009 reflects a net favorable impact of
approximately 5 percentage points resulting from the previously disclosed settlement reached
with the Canada Revenue Agency (CRA) and restructuring charges. The effective tax rate of
24.9% for the first quarter of 2008 reflects the unfavorable impact of the AZLP gain (see Note
9) being fully taxable in the United States at a combined federal and state tax rate of
approximately 36.3%, partially offset by the favorable impact of approximately 4 percentage
points relating to the first quarter 2008 realization of foreign tax credits. In the first
quarter of 2008, the Company decided to distribute certain prior years foreign earnings to the
United States which resulted in the utilization of foreign tax credits. These foreign tax
credits arose as a result of tax payments made outside of the United States in prior years that
became realizable based on a change in the Companys decision to distribute these foreign
earnings.As previously disclosed, in October 2006, the CRA issued the Company a notice of reassessment
containing adjustments related to certain intercompany pricing matters. In February 2009, Merck
and the CRA negotiated a settlement agreement in regard to these matters. In accordance with
the settlement, Merck paid an additional tax of approximately $300 million (U.S. dollars) and
interest of approximately $360 million (U.S. dollars) with no additional amounts or penalties
due on this assessment. In accordance with FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109,(FIN 48), the
settlement was accounted for in the first quarter of 2009. The Company had previously
established reserves for these matters. A significant portion of the taxes paid is expected to
be creditable for U.S. tax purposes. The resolution of these matters did not have a material
effect on the Companys financial position or liquidity, other than with respect to the
associated collateral as discussed below.In addition, in July 2007 and November 2008, the CRA proposed additional adjustments for 1999
and 2000, respectively, relating to other intercompany pricing matters. The adjustments would
increase Canadian tax due by approximately $260 million (U.S. dollars) plus $250 million (U.S.
dollars) of interest through March 31, 2009. It is possible that the CRA will propose similar
adjustments for later years. The Company disagrees with the positions taken by the CRA and
believes they are without merit. The Company intends to contest the assessments through the CRA
appeals process and the courts if necessary. Management believes that resolution of these
matters will not have a material effect on the Companys financial position or liquidity.
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Notes to Consolidated Financial Statements (unaudited)
 In connection with the appeals process for the matters discussed above, during 2007, the Company
pledged collateral to two financial institutions, one of which provided a guarantee to the CRA
and the other to the Quebec Ministry of Revenue representing a portion of the tax and interest
assessed. As a result of the settlement noted above, guarantees required to appeal the disputes
were reduced or eliminated and approximately $800 million of associated collateral was released
and reclassified from Other Assets to Cash and cash equivalents and Short-term investments.
Approximately $150 million additional cash and securities were released from collateral in April
2009. Certain of the cash and investments continue to be collateralized for guarantees required
to appeal other Canadian tax disputes. The collateral is included in Deferred income taxes and
other current assets and Other Assets in the Consolidated Balance Sheet and totaled
approximately $400 million and $1.2 billion at March 31, 2009 and December 31, 2008,
respectively.17.
    
    Earnings Per ShareEffective January 1, 2009, the Company adopted FSP EITF 03-6-1,which states that unvested
share-based payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are considered participating securities and shall be
included in the computation of earnings per share pursuant to the two-class method. The
two-class method is an earnings allocation formula that treats a participating security as
having rights to earnings that would otherwise have been available to common shareholders. The
provisions of this FSP are retrospective; therefore prior periods have been restated. RSUs
granted by the Company to certain management level employees (see Note 13) participate in
dividends on the same basis as common shares and are nonforfeitable by the holder. As a result,
these RSUs meet the definition of a participating security.The calculations of earnings per share under the two-class method are as follows:
 Three Months EndedMarch 31,2009
    
    2008Basic Earnings per Common Share:Net Income Attributable to Merck & Co., Inc.
    
    $
    1,425.0
    
    
    $
    3,302.6Less: Income allocated to participating securities
    
    
    4.1
    
    
    
    8.4Net income available to common shareholders
    
    
    1,420.9
    
    
    
    3,294.2Average common shares outstanding
    
    
    2,107.9
    
    
    
    2,160.3$
    0.67
    
    
    $
    1.52Earnings per Common Share Assuming Dilution:Net Income Attributable to Merck & Co., Inc.
    
