##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
  (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 June 30, 2008
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 Commission File No. 1-3305
  
 Incorporated in New Jersey
    
    I.R.S. Employer IdentificationNo. 22-1109110
  Class
    
    Number of Shares OutstandingCommon Stock
    
    2,142,473,991
 þ 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




---



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 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 4. Submission of Matters to a Vote of Security HoldersItem 6. ExhibitsSignaturesEXHIBIT INDEXEX-10.1: CHOLESTEROL GOVERNANCE AGREEMENTEX-10.2: FIRST AMENDMENT TO THE CHOLESTEROL GOVERNANCE AGREEMENTEX-10.3: MASTER AGREEMENTEX-10.4: MASTER MERIAL VENTURE AGREEMENTEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION    Table of Contents  
 Part
I - Financial Information
 
 Item 1. Financial Statements
 
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Sales
    
    $
    6,051.8
    
    
    $
    6,111.4
    
    
    $
    11,873.9
    
    
    $
    11,880.7Costs, Expenses and OtherMaterials and production
    
    
    1,396.5
    
    
    
    1,552.3
    
    
    
    2,634.6
    
    
    
    3,078.1Marketing and administrative
    
    
    1,930.2
    
    
    
    2,083.7
    
    
    
    3,784.7
    
    
    
    3,885.7Research and development
    
    
    1,169.3
    
    
    
    1,030.5
    
    
    
    2,247.6
    
    
    
    2,060.6Restructuring costs
    
    
    102.2
    
    
    
    55.8
    
    
    
    171.9
    
    
    
    121.6Equity income from affiliates
    
    
    (523.0
    )
    
    
    (759.1
    )
    
    
    (1,175.1
    )
    
    
    (1,411.7
    )Other (income) expense, net
    
    
    (81.9
    )
    
    
    (84.0
    )
    
    
    (2,259.2
    )
    
    
    (340.2
    )3,993.3
    
    
    
    3,879.2
    
    
    
    5,404.5
    
    
    
    7,394.1Income Before Taxes
    
    
    2,058.5
    
    
    
    2,232.2
    
    
    
    6,469.4
    
    
    
    4,486.6Taxes on Income
    
    
    290.2
    
    
    
    555.8
    
    
    
    1,398.6
    
    
    
    1,105.9Net Income
    
    $
    1,768.3
    
    
    $
    1,676.4
    
    
    $
    5,070.8
    
    
    $
    3,380.7Basic Earnings per Common Share
    
    $
    0.82
    
    
    $
    0.77
    
    
    $
    2.35
    
    
    $
    1.56Earnings per Common Share Assuming Dilution
    
    $
    0.82
    
    
    $
    0.77
    
    
    $
    2.34
    
    
    $
    1.55Dividends Declared per Common Share
    
    $
    0.38
    
    
    $
    0.38
    
    
    $
    0.76
    
    
    $
    0.76
  - 2 -




---



##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007AssetsCurrent AssetsCash and cash equivalents
    
    $
    7,345.2
    
    
    $
    5,336.1Short-term investments
    
    
    2,642.3
    
    
    
    2,894.7Accounts receivable
    
    
    3,647.0
    
    
    
    3,636.2Inventories (excludes inventories of $442.0 in 2008 and $345.2
in 2007 classified in Other assets - see Note 4)
    
    
    2,190.6
    
    
    
    1,881.0Prepaid expenses and taxes
    
    
    1,767.8
    
    
    
    1,297.4Total current assets
    
    
    17,592.9
    
    
    
    15,045.4Investments
    
    
    6,784.9
    
    
    
    7,159.2Property, Plant and Equipment, at cost, net of allowance for
depreciation of $11,568.5 in 2008 and $12,457.1 in 2007
    
    
    12,240.4
    
    
    
    12,346.0Goodwill
    
    
    1,434.4
    
    
    
    1,454.8Other Intangibles, Net
    
    
    596.2
    
    
    
    713.2Other Assets
    
    
    8,808.7
    
    
    
    11,632.1$
    47,457.5
    
    
    $
    48,350.7Liabilities and Stockholders EquityCurrent LiabilitiesLoans payable and current portion of long-term debt
    
    $
    1,181.3
    
    
    $
    1,823.6Trade accounts payable
    
    
    530.9
    
    
    
    624.5Accrued and other current liabilities
    
    
    6,276.1
    
    
    
    8,534.9Income taxes payable
    
    
    913.3
    
    
    
    444.1Dividends payable
    
    
    817.0
    
    
    
    831.1Total current liabilities
    
    
    9,718.6
    
    
    
    12,258.2Long-Term Debt
    
    
    3,932.4
    
    
    
    3,915.8Deferred Income Taxes and Noncurrent Liabilities
    
    
    11,140.4
    
    
    
    11,585.3Minority Interests
    
    
    2,410.1
    
    
    
    2,406.7Stockholders EquityCommon stock, one cent par valueAuthorized - 5,400,000,000 sharesIssued -       2,983,508,675 shares
    
    
    29.8
    
    
    
    29.8Other paid-in capital
    
    
    8,188.4
    
    
    
    8,014.9Retained earnings
    
    
    42,573.2
    
    
    
    39,140.8Accumulated other comprehensive loss
    
    
    (935.6
    )
    
    
    (826.1
    )49,855.8
    
    
    
    46,359.4Less treasury stock, at cost841,034,684 shares at June 30, 2008811,005,791 shares at December 31, 2007
    
    
    29,599.8
    
    
    
    28,174.7Total stockholders equity
    
    
    20,256.0
    
    
    
    18,184.7$
    47,457.5
    
    
    $
    48,350.7
  - 3 -




---



##### Table of Contents



Six Months EndedJune 30,2008
    
    
    2007Cash Flows from Operating ActivitiesNet income
    
    $
    5,070.8
    
    
    $
    3,380.7Adjustments to reconcile net income to net cash provided by operating activities:Gain on distribution from AstraZeneca LP
    
    
    (2,222.7
    )
    
    
    -Equity income from affiliates
    
    
    (1,175.1
    )
    
    
    (1,411.7
    )Dividends and distributions from equity affiliates
    
    
    3,103.4
    
    
    
    882.6Depreciation and amortization
    
    
    766.0
    
    
    
    1,000.5Deferred income taxes
    
    
    47.5
    
    
    
    (78.0
    )Share-based compensation
    
    
    198.8
    
    
    
    178.2Other
    
    
    (37.8
    )
    
    
    (8.3
    )Taxes paid for Internal Revenue Service settlement
    
    
    -
    
    
    
    (2,788.1
    )Net changes in assets and liabilities
    
    
    (1,842.0
    )
    