    $
    1,425.0
    
    
    $
    3,302.6Less: Income allocated to participating securities
    
    
    4.1
    
    
    
    8.4Net income available to common shareholders
    
    
    1,420.9
    
    
    
    3,294.2Average common shares outstanding
    
    
    2,107.9
    
    
    
    2,160.3Common shares issuable (1)
    
    
    1.3
    
    
    
    12.1Average common shares outstanding assuming dilution
    
    
    2,109.2
    
    
    
    2,172.4$
    0.67
    
    
    $
    1.52
 
 (1)
    
    Issuable primarily under share-based compensation plans.
 For the three months ended March 31, 2009 and 2008, 229.8 million and 202.8 million,
respectively, of common shares issuable under the Companys share-based compensation plans were
excluded from the computation of earnings per common share assuming dilution because the effect
would have been antidilutive.
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Notes to Consolidated Financial Statements (unaudited)


18.
    
    Segment ReportingThe Companys operations are principally managed on a products basis and are comprised of two
reportable segments: the Pharmaceutical segment and the Vaccines and Infectious Diseases
segment. The Pharmaceutical segment includes human health pharmaceutical products marketed
either directly by Merck or through joint ventures. These products consist of therapeutic and
preventive agents, sold by prescription, for the treatment of human disorders. Merck sells
these human health pharmaceutical products primarily to drug wholesalers and retailers,
hospitals, government agencies and managed health care providers such as health maintenance
organizations, pharmacy benefit managers and other institutions. The Vaccines and Infectious
Diseases segment includes human health vaccine and infectious disease products marketed either
directly by Merck or, in the case of vaccines, through a joint venture. Vaccine products
consist of preventive pediatric, adolescent and adult vaccines, primarily administered at
physician offices. Merck sells these human health vaccines primarily to physicians,
wholesalers, physician distributors and government entities. A large component of pediatric and
adolescent vaccines is sold to the U.S. Centers for Disease Control and Prevention Vaccines for
Children program, which is funded by the U.S. government. Infectious disease products consist
of therapeutic agents for the treatment of infection sold primarily to drug wholesalers and
retailers, hospitals and government agencies. The Vaccines and Infectious Diseases segment
includes the majority of the Companys vaccine and infectious disease product sales, but
excludes sales of these products by non-U.S. subsidiaries which are included in the
Pharmaceutical segment.Other segments include other non-reportable human and animal health segments.Revenues and profits for these segments are as follows:


Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Segment revenues:Pharmaceutical segment
    
    $
    4,485.6
    
    
    $
    4,811.4Vaccines and Infectious Diseases segment
    
    
    859.7
    
    
    
    985.6Other segment revenues
    
    
    11.1
    
    
    
    25.0$
    5,356.4
    
    
    $
    5,822.0Segment profits:(1)Pharmaceutical segment
    
    $
    2,964.4
    
    
    $
    3,119.3Vaccines and Infectious Diseases segment
    
    
    578.6
    
    
    
    624.6Other segment profits
    
    
    141.5
    
    
    
    145.9$
    3,684.5
    
    
    $
    3,889.8




(1)
    
    Includes the majority of Equity income from affiliates.


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##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 Sales (1) of the Companys products were as follows:
 Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Pharmaceutical:Singulair
    
    $
    1,057.2
    
    
    $
    1,103.8Cozaar/Hyzaar
    
    
    839.2
    
    
    
    846.9Januvia
    
    
    411.1
    
    
    
    272.1Fosamax
    
    
    261.3
    
    
    
    469.8Zocor
    
    
    137.4
    
    
    
    179.1Maxalt
    
    
    133.2
    
    
    
    121.6Janumet
    
    
    128.5
    
    
    
    58.4Cosopt/Trusopt
    
    
    121.1
    
    
    
    201.3Propecia
    
    
    102.8
    
    
    
    105.0Arcoxia
    
    
    81.3
    
    
    
    93.4Vasotec/Vaseretic
    
    
    77.1
    
    
    
    95.7Proscar
    
    
    72.1
    
    
    
    85.0Emend
    
    
    69.2
    
    
    
    59.6Other pharmaceutical(2)
    
    
    469.4
    
    
    
    589.9Vaccine and infectious disease product sales
included in the Pharmaceutical segment (3)
    
    
    524.7
    
    
    
    529.8Pharmaceutical segment revenues
    
    
    4,485.6
    
    
    
    4,811.4Vaccines(4)and Infectious Diseases:Gardasil
    
    
    262.0
    
    
    
    390.4ProQuad/M-M-R II/Varivax
    
    
    252.0
    
    
    
    225.6RotaTeq
    
    
    134.4
    
    
    
    190.1Zostavax
    
    
    75.2
    
    
    
    73.5Hepatitis vaccines
    
    
    34.5
    
    
    
    33.9Other vaccines
    
    
    55.5
    
    
    
    72.6Primaxin
    
    
    164.5
    
    
    
    202.6Isentress
    
    
    148.1
    
    
    
    46.5Cancidas
    
    
    138.7
    
    
    
    148.9Invanz
    
    
    61.7
    
    
    
    55.5Crixivan/Stocrin
    
    
    49.1
    
    
    
    75.3Other infectious disease
    
    
    8.7
    
    
    
    0.5Vaccine and infectious disease product sales
included in the Pharmaceutical segment (3)
    
    
    (524.7
    )
    
    
    (529.8
    )Vaccines and Infectious Diseases segment revenues
    
    
    859.7
    
    
    
    985.6Other segment revenues(5)
    
    
    11.1
    
    
    
    25.0Total segment revenues
    
    
    5,356.4
    
    
    
    5,822.0Other (6)
    
    
    28.8
    
    
    
    0.1$
    5,385.2
    
    
    $
    5,822.1
 
 (1)
    
    Presented net of discounts and returns.(2)
    
    Other pharmaceutical primarily includes sales of other human pharmaceutical
products and revenue from the Companys relationship with AstraZeneca LP primarily relating
to sales ofNexium, as well asPrilosec. Revenue from AstraZeneca LP was $355.7 million
and $404.7 million for the first quarter of 2009 and 2008, respectively.(3)
    
    Sales of vaccine and infectious disease products by non-U.S. subsidiaries are
included in the Pharmaceutical segment.(4)
    
    These amounts do not reflect sales of vaccines sold in most major European
markets through the Companys joint venture, Sanofi Pasteur MSD, the results of which are
reflected in Equity income from affiliates. These amounts do, however, reflect supply
sales to Sanofi Pasteur MSD.(5)
    
    Includes other non-reportable human and animal health segments.(6)
    
    Other revenues are primarily comprised of miscellaneous corporate revenues, sales
related to divested products or businesses and other supply sales not included in segment
results.
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##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 A reconciliation of segment profits to Income Before Taxes is as follows:
 Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Segment profits
    
    $
    3,684.5
    
    
    $
    3,889.8Other profits
    
    
    (20.3
    )
    
    
    (12.1
    )Adjustments
    
    
    87.4
    
    
    
    98.8Unallocated:Interest income
    
    
    96.3
    
    
    
    169.5Interest expense
    
    
    (60.7
    )
    
    
    (72.6
    )Equity income from affiliates
    
    
    23.9
    
    
    
    15.1Depreciation and amortization
    
    
    (421.7
    )
    
    
    (363.1
    )Research and development
    
    
    (1,224.2
    )
    
    
    (1,078.3
    )Gain on distribution from AstraZeneca LP
    
    
    
    
    
    
    2,222.7Other expenses, net
    
    
    (382.2
    )
    