    
    469.6Net Cash Provided by Operating Activities
    
    
    3,908.9
    
    
    
    1,625.5Cash Flows from Investing ActivitiesCapital expenditures
    
    
    (632.6
    )
    
    
    (473.1
    )Purchases of securities and other investments
    
    
    (5,583.3
    )
    
    
    (5,320.9
    )Acquisitions of subsidiaries, net of cash acquired
    
    
    -
    
    
    
    (1,135.9
    )Proceeds from sales of securities and other investments
    
    
    5,906.7
    
    
    
    6,228.6Distribution from AstraZeneca LP
    
    
    1,899.3
    
    
    
    -Decrease (increase) in restricted assets
    
    
    307.7
    
    
    
    (1,187.7
    )Other
    
    
    (4.0
    )
    
    
    (3.0
    )Net Cash Provided by (Used by) Investing Activities
    
    
    1,893.8
    
    
    
    (1,892.0
    )Cash Flows from Financing ActivitiesNet change in short-term borrowings
    
    
    737.4
    
    
    
    357.6Payments on debt
    
    
    (1,382.7
    )
    
    
    (856.5
    )Purchases of treasury stock
    
    
    (1,551.1
    )
    
    
    (491.9
    )Dividends paid to stockholders
    
    
    (1,652.7
    )
    
    
    (1,651.8
    )Proceeds from exercise of stock options
    
    
    92.3
    
    
    
    349.3Other
    
    
    (114.9
    )
    
    
    86.8Net Cash Used by Financing Activities
    
    
    (3,871.7
    )
    
    
    (2,206.5
    )Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    78.1
    
    
    
    27.8Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    2,009.1
    
    
    
    (2,445.2
    )Cash and Cash Equivalents at Beginning of Year
    
    
    5,336.1
    
    
    
    5,914.7Cash and Cash Equivalents at End of Period
    
    $
    7,345.2
    
    
    $
    3,469.5
  - 4 -




---



##### Table of Contents



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 the
Companys 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.On January 1, 2008, the Company adopted Financial Accounting Standards Board (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 157-2),that deferred the effective date of FAS 157 for one year for
nonfinancial assets and liabilities recorded at fair value on a non-recurring basis. The effect
of adoption of FAS 157 for financial assets and liabilities recognized at fair value on a
recurring basis did not have a material impact on the Companys financial position and results
of operations (see Note 3). The Company is assessing the impact of adopting FAS 157 for
nonfinancial assets and liabilities.On January 1, 2008, the Company adopted Emerging Issues Task Force (EITF) Issue No. 07-3,
Accounting for Advance Payments for Goods or Services Received for Use in Future Research and
Development Activities(EITF 07-3), which is being applied prospectively for new contracts.
EITF 07-3 addresses nonrefundable advance payments for goods or services that will be used or
rendered for future research and development activities. EITF 07-3 requires these payments be
deferred and capitalized and recognized as an expense as the related goods are delivered or the
related services are performed. The effect of adoption of EITF 07-3 on the Companys financial
position and results of operations was not material.On January 1, 2008, the Company adopted FASB Statement No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115
(FAS 159). FAS 159 permits companies to choose an irrevocable election to measure certain
financial assets and financial liabilities at fair value. Unrealized gains and losses on items
for which the fair value option has been elected are reported in earnings at each subsequent
reporting date. The Company did not elect the fair value option under FAS 159 for any of its
financial assets or liabilities upon adoption.In December 2007, the FASB issued Statement No. 141R, Business Combinations(FAS 141R), and
Statement No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment
of ARB No. 51(FAS 160). FAS 141R expands the scope of acquisition accounting to all
transactions under which control of a business is obtained. Among other things, 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. 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. FAS 141R and FAS 160 are both effective, on a prospective basis, January
1, 2009 with the exception of the presentation and disclosure requirements of FAS 160 which must
be applied retrospectively. The Company is assessing the impacts of these standards on its
financial position and results of operations.In December 2007, the FASB ratified the consensus reached by the EITF on Issue No. 07-1 (EITF
07-1), Accounting for Collaborative Arrangements. EITF 07-1 is effective for the Company
beginning January 1, 2009 and will be applied retrospectively to all prior periods presented for
all collaborative arrangements existing as of the effective date. 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 Company is assessing the impact of adoption of EITF 07-1 on its financial
position and results of operations.
 - 5 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and
Hedging Activities(FAS 161), which is effective January 1, 2009. 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. Since FAS 161 requires only
additional disclosures about the Companys derivatives and hedging activities, the adoption of
FAS 161 will not affect the Companys financial position or results of operations.In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting
Principles(FAS 162). FAS 162 identifies the sources of accounting principles and the
framework for selecting the principles used (order of authority) in the preparation of financial
statements that are presented in conformity with generally accepted accounting standards in the
United States. FAS 162 is effective 60 days following the Securities and Exchange Commissions
approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The
Company does not expect the adoption of FAS 162 to have a material impact on its financial
statements.In June 2008, the FASB issued Staff Position EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities(FSP EITF 03-6-1),
which is effective January 1, 2009. 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 basic earnings per share calculation. The Company
is assessing the impact of adoption of FSP EITF 03-6-1 on its results of operations.2.
    
    RestructuringIn November 2005, the Company announced the initial phase of its global restructuring program
designed to reduce the Companys cost structure, increase efficiency and enhance
competitiveness. As part of this program, Merck has sold or closed five manufacturing sites and
two preclinical sites. The Company also has, and may continue to, sell or close certain other
facilities and related assets in connection with the restructuring program. As of June 30,
2008, the Company has eliminated approximately 8,700 positions company-wide and will continue to
seek opportunities for further headcount reductions. The Company, however, continues to hire
new employees as the business requires. Through the end of 2008, when the initial phase of the
global restructuring program is expected to be substantially complete, the cumulative pretax
costs of the program are expected to range from $2.3 billion to $2.4 billion. Approximately 70%
of the cumulative pretax costs are non-cash, relating primarily to accelerated depreciation for
facilities closed or scheduled for closure. Since the inception of the global restructuring
program through June 30, 2008, the Company has recorded total pretax accumulated costs of $2.3
billion. For segment reporting purposes, restructuring charges are unallocated expenses.The following table summarizes the charges related to restructuring activities by type of cost:
 - 6 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 Three Months Ended June 30,2008
    
    
    2007Separation
    
    
    Accelerated
    
    
    
    
    
    
    
    
    
    
    Separation
    
    
    Accelerated($ in millions)
    