    
    (426.9
    )$
    1,783.0
    
    
    $
    4,442.9
 Segment profits are comprised of segment revenues less certain elements of materials and
production costs and operating expenses, including the majority of equity income from affiliates
and components of depreciation and amortization expenses. For internal management reporting
presented to the chief operating decision maker, the Company does not allocate the vast majority
of research and development expenses, general and administrative expenses, depreciation related
to fixed assets utilized by nonmanufacturing divisions, as well as the cost of financing these
activities. Separate divisions maintain responsibility for monitoring and managing these costs
and, therefore, they are not included in segment profits.Other profits are primarily comprised of miscellaneous corporate profits as well as operating
profits related to divested products or businesses and other supply sales. Adjustments
represent the elimination of the effect of double counting certain items of income and expense.
Equity income from affiliates includes taxes paid at the joint venture level and a portion of
equity income that is not reported in segment profits. Other expenses, net, includes expenses
from corporate and manufacturing cost centers and other miscellaneous income (expense), net.
 - 35 -




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Merger Agreement with Schering-Plough Corporation
  Operating Results
 Sales
 Fosamax Fosamax Fosamax Plus D Gardasil Cosopt Trusopt RotaTeq Singulair, Zocor Primaxin Januvia Janumet Isentress,
 
 *
    
    Cozaarand Hyzaarare registered trademarks of E.I. duPont de Nemours & Company, Wilmington,
Delaware. - 36 -




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##### Table of Contents



Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Pharmaceutical:Singulair
    
    $
    1,057.2
    
    
    $
    1,103.8Cozaar/Hyzaar
    
    
    839.2
    
    
    
    846.9Januvia
    
    
    411.1
    
    
    
    272.1Fosamax
    
    
    261.3
    
    
    
    469.8Zocor
    
    
    137.4
    
    
    
    179.1Maxalt
    
    
    133.2
    
    
    
    121.6Janumet
    
    
    128.5
    
    
    
    58.4Cosopt/Trusopt
    
    
    121.1
    
    
    
    201.3Propecia
    
    
    102.8
    
    
    
    105.0Arcoxia
    
    
    81.3
    
    
    
    93.4Vasotec/Vaseretic
    
    
    77.1
    
    
    
    95.7Proscar
    
    
    72.1
    
    
    
    85.0Emend
    
    
    69.2
    
    
    
    59.6Other pharmaceutical(1)
    
    
    469.4
    
    
    
    589.9Vaccine and infectious disease product sales
included in the Pharmaceutical segment (2)
    
    
    524.7
    
    
    
    529.8Pharmaceutical segment revenues
    
    
    4,485.6
    
    
    
    4,811.4Vaccines(3)and Infectious Diseases:Gardasil
    
    
    262.0
    
    
    
    390.4ProQuad/M-M-R II/Varivax
    
    
    252.0
    
    
    
    225.6RotaTeq
    
    
    134.4
    
    
    
    190.1Zostavax
    
    
    75.2
    
    
    
    73.5Hepatitis vaccines
    
    
    34.5
    
    
    
    33.9Other vaccines
    
    
    55.5
    
    
    
    72.6Primaxin
    
    
    164.5
    
    
    
    202.6Isentress
    
    
    148.1
    
    
    
    46.5Cancidas
    
    
    138.7
    
    
    
    148.9Invanz
    
    
    61.7
    
    
    
    55.5Crixivan/Stocrin
    
    
    49.1
    
    
    
    75.3Other infectious disease
    
    
    8.7
    
    
    
    0.5Vaccine and infectious disease product sales
included in the Pharmaceutical segment (2)
    
    
    (524.7
    )
    
    
    (529.8
    )Vaccines and Infectious Diseases segment revenues
    
    
    859.7
    
    
    
    985.6Other segment revenues(4)
    
    
    11.1
    
    
    
    25.0Total segment revenues
    
    
    5,356.4
    
    
    
    5,822.0Other (5)
    
    
    28.8
    
    
    
    0.1$
    5,385.2
    
    
    $
    5,822.1
 
 (1)
    
    Other pharmaceutical primarily includes sales of other human pharmaceutical products
and revenue from the Companys relationship with AZLP primarily relating to sales ofNexium,
as well asPrilosec. Revenue from AZLP was $355.7 million and $404.7 million for the first
quarter of 2009 and 2008, respectively.(2)
    
    Sales of vaccine and infectious disease products by non-U.S. subsidiaries are
included in the Pharmaceutical segment.(3)
    
    These amounts do not reflect sales of vaccines sold in most major European markets
through the Companys joint venture, Sanofi Pasteur MSD, the results of which are reflected in
Equity income from affiliates. These amounts do, however, reflect supply sales to Sanofi
Pasteur MSD.(4)
    
    Includes other non-reportable human and animal health segments.(5)
    
    Other revenues are primarily comprised of miscellaneous corporate revenues, sales
related to divested products or businesses and other supply sales not included in segment
results.  - 37 -




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##### Table of Contents



Pharmaceutical Segment Revenues
 Fosamax, Cosopt,
Trusopt, Singulair, Zocor Januvia,
Janumet Isentress
 Singulair Singulair
 Cozaar Hyzaar Hyzaar Preminent) Cozaar Hyzaar
 Januvia Januvia
 Janumet Januvia Janumet Janumet Janumet
 Fosamax Fosamax Plus D Fosavance Fosamac Fosamax
 Zocor Zocor
 Cosopt Trusopt Cosopt Trusopt
 Timoptic Timoptic
 Vaccines and Infectious Diseases Segment Revenues
 Gardasil, RotaTeq Primaxin Isentress Varivax.
  - 38 -




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##### Table of Contents



Gardasil Gardasil,
 Gardasil Gardasil Gardasil Gardasil
 Varivax Zostavax Varivax Zostavax ProQuad M-M-R Varivax ProQuad
 Varivax Varivax ProQuad M-M-R ProQuad M-M-R Varivax
 RotaTeq RotaTeq
 Zostavax Zostavax
 Primaxin Primaxin
 Isentress Isentress Isentress Isentress Isentress Isentress
 - 39 -




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##### Table of Contents



Costs, Expenses and Other
  Employers Accounting for Postemployment Benefits  an amendment of FASB Statement No. 5
and 43 Accounting for Costs Associated with Exit or
Disposal Activities
    Fosamax Cosopt/Trusopt
 Fosamax
 - 40 -




---



##### Table of Contents



Clostridium
difficile C. difficile
  - 41 -




---



##### Table of Contents



Business Combinations
  Zetia Vytorin
 - 42 -




---



##### Table of Contents



Aggrastat Vioxx
 Segment Profits
 Three Months EndedMarch 31,($ in millions)
    
    2009
    
    2008Pharmaceutical segment
    
    $
    2,964.4
    
    
    $
    3,119.3Vaccines and Infectious Diseases segment
    
    
    578.6
    
    
    
    624.6Other segment
    
    
    141.5
    
    
    
    145.9Other
    
    
    (1,901.5
    )
    
    
    553.1Income before income taxes
    
    $
    1,783.0
    
    
    $
    4,442.9
  Fosamax, Cosopt and Trusopt,
 Gardasil RotaTeq
   Selected Joint Venture and Affiliate Information
 Merck/Schering-Plough Partnership
 Zetia Vytorin Zetia Ezetrol Vytorin Inegy Zetia Vytorin
 - 43 -




---



##### Table of Contents



Zetia Vytorin
 Zetia Vytorin.
 AstraZeneca LP
   Nexium Prilosec
  Sanofi Pasteur MSD
 Gardasil Gardasil
  Liquidity and Capital Resources
 March 31,
    
    December 31,($ in millions)
    
    2009
    
    2008Cash and investments (1)
    
    $
    12,660.3
    
    
    $
    11,977.7Working capital
    
    $
    12,768.7
    
    
    $
    4,793.9Total debt to total liabilities and equity
    
    
    14.5
    %
    
    
    13.2
    %
 (1)
    
    In addition, the Company had $5.6 billion and
$6.3 billion of cash and investments at March 31, 2009 and
December 31, 2008, respectively,
restricted under certain collateral obligations as discussed below and in Note 10 to the
consolidated financial statements.   - 44 -




---



##### Table of Contents



Vioxx
 Vioxx
 Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109,
      - 45 -




---



##### Table of Contents




    
    a $3 billion 364-day senior unsecured interim term loan facility (the bridge loan
facility);
    
    a $3 billion 364-day asset sale revolving credit facility (the asset sale facility);
and
    
    a $1 billion 364-day corporate revolving credit facility (the incremental facility).
  Financial Instruments and Market Risk Disclosure
  Critical Accounting Policies
  Fair Value Measurements
 Fair Value Measurements,
 - 46 -