    Costs
    
    
    Depreciation
    
    
    Other
    
    
    Total
    
    
    Costs
    
    
    Depreciation
    
    
    Other
    
    
    TotalMaterials and production
    
    $
    -
    
    
    $
    15.8
    
    
    $
    0.3
    
    
    $
    16.1
    
    
    $
    -
    
    
    $
    118.2
    
    
    $
    0.5
    
    
    $
    118.7Research and development
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (2.3
    )
    
    
    -
    
    
    
    (2.3
    )Restructuring costs
    
    
    75.6
    
    
    
    -
    
    
    
    26.6
    
    
    
    102.2
    
    
    
    38.1
    
    
    
    -
    
    
    
    17.7
    
    
    
    55.8$
    75.6
    
    
    $
    15.8
    
    
    $
    26.9
    
    
    $
    118.3
    
    
    $
    38.1
    
    
    $
    115.9
    
    
    $
    18.2
    
    
    $
    172.2
 Six Months Ended June 30,2008
    
    
    2007Separation
    
    
    Accelerated
    
    
    
    
    
    
    
    
    
    
    Separation
    
    
    Accelerated($ in millions)
    
    Costs
    
    
    Depreciation
    
    
    Other
    
    
    Total
    
    
    Costs
    
    
    Depreciation
    
    
    Other
    
    
    TotalMaterials and production
    
    $
    -
    
    
    $
    31.1
    
    
    $
    (0.1
    )
    
    $
    31.0
    
    
    $
    -
    
    
    $
    236.3
    
    
    $
    0.5
    
    
    $
    236.8Research and development
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (0.1
    )
    
    
    (0.1
    )Restructuring costs
    
    
    177.0
    
    
    
    -
    
    
    
    (5.1
    )
    
    
    171.9
    
    
    
    85.0
    
    
    
    -
    
    
    
    36.6
    
    
    
    121.6$
    177.0
    
    
    $
    31.1
    
    
    $
    (5.2
    )
    
    $
    202.9
    
    
    $
    85.0
    
    
    $
    236.3
    
    
    $
    37.0
    
    
    $
    358.3
 Separation costs are associated with actual headcount reductions, as well as those headcount
reductions that were probable and could be reasonably estimated. In the second quarter of 2008,
approximately 600 positions were eliminated and in the second quarter of 2007 approximately 625
positions were eliminated. In the first half of 2008, approximately 1,500 positions were
eliminated compared with approximately 855 positions in the first half of 2007.Accelerated depreciation costs primarily relate to manufacturing facilities sold or closed as
part of the program.Other activity of $26.9 million and $18.2 million for the second quarter of 2008 and 2007,
respectively, and $(5.2) million and $37.0 million for the first six months of 2008 and 2007,
respectively, reflects costs that include termination charges associated with the Companys
pension and other postretirement benefit plans (see Note 9), shut-down and other related costs.
Other activity for the first half of 2008 also reflects pretax gains of $51.1 million resulting
from 2008 sales of facilities and related assets.The following table summarizes the charges and spending relating to restructuring activities for
the six months ended June 30, 2008:
 Separation
    
    
    Accelerated($ in millions)
    
    Costs
    
    
    Depreciation
    
    
    Other
    
    
    TotalRestructuring reserves as of January 1, 2008
    
    $
    231.5
    
    
    $
    -
    
    
    $
    -
    
    
    $
    231.5Expense
    
    
    177.0
    
    
    
    31.1
    
    
    
    (5.2
    )
    
    
    202.9(Payments) receipts, net
    
    
    (172.5
    )
    
    
    -
    
    
    
    16.9
    (1)
    
    
    (155.6
    )Non-cash activity
    
    
    -
    
    
    
    (31.1
    )
    
    
    (11.7
    )
    
    
    (42.8
    )Restructuring reserves as of June 30, 2008(2)
    
    $
    236.0
    
    
    $
    -
    
    
    $
    -
    
    
    $
    236.0
 
 (1)
    
    Includes proceeds from the sales of facilities in connection with the global
restructuring program.(2)
    
    The cash outlays associated with the remaining restructuring reserve are expected
to be largely completed by the end of 2009. 3.
    
    Fair Value MeasurementsOn January 1, 2008, the Company adopted 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 FSP 157-2 that deferred the effective date of
FAS 157 for one year for nonfinancial assets and liabilities recorded at fair value on a
non-recurring basis. FAS 157 defines fair value as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. FAS 157 also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. FAS 157 describes three levels of inputs that may be used to
measure fair value:
 - 7 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 Level 1- Quoted prices in active markets for identical assets or liabilities. The Companys
Level 1 assets include short-term investments in time deposits and 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 value is 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 June 30, 2008, $179.5 million, or approximately 1.7%, of the
Companys investment securities were categorized as Level 3 fair value assets (all of which were
pledged under certain collateral arrangements (see Note 11)).If the inputs used to measure the financial assets and liabilities fall within the different
levels described above, the categorization is based on the lowest level input that is
significant to the fair value measurement of the instrument.Financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2008
are summarized below:
 Fair Value Measurements UsingQuoted Prices
    
    
    SignificantIn Active
    
    
    Other
    
    
    SignificantMarkets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    Inputs($ in millions)
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    TotalAssetsInvestmentsCorporate notes and bonds
    
    $
    -
    
    
    $
    5,329.0
    
    
    $
    -
    
    
    $
    5,329.0U.S. government and agency securities
    
    
    -
    
    
    
    1,795.7
    
    
    
    -
    
    
    
    1,795.7Municipal securities
    
    
    -
    
    
    
    745.1
    
    
    
    -
    
    
    
    745.1Mortgage-backed securities (1)
    
    
    -
    
    
    
    718.3
    
    
    
    -
    
    
    
    718.3Asset-backed securities(2)
    
    
    -
    
    
    
    357.9
    
    
    
    -
    
    
    
    357.9Foreign government bonds
    
    
    -
    
    
    
    317.9
    
    
    
    -
    
    
    
    317.9Equity securities
    
    
    62.7
    
    
    
    89.3
    
    
    
    -
    
    
    
    152.0Other debt securities
    
    
    -
    
    
    
    11.3
    
    
    
    -
    
    
    
    11.3Total investments
    
    $
    62.7
    
    
    $
    9,364.5
    
    
    $
    -
    
    
    $
    9,427.2Other assets(3)
    
    $
    -
    
    
    $
    788.6
    
    
    $
    179.5
    
    
    $
    968.1Derivative assets
    
    
    -
    
    
    
    239.3
    
    
    
    -
    
    
    
    239.3Total Assets
    
    $
    62.7
    
    
    $
    10,392.4
    
    
    $
    179.5
    
    
    $
    10,634.6LiabilitiesDerivative liabilities
    
    $
    -
    
    
    $
    76.6
    
    
    $
    -
    
    
    $
    76.6
 
 (1)
    
    Represents AAA-rated mortgage-backed securities issued or unconditionally
guaranteed as to payment of principal and interest by U.S. government agencies.(2)
    
    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.(3)
    
    These investment securities represent a portion of the pledged collateral
discussed in Note 11. - 8 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 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 June 30, 2008, 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
June 30, 2008.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 June 30, 2008Total Realized and
    
    
    
    
    
    
    LossesUnrealized Losses
    
    
    
    
    
    
    Recorded inNet
    
    
    Purchases,
    
    
    Included in:
    
    
    
    
    
    
    Earnings forBeginning
    
    
    Transfers
    
    
    Sales,
    
    
    
    
    
    Compre-
    
    
    Ending
    
    
    Level 3 AssetsBalance
    
    
    In to
    
    
    Settlements,
    
    
    
    
    
    
    hensive
    
    
    Balance
    
    
    Still Held at($ in millions)
    
    April 1
    
    
    Level 3
    
    
    net
    
    
    Earnings (1)
    
    
    Income
    
    
    June 30
    
    
    June 30Other assets
    
    $
    161.2
    
    
    $
    40.4
    
    
    $
    (15.8
    )
    
    $
    (6.0
    )
    
    $
    (0.3
    )
    
    $
    179.5
    
    
    $
    (6.0
    )
 Six Months Ended June 30, 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
    
    
    net
    
    
    Earnings (1)
    
    
    Income
    
    
    June 30
    
    
    June 30Other assets
    
    $
    958.6
    
    
    $
    (744.8
    )
    
    $
    (24.6
    )
    
    $
    (8.3
    )
    
    $
    (1.4
    )
    
    $
    179.5
    
    
    $
    (8.3
    )Other debt securities
    
    
    314.5
    
    
    
    (314.5
    )
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Total
    
    $
    1,273.1
    
    
    $
    (1,059.3
    )
    
    $
    (24.6
    )
    
    $
    (8.3
    )
    
    $
    (1.4
    )
    
    $
    179.5
    
    
    $
    (8.3
    )
 
 (1)
    
    Amounts are recorded in Other (income) expense, net, in the Consolidated
Statement of Income.  - 9 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 4.
    
    InventoriesInventories consisted of:
 June 30,
    
    
    December 31,($ in millions)
    
    2008
    
    
    2007Finished goods
    
    $
    436.3
    
    
    $
    382.9Raw materials and work in process
    
    
    2,073.9
    
    
    
    1,732.2Supplies
    
    
    122.4
    
    
    
    111.1Total (approximates current cost)
    
    
    2,632.6
    
    
    
    2,226.2Reduction to LIFO cost for domestic inventories
    
    
    
    
    
    
    $
    2,632.6
    
    
    $
    2,226.2Recognized as:Inventories
    
    $
    2,190.6
    
    
    $
    1,881.0Other assets
    
    $
    442.0
    
    
    $
    345.2
 Amounts recognized as Other assets are comprised entirely of raw materials and work in process
inventories, representing inventories for products not expected to be sold within one year, the
majority of which are vaccines.5.
    
    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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Merck/Schering-Plough
    
    $
    365.2
    
    
    $
    465.1
    
    
    $
    758.0
    
    
    $
    812.2AstraZeneca LP
    
    
    61.4
    
    
    
    215.1
    
    
    
    192.5
    
    
    
    427.1Other (1)
    
    
    96.4
    
    
    
    78.9
    
    
    
    224.6
    
    
    
    172.4$
    523.0
    
    
    $
    759.1
    
    
    $
    1,175.1
    
    
    $
    1,411.7
 
 (1)
    
    Primarily reflects results from Merial Limited, Sanofi Pasteur MSD and Johnson &
Johnson°Merck Consumer Pharmaceuticals Company. Merck/Schering-Plough
In 2000, the Company and Schering-Plough Corporation (Schering-Plough) (collectively the
Partners) entered into agreements to create separate equally-owned partnerships to develop and
market in the United States new prescription medicines in the cholesterol-management and
respiratory therapeutic areas. 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
 - 10 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 research and development expenses are generally shared equally by the Partners, after adjusting
for earned milestones.See Note 7 for information with respect to litigation involving the MSP Partnership and the
Partners related to the sale and promotion of Zetiaand Vytorin.The respiratory therapeutic agreements provided for the joint development and marketing in the
United States by the Partners of a once-daily, fixed-combination tablet containing the active
ingredients montelukast sodium and loratadine. Montelukast sodium, a leukotriene receptor
antagonist, is sold by Merck as Singulairand loratadine, an antihistamine, is sold by
Schering-Plough as Claritin, both of which are indicated for the relief of symptoms of allergic
rhinitis. In April 2008, the Partners announced that they had
received a non-approvable letter
from the U.S. Food and Drug Administration (FDA) for the proposed fixed combination of
loratadine/montelukast. In June 2008, the Partners announced the withdrawal of the New Drug
Application for the loratadine/montelukast combination tablet. The companies also terminated
the respiratory joint venture. This action had no impact on the business of the cholesterol
joint venture. As a result of the termination of the respiratory joint venture, the Company is
obligated to Schering-Plough in the amount of $105 million as specified in the joint venture
agreements. This resulted in a charge of $43 million during the second quarter of 2008,
included in Equity income from affiliates. The remaining amount will be amortized over the
remaining patent life of Zetiathrough 2016.Summarized financial information for the MSP Partnership is as follows:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Sales
    
    $
    1,152.5
    
    
    $
    1,263.9
    
    
    $
    2,385.4
    
    
    $
    2,431.7Vytorin
    
    
    592.1
    
    
    
    686.4
    
    
    
    1,243.3
    
    
    
    1,310.2Zetia
    
    
    560.4
    
    
    
    577.5
    
    
    
    1,142.1
    
    
    
    1,121.5Materials and production costs
    
    
    51.2
    
    
    
    51.2
    
    
    
    103.6
    
    
    
    101.2Other expense, net
    
    
    319.3
    
    
    
    323.4
    
    
    
    646.1
    
    
    
    646.0Income before taxes
    
    $
    782.0
    
    
    $
    889.3
    
    
    $
    1,635.7
    
    
    $
    1,684.5Mercks share of income before taxes (1)
    
    $
    346.4
    
    
    $
    453.3
    
    
    $
    741.0
    
    
    $
    815.8
 (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 LP
As previously disclosed, the 1999 AstraZeneca merger triggered a partial redemption in March
2008 of Mercks limited partnership interest in AstraZeneca LP (AZLP). 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.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 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.In 1998, Astra purchased an option (the Asset Option) to buy Mercks interest in the KBI
products, excluding the gastrointestinal medicines Nexiumand Prilosec(the Non-PPI Products),
for a payment of $443.0 million, which was deferred. 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.
 - 11 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 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. Also, in March 2008, the outstanding loan from Astra in
the amount of $1.38 billion plus interest through the redemption date was settled. As a result
of these transactions, the Company received net proceeds from AZLP of $2.6 billion in the first
quarter of 2008.Summarized financial information for AZLP is as follows:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Sales
    
    $
    1,350.0
    
    
    $
    1,683.1
    
    
    $
    2,676.8
    
    
    $
    3,387.1Materials and production costs
    
    
    630.1
    
    
    
    942.2
    
    
    
    1,326.4
    
    
    
    1,954.7Other expense, net
    
    
    353.0
    
    
    
    284.4
    
    
    
    737.7
    
    
    
    558.1Income before taxes
    
    $
    366.9
    
    
    $
    456.5
    
    
    $
    612.7
    
    
    $
    874.3
 6.
    
    Debt and Financial InstrumentsIn January and February 2008, the Company terminated four interest rate swap contracts with
notional amounts of $250 million each, which effectively converted its $1.0 billion, 4.75%
fixed-rate notes due 2015 to variable rate debt. As a result of the swap terminations, the
Company received $96.2 million in cash, excluding accrued interest which was not material. The
corresponding gains related to the basis adjustment of the debt associated with the terminated
swap contracts were deferred and are being amortized as a reduction of interest expense over the
remaining term of the notes. The cash flows from these contracts are reported as operating
activities in the Consolidated Statement of Cash Flows.In March 2008, the Company entered into a $4.1 billion letter of credit agreement with a
financial institution, which provides that if participation conditions under the U.S. Vioxx
Settlement Agreement (see Note 7) are met or waived (which the Company stated it will waive as
of August 4, 2008), a letter of credit will be executed and the Company will pledge collateral
to the financial institution of approximately $5.0 billion pursuant to the terms of the
agreement. The letter of credit will satisfy certain conditions stipulated by the Settlement
Agreement. The letter of credit amount and required collateral balances will decline as
payments (after the first $750 million) under the Settlement Agreement are made.Also in March 2008, the Company settled the $1.38 billion Astra Note due in 2008 (see Note 5).In April 2008, the Company extended the maturity date of its $1.5 billion, 5-year revolving
credit facility from April 2012 to April 2013. The facility provides backup liquidity for the
Companys commercial paper borrowing facility and is to be used for general corporate purposes.
The Company has not drawn funding from this facility.7.
    
    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 Lawsuits
As 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
 - 12 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 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 June 30, 2008, the Company had been served or was aware that it had been named as a defendant
in approximately 13,750 lawsuits, which include approximately 31,750 plaintiff groups, alleging
personal injuries resulting from the use of Vioxx, and in approximately 249 putative class
actions alleging personal injuries and/or economic loss. (All of the actions discussed in this
paragraph are collectively referred to as the VioxxProduct Liability Lawsuits.) Of these
lawsuits, approximately 9,225 lawsuits representing approximately 24,000 plaintiff groups are or
are slated to be in the federal MDL and approximately 2,675 lawsuits representing approximately
2,675 plaintiff groups are included in a coordinated proceeding in New Jersey Superior Court
before Judge Carol E. Higbee.In addition to the VioxxProduct Liability Lawsuits discussed above, the claims of over 22,300
plaintiffs had been dismissed as of June 30, 2008. Of these, there have been over 2,950
plaintiffs whose claims were dismissed with prejudice (i.e., they cannot be brought again)
either by plaintiffs themselves or by the courts. Over 19,350 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 11,800 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 have expressed an intent to enter the program
established by the Settlement Agreement; Judge Higbee has dismissed these cases without
prejudice for administrative reasons.Merck entered into a tolling agreement (the Tolling Agreement) with the MDL Plaintiffs
Steering Committee (PSC) that established a procedure to halt the running of the statute of
limitations (tolling) as to certain categories of claims allegedly arising from the use of Vioxx
by non-New Jersey citizens. The Tolling Agreement applied to individuals who have not filed
lawsuits and may or may not eventually file lawsuits and only to those claimants who seek to
toll claims alleging injuries resulting from a thrombotic cardiovascular event that results in a
myocardial infarction (MI) or ischemic stroke (IS). The Tolling Agreement provided counsel
additional time to evaluate potential claims. The Tolling Agreement required any tolled claims
to be filed in federal court. As of June 30, 2008, approximately 12,750 claimants had entered
into Tolling Agreements. The parties agreed that April 9, 2007 was the deadline for filing
Tolling Agreements and no additional Tolling Agreements are being accepted. On April 23, 2008,
the Company terminated the Tolling Agreements effective August 21, 2008 pursuant to the Tolling
Agreements 120-day termination provision.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 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 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.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 resolution
process (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 require claimants to pass three gates: an
injury gate requiring objective, medical proof of an MI or IS (each as defined in the Settlement
Agreement), a duration gate based on documented receipt of at least 30 Vioxxpills, and a
proximity gate requiring receipt of pills in sufficient number and proximity to the event to
support a presumption of ingestion of Vioxxwithin 14 days before the claimed injury.The Settlement Agreement provides that Merck does not admit causation or fault. The Settlement
Agreement 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. On July 17, 2008, the Company stated that it would be waiving
that right as of August 4, 2008. The waiver of that right will trigger Mercks obligation to
pay a fixed total of $4.85 billion. Payments will be made in installments into the resolution fund,
with the first payment of $500 million scheduled for August 6, 2008. Additional payments will
be made on a periodic basis going forward, when and as needed to fund payments of claims and
administrative expenses.
 - 13 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 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. While at this time the exact number
of claimants covered by the Settlement Agreement is unknown, the total dollar amount is fixed.
The Company expects that the distribution of interim payments to qualified claimants will begin
in August 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) require plaintiffs with cases pending as of November 9,
2007 to preserve and produce records and serve expert reports; and (4) require 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 July 17, 2008, more than 48,500 of the approximately 50,000 individuals who registered
eligible injuries have submitted some or all of the materials required for enrollment in the
program to resolve state and federal MI and IS claims filed against the Company in the United
States.  If all of these eligible submissions are completed in accordance with the Settlement
Agreement, this would represent more than 97% of the eligible MI and IS claims previously
registered with the program.  In addition, approximately 3,500 other claimants have also sought
to enroll and their eligibility status still has yet to be determined.Also, as of July 17, 2008 BrownGreer, the claims administrator for the Settlement Program (the
Claims Administrator), reports that more than 30,000 eligible MI claimants have initiated
enrollment and more than 18,000 eligible IS claimants have initiated enrollment. Of these, more
than 6,000 eligible MI and IS claimants alleging death as an injury have initiated enrollment
and more than 29,250 eligible MI and IS claimants alleging more than 12 months of use have
initiated enrollment.  Each of these numbers appears to
represent at least 97% of the
eligible claims in each category.  These numbers do not include the additional 3,500 enrollees
whose eligibility has yet to be determined.On April 14, 2008, various private insurance companies and health plans filed suit against
BrownGreer and U.S. Bancorp, escrow agent for the Settlement Program. 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. On June 9,
plaintiffs in that action filed a motion for a temporary restraining order and preliminary
injunction seeking an order directing identification and disclosure of plaintiffs plan members
who are participating in the settlement fund. On June 11, 2008, Judge Fallon denied in part the
motion with respect to plaintiffs request for a temporary restraining order. On June 27, 2008,
counsel for plaintiffs announced that they had reached an agreement under which the motion for
preliminary injunction would be withdrawn without prejudice. Another private health plan filed
suit against BrownGreer and others. They have moved for a preliminary injunction. The motion
is pending.The Company has previously disclosed the outcomes of several VioxxProduct Liability Lawsuits
that were tried prior to January 1, 2008.The following sets forth certain significant rulings that occurred in or after the second
quarter of 2008 with respect to the VioxxProduct Liability Lawsuits.On April 19, 2007, Judge Randy Wilson, who presides over the Texas Vioxxcoordinated proceeding,
dismissed the failure to warn claim of plaintiff Ruby Ledbetter, whose case was scheduled to be
tried on May 14, 2007. Judge Wilson relied on a Texas statute enacted in 2003 that provides
that there can be no failure to warn regarding a prescription medicine if the medicine is
distributed with FDA approved labeling. There is an exception in the statute if required,
material, and relevant information was withheld from the FDA that would have led to a different
decision regarding the approved labeling, but Judge Wilson found that the exception is preempted
by federal law unless the FDA finds that such information was withheld. Judge Wilson is
currently presiding over approximately 1,000 Vioxxsuits in Texas in which a principal
allegation is failure to warn. Judge Wilson certified the decision for an expedited appeal to
the Texas Court of Civil Appeals. Plaintiffs appealed the decision. On October 11, 2007, Merck
filed a motion to abate the hearing of the appeal until after the U.S. Supreme Courts decision
in Warner Lambert v. Kent, which is to be decided in 2008. On October 25, 2007, the Texas Court
of Appeals denied Mercks motion to abate. On March 20, 2008, plaintiffs moved to dismiss their
appeal, seeking instead to vacate the trial courts decision.
 - 14 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 Merck filed an opposition to plaintiffs motion. On May 15, 2008, the Court of Appeals issued
an order granting plaintiffs motion to dismiss the appeal, but denying plaintiffs motion to
vacate the order dismissing the claim.In April 2006, in a trial involving two plaintiffs, Thomas Cona and John McDarby, in 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 appealed
the judgments in both cases and the Appellate Division held 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 that it is preempted and vacated the attorneys 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.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 asked the court for more time to file a motion for
rehearing.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 May 29,
2008, plaintiffs filed a motion for rehearing.Other Lawsuits
As 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 does not
meet the requirements for a class action. Claims of certain individual third-party payors remain
pending in the New Jersey court, and counsel representing various third-party payors have filed
additional such actions. Judge Higbee lifted the stay on these cases and the parties are
currently discussing discovery issues.Judge Higbee has set a briefing schedule in Martin-Kleinman v. Merck, which is a putative
consumer class action pending in New Jersey Superior Court. The schedule calls for the briefing
to be completed by September 26, 2008.There are also pending in various U.S. courts putative class actions purportedly brought on
behalf of individual purchasers or users of Vioxxclaiming either reimbursement of alleged
economic loss or an entitlement to medical monitoring. The majority of these cases are at early
procedural stages. In New Jersey, the trial court dismissed the complaint in the case of
Sinclair v. Merck, a purported statewide medical monitoring class. The Appellate Division
reversed the dismissal. On June 4, 2008, the New Jersey Supreme Court reversed the Appellate
Division and dismissed the case on the grounds that plaintiffs had not alleged that they
suffered any physical injury. In a separate action, 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 Company
filed a petition for interlocutory review on June 23, 2008.Plaintiffs also have filed a class action in California state court seeking class certification
of California third-party payors and end-users. The parties are engaged in class certification
discovery and briefing.
 - 15 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 As previously reported, the Company has also been named as a defendant in separate lawsuits
brought by the Attorneys General of seven states, and the City of New York. A Colorado taxpayer
has also filed a derivative suit, on behalf of the State of Colorado, naming the Company. 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 statutes, including civil penalties.In addition, the Company has been named in four other lawsuits containing similar allegations
filed by (or on behalf of) governmental entities seeking the reimbursement of alleged Medicaid
expenditures for Vioxxor statutory penalties tied to such expenditures. Those lawsuits are (1)
a class action filed by Santa Clara County, California on behalf of all similarly situated
California counties, (2) actions filed by Erie County and Chautauqua County, New York, and (3) a
qui tamaction brought by a resident of the District of
Columbia. 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 September 2009) and the District of Columbia case (which has been removed
to federal court and will likely be transferred to the federal MDL shortly), the rest of the
actions described in this paragraph have been transferred to the federal MDL and have not
experienced significant activity to date.Shareholder Lawsuits
As 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 have appealed Judge Cheslers decision to the
United States Court of Appeals for the Third Circuit. Oral argument before the Court of Appeals
was held on June 24, 2008.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 the Third Circuit issues a decision on the securities lawsuit currently on appeal.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. On July 18,
Plaintiff Halpert Enterprises, Inc. filed a notice of appeal.
 - 16 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 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 VioxxSecurities 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
investments in the Merck Common Stock Fund and/or Merck common stock. That motion is pending.
On April 16, 2008, Plaintiffs filed a Motion for Leave to Supplement the Amended Complaint to
add allegations relating to Vytorinand seeking to add additional defendants, including Richard
T. Clark and additional members of the Board of Directors. The Court denied the motion in May
2008.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, NJ 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. Those motions are pending.International Lawsuits
As 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.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. On July 28, 2008, the Superior court in
Ontario decided to certify a class of Vioxx users in Canada,
except those in Quebec and Saskatchewan. The Company intends to seek
leave to appeal that decision. Earlier,
in November 2006, the Superior court in Quebec authorized the institution of a class action on
behalf of all individuals who, in Québec, consumed Vioxxand suffered damages arising out of its
ingestion. As of June 30, 2008, the plaintiffs have not instituted an action based upon that
authorization.Additional Lawsuits
Based on media reports and other sources, the Company anticipates that additional VioxxProduct
Liability Lawsuits, VioxxShareholder Lawsuits and VioxxForeign Lawsuits (collectively, the
VioxxLawsuits) will be filed against it and/or certain of its current and former officers and
directors in the future.Insurance
As previously disclosed, the Company has product liability insurance for claims brought in the
VioxxProduct Liability Lawsuits with stated upper limits of approximately $630 million after
deductibles and co-insurance. This insurance provides coverage for legal defense costs and
potential damage amounts in connection with the Vioxx Product
Liability Lawsuits. Through an arbitration proceeding and negotiated
settlements, the Company received an aggregate of approximately
$585 million in product liability insurance proceeds relating to
the Vioxx Product Liability Lawsuits, plus approximately
$45 million in fees and interest payments. The Company is still
negotiating with one insurer about an immaterial amount of coverage
for these lawsuits. The Company has no additional insurance for the
Vioxx Product Liability Lawsuits. The Companys
insurance coverage with respect to the VioxxLawsuits will not be adequate to cover its defense
costs and losses.
 - 17 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 The Company also 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
arbitration proceeding referenced above,
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.Investigations
As 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. In addition, 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
VioxxInvestigations). The Company cannot predict the outcome of these inquiries; however,
they could result in potential civil and/or criminal dispositions.As previously disclosed, on
May 20, 2008, the Company reached civil settlements with Attorneys
General from 29 states and the District of Columbia to fully resolve previously disclosed
investigations under state consumer protection laws related to past activities for Vioxx. As
part of the civil resolution of these investigations, Merck paid a total of $58 million to be
divided among the 29 states and the District of Columbia. In April 2008, Merck announced it had
taken a pre-tax charge in the first quarter of $55 million in anticipation of this settlement.
The agreement also includes compliance measures that supplement policies and procedures
previously established by the Company.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.Reserves
As 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 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. As
a result of entering into the Settlement Agreement, the Company recorded a pretax charge of
$4.85 billion in 2007 which represents the fixed aggregate amount to be paid to plaintiffs
qualifying for payment under the Settlement Program.The Company currently anticipates that VioxxProduct Liability Lawsuits will be tried in the
future. 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 (other than as set forth above), including for those cases in which
verdicts or judgments have been entered against the Company, and are now in post-verdict
proceedings or on appeal. In each of those cases the Company believes it has strong points to
raise on appeal and therefore that unfavorable outcomes in such cases are not probable.
Unfavorable outcomes in the VioxxLitigation (as
 - 18 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 defined below) 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, 2007, the Company had a reserve of
$5.372 billion which represented the aggregate amount to be paid under the Settlement Agreement
and its future legal defense costs related to (i) the VioxxProduct Liability Lawsuits, (ii) the
VioxxShareholder Lawsuits, (iii) the VioxxForeign Lawsuits, and (iv) the VioxxInvestigations
(collectively, the VioxxLitigation). During the first quarter of 2008, the Company spent
approximately $79 million in the aggregate in legal defense costs related to the Vioxx
Litigation. In the second quarter of 2008, the Company spent approximately $78 million in the
aggregate in legal defense costs related to the VioxxLitigation. Thus, as of June 30, 2008,
the Company had a reserve of approximately $5.215 billion related to the VioxxLitigation.Some of the significant factors considered in the review of the reserve 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 the Settlement Agreement will be consummated, but 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 VioxxProduct Liability
Lawsuits. Events such as scheduled trials, that are expected to occur
in 2009,
and the inherent inability to predict the ultimate outcomes of such trials and the disposition
of VioxxProduct Liability Lawsuits not participating in or not eligible for the Settlement
Program, limit the Companys ability to reasonably estimate its legal costs beyond 2009.The Company will continue to monitor its legal defense costs and review the adequacy of the
associated reserves and may determine to increase its reserves for legal defense costs 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 Litigation
As previously disclosed, the Company is a defendant in product liability lawsuits in the United
States involving Fosamax(the FosamaxLitigation). As of June 30, 2008, approximately 655
cases, which include approximately 1,120 plaintiff groups had been filed and were pending
against Merck in either federal or state court, including three cases which seek class action
certification, as well as damages and 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 Fosamax
product 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 550 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 focuses 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. 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, 2007, the Company had a remaining reserve of approximately $27 million solely
for its future legal defense costs for the FosamaxLitigation. During the first quarter of
2008, the Company spent approximately $7 million and added $40 million to its reserve. In the
second quarter, the Company spent approximately $10 million. Consequently, as of June 30,
2008, the Company had a reserve of approximately $50 million. Some of the significant factors
considered in the establishment and ongoing assessment 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 Fosamax
Litigation. 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 2009. The Company has not established any reserves for any potential
liability relating to the FosamaxLitigation. Unfavorable
 - 19 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 outcomes in the FosamaxLitigation could have a material adverse effect on the Companys
financial position, liquidity and results of operations.Vytorin/Zetia Litigation
As previously disclosed, since December 2007, 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, 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. On January 25, 2008, the companies and the MSP Partnership each received two subpoenas
from the New York State Attorney Generals Office seeking similar information and documents.
Merck and Schering-Plough have also each received a letter from the Office of the Connecticut
Attorney General dated February 1, 2008 requesting documents related to the marketing and sale
of Vytorinand Zetiaand the timing of disclosures of the results of ENHANCE. Merck and
Schering-Plough also received subpoenas dated April 4, 2008, from the Office of the New Jersey
Attorney General seeking documents related to the ENHANCE trial and the sale and marketing of
Vytorin.The Company is cooperating with these investigations and working with Schering-Plough
to respond to the inquiries. In addition, since mid-January 2008, the Company has become aware
of or been served with approximately 140 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.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.  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 Vytorin
study 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.  Plaintiff alleges that the ERISA plans 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.Patent Litigation
From 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 Propecia, Prilosec, Nexium, Singulair, Trusopt, Cosoptand Primaxinprior to
the expiration of the Companys (and AstraZenecas in the case of Prilosecand 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. Generic manufacturers have
received FDA approval to market a generic form of Prilosec.The Company has filed patent
infringement suits in federal court against companies filing ANDAs for generic finasteride (Propecia), dorzolamide (Trusopt), montelukast (Singulair),
dorzolamide/timolol (Cosopt), imipenem/cilastatin (Primaxin) and AstraZeneca and the Company
have filed patent infringement suits in federal court against companies filing ANDAs for
generic omeprazole (Prilosec) and 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 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.The Company and AstraZeneca received notice in October 2005 that Ranbaxy Laboratories Ltd.
(Ranbaxy) had filed an ANDA for esomeprazole. The ANDA contains Paragraph IV challenges to
patents on Nexium. On November 21, 2005, the Company and AstraZeneca sued Ranbaxy in the United
States District Court in New Jersey. Accordingly, FDA approval of Ranbaxys ANDA was stayed for
30 months until April 2008 or until an adverse court decision, if any, whichever may occur
earlier. As previously disclosed, AstraZeneca, Merck and Ranbaxy have entered into a
 - 20 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 settlement agreement which provides that Ranbaxy will not bring its generic esomeprazole product
to market in the United States until May 27, 2014. The Company
and AstraZeneca each received a
Civil Investigative Demand (CID) from the United States Federal Trade Commission (the FTC)
in July 2008 regarding the settlement agreement with Ranbaxy. The Company is cooperating
with the FTC in responding to this CID.The Company and AstraZeneca received notice in January 2006 that IVAX Pharmaceuticals, Inc.,
subsequently acquired by Teva Pharmaceuticals (Teva), had filed an ANDA for esomeprazole. The
ANDA contains Paragraph IV challenges to patents on Nexium. On March 8, 2006, the Company and
AstraZeneca sued Teva in the United States District Court in New Jersey. Accordingly, FDA
approval of Tevas ANDA is stayed for 30 months until September 2008 or until an adverse court
decision, if any, whichever may occur earlier. In January 2008, the Company and AstraZeneca sued
Dr. Reddys Laboratories (Dr. Reddys) in the District Court in New Jersey based on
Dr. Reddys filing of an ANDA for esomeprazole. Accordingly, FDA approval of Dr. Reddys ANDA is
stayed for 30 months until July 2010 or until an adverse court decision, if any, whichever may
occur earlier.In April 2007, Merck sued Ranbaxy regarding an ANDA Ranbaxy filed seeking approval for a generic
version of Primaxin(imipenem/cilastatin). The lawsuit asserted infringement of Mercks patent
which is due to expire on September 15, 2009. In July 2008, Merck and Ranbaxy entered into an
agreement pursuant to which Ranbaxy can begin to market in the United States a generic form of
imipenem/cilastatin on September 1, 2009.Other Litigation
There are various other legal proceedings, principally product liability and intellectual
property suits involving the Company, which are pending. While it is not feasible to predict the
outcome of 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.8.
    
    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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Pretax share-based compensation expense
    
    $
    107.7
    
    
    $
    81.2
    
    
    $
    198.7
    
    
    $
    178.2Income tax benefits
    
    
    (33.4
    )
    
    
    (25.9
    )
    
    
    (62.1
    )
    
    
    (56.3
    )Total share-based compensation expense, net of tax
    
    $
    74.3
    
    
    $
    55.3
    
    
    $
    136.6
    
    
    $
    121.9
 During the first six months of 2008 and 2007, the Company granted 33.4 million options and 32.0
million options, respectively, related to its annual grant and other grants. The weighted
average fair value of options granted for the first six months of 2008 and 2007 was $9.99 and
$9.12 per option, respectively, and was determined using the following assumptions:
 - 21 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 Six Months EndedJune 30,2008
    
    
    2007Expected dividend yield
    
    
    3.4
    %
    
    
    3.4
    %Risk-free interest rate
    
    
    2.7
    %
    
    
    4.4
    %Expected volatility
    
    
    30.8
    %
    
    
    24.4
    %Expected life (years)
    
    
    6.1
    
    
    
    5.7
 At June 30, 2008, there was $613.8 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 2.3 years. For segment reporting, share-based compensation costs are
unallocated expenses.9.
    
    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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
        $
    80.6
    
    
        $
    92.9
    
    
        $
    173.3
    
    
        $
    185.0Interest cost
    
    
    106.1
    
    
    
    92.6
    
    
    
    213.4
    
    
    
    184.6Expected return on plan assets
    
    
    (136.9
    )
    
    
    (122.2
    )
    
    
    (284.9
    )
    
    
    (243.6
    )Net amortization
    
    
    20.2
    
    
    
    34.3
    
    
    
    42.8
    
    
    
    68.5Termination benefits
    
    
    13.0
    
    
    
    8.9
    
    
    
    18.5
    
    
    
    16.0Curtailments
    
    
    3.2
    
    
    
    -
    
    
    
    3.2
    
    
    
    -$
    86.2
    
    
        $
    106.5
    
    
        $
    166.3
    
    
        $
    210.5
 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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Service cost
    
        $
    15.3
    
    
        $
    21.2
    
    
        $
    37.5
    
    
        $
    42.3Interest cost
    
    
    25.5
    
    
    
    26.0
    
    
    
    56.3
    
    
    
    51.9Expected return on plan assets
    
    
    (29.9
    )
    
    
    (30.3
    )
    
    
    (64.5
    )
    
    
    (60.6
    )Net amortization
    
    
    (7.6
    )
    
    
    (2.5
    )
    
    
    (11.4
    )
    
    
    (5.0
    )Termination benefits
    
    
    3.0
    
    
    
    2.6
    
    
    
    4.2
    
    
    
    3.5Curtailments
    
    
    -
    
    
    
    (3.9
    )
    
    
    (0.6
    )
    
    
    (3.9
    )$
    6.3
    
    
        $
    13.1
    
    
        $
    21.5
    
    
        $
    28.2
 In connection with restructuring actions (see Note 2), the Company recorded termination charges
for the three and six months ended June 30, 2008 and 2007 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 net
curtailment losses on its pension plans for the three and six months ended June 30, 2008 and
curtailment gains on its other postretirement benefit plans for the six months ended June 30,
2008 and the three and six months ended June 30, 2007.
 - 22 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 10.
    
    Other (Income) Expense, NetOther (income) expense, net, consisted of:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Interest income
    
    $
    (143.4
    )
    
    $
    (172.3
    )
    
    $
    (313.0
    )
    
    $
    (354.0
    )Interest expense
    
    
    50.6
    
    
    
    103.3
    
    
    
    123.2
    
    
    
    205.7Exchange losses (gains)
    
    
    8.7
    
    
    
    (12.0
    )
    
    
    21.3
    
    
    
    (31.6
    )Minority interests
    
    
    30.9
    
    
    
    30.8
    
    
    
    62.8
    
    
    
    61.4Other, net
    
    
    (28.7
    )
    
    
    (33.8
    )
    
    
    (2,153.5
    )
    
    
    (221.7
    )$
    (81.9
    )
    
    $
    (84.0
    )
    
    $
    (2,259.2
    )
    
    $
    (340.2
    )
 Other, net for the six months ended June 30, 2008 primarily reflects an aggregate gain from AZLP
of $2.2 billion (see Note 5) 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 $58 million charge related to the resolution
of an investigation into whether the Company