---



##### Table of Contents



Recently Issued Accounting Standards
 Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly
 Recognition and Presentation
of Other-Than-Temporary Impairments
 Interim Disclosures
about Fair Value of Financial Instruments
 Employers Disclosures about
Postretirement Benefit Plan Assets Employers Disclosures about Pensions and other
Postretirement Benefits,
 Legal Proceedings
  Vioxx Litigation
 Product Liability Lawsuits
 Vioxx Vioxx Vioxx
 - 47 -




---



##### Table of Contents



Vioxx
 Vioxx
 Vioxx Vioxx
  Vioxx
   - 48 -




---



##### Table of Contents



Vioxx Vioxx
   Vioxx Vioxx
  - 49 -




---



##### Table of Contents



en banc
  Other Lawsuits
 Vioxx Vioxx Vioxx
  Vioxx Vioxx. Vioxx.
  qui tam Vioxx Vioxx Vioxx
  Shareholder Lawsuits
 Vioxx Vioxx Vioxx Vioxx Vioxx
 - 50 -




---



##### Table of Contents



en banc,
 Vioxx Vioxx
 Vioxx
 Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx Vioxx
 - 51 -




---



##### Table of Contents



International Lawsuits
 Vioxx Vioxx
 Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx
 Additional Lawsuits
 Vioxx Vioxx Vioxx Vioxx
 Insurance
 Vioxx Vioxx Vioxx
 Investigations
 Vioxx. Vioxx Vioxx Vioxx
 - 52 -




---



##### Table of Contents



Vioxx
 Vioxx
 Reserves
 Vioxx Vioxx
 Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx Vioxx
 Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx
 Other Product Liability Litigation
 Fosamax Fosamax Fosamax Fosamax Fosamax Fosamax
 - 53 -




---



##### Table of Contents



Daubert
 Fosamax Fosamax
 Fosamax
 Fosamax Fosamax Fosamax Fosamax Fosamax Fosamax Fosamax
 Vytorin/Zetia Litigation
 Vytorin Vytorin Vytorin Vytorin Zetia
 Vytorin Vytorin Vytorin Vytorin
 - 54 -




---



##### Table of Contents



Vytorin Vytorin
 Vytorin
 Patent Litigation
 Fosamax, Nexium, Singulair, Primaxin Emend Nexium Zetia Fosamax Singulair Primaxin Nexium Zetia
 Singulair
 Fosamax
 Emend
 Other Litigation
  - 55 -




---



##### Table of Contents



Item 4. Controls and Procedures
  CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
   - 56 -




---



##### Table of Contents



PART II   Other Information
 
 Item 1. Legal Proceedings
  
  Risk Factors Relating to the Merger with Schering-Plough Corporation
 The pending merger with Schering-Plough is subject to the receipt of certain required clearances or
approvals from governmental entities that could delay the completion of the merger or impose
conditions that could have a material adverse effect on the combined company.
  Any
delay in completing the pending merger with Schering-Plough beyond
the fourth quarter of 2009 may reduce or eliminate the
benefits expected.
  Mercks inability to obtain the financing necessary to complete the transaction could delay or
prevent the completion of our pending merger with Schering-Plough.
   - 57 -




---



##### Table of Contents



The combined company may fail to realize the anticipated cost savings, revenue enhancements and
other benefits expected from the merger, which could adversely affect the value of the combined
companys common stock after the merger.
    
    
    integrating the research and development, manufacturing, distribution, marketing and
promotion activities and information technology systems of Merck and Schering-Plough;
    
    conforming standards, controls, procedures and policies, business cultures and
compensation structures between the companies;
    
    consolidating corporate and administrative infrastructures;
    
    consolidating sales and marketing operations;
    
    retaining existing customers and attracting new customers;
    
    identifying and eliminating redundant and underperforming operations and assets;
    
    coordinating geographically dispersed organizations;
    
    managing tax costs or inefficiencies associated with integrating the operations of
the combined company; and
    
    making any necessary modifications to operating control standards to comply with the
Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder.
    We, Schering-Plough and the combined company will incur significant transaction and merger related
transition costs in connection with the merger.
  - 58 -




---



##### Table of Contents



We and Schering-Plough will be subject to business uncertainties and contractual restrictions while
the merger is pending which could adversely affect our respective businesses.
  Merck, Schering-Plough and, subsequently, the combined company must continue to retain, motivate
and recruit executives and other key employees, which may be difficult in light of uncertainty
regarding the merger, and failure to do so could negatively affect the combined company.
  The indebtedness of the combined company following the completion of the merger will be
substantially greater than our indebtedness on a stand-alone basis and greater than the combined
indebtedness of Merck and Schering-Plough existing prior to the transaction. This increased level
of indebtedness could adversely affect the combined company, including by reducing funds available
for other business purposes.
  The combined company may be subject to a dispute with respect to Schering-Ploughs distribution
agreement with Johnson & Johnson for Remicade and golimumab.
  - 59 -




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 6. Exhibits
 Number
    
    Description2.1
    
    Agreement and Plan of Merger by and among Merck & Co., Inc.,
Schering-Plough Corporation, Blue, Inc. and Purple, Inc. dated as of
March 8, 2009  Incorporated by reference to Current Report on Form
8-K dated March 8, 20093.1
    
    Restated Certificate of
Incorporation of Merck & Co., Inc. (May 17, 2007)  Incorporated by reference to Current Report on Form 8-K
dated May 17, 20073.2
    
    By-Laws of Merck & Co., Inc. (as amended effective February 24, 2009)
 Incorporated by reference to Current Report on Form 8-K dated
February 24, 200910.1
    
    Commitment Letter by and among Merck & Co., Inc., J.P. Morgan
Securities Inc. and JPMorgan Chase Bank, N.A. dated as of March 8,
2009  Incorporated by reference to Current Report on Form 8-K dated
March 8, 200910.2
    
    Stock option terms for a non-qualified stock option under the Merck &
Co., Inc. 2007 Incentive Stock Plan10.3
    
    Restricted stock unit terms for annual grant under the Merck & Co.,
Inc. 2007 Incentive Stock Plan10.4
    
    Restricted stock unit terms for Leader Shares grant under the Merck &
Co., Inc. 2007 Incentive Stock Plan31.1
    
    Rule 13a  14(a)/15d  14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a  14(a)/15d  14(a) Certification of Chief Financial Officer32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
 - 60 -




---



##### Table of Contents



Signatures
  MERCK & CO., INC.Date: May 4, 2009
    /s/ Bruce N. KuhlikBRUCE N. KUHLIKExecutive Vice President and General CounselDate: May 4, 2009
    /s/ John CananJOHN CANANSenior Vice President and Controller - 61 -




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##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description2.1
    
    Agreement and Plan of Merger by and among Merck & Co., Inc.,
Schering-Plough Corporation, Blue, Inc. and Purple, Inc. dated as of
March 8, 2009  Incorporated by reference to Current Report on Form
8-K dated March 8, 20093.1
    
    Restated Certificate of Incorporation of Merck & Co., Inc. (May 17,
2007)  Incorporated by reference to Current Report on Form 8-K dated
May 17, 20073.2
    
    By-Laws of Merck & Co., Inc. (as amended effective February 24, 2009) 
Incorporated by reference to Current Report on Form 8-K dated February 24,
200910.1
    
    Commitment Letter by and among Merck & Co., Inc., J.P. Morgan
Securities Inc. and JPMorgan Chase Bank, N.A. dated as of March 8,
2009  Incorporated by reference to Current Report on Form 8-K dated
March 8, 200910.2
    
    Stock option terms for a non-qualified stock option under the Merck &
Co., Inc. 2007 Incentive Stock Plan10.3
    
    Restricted stock unit terms for annual grant under the Merck & Co.,
Inc. 2007 Incentive Stock Plan10.4
    
    Restricted stock unit terms for Leader Shares grant under the Merck &
Co., Inc. 2007 Incentive Stock Plan31.1
    
    Rule 13a  14(a)/15d  14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a  14(a)/15d  14(a) Certification of Chief Financial Officer32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
 - 62 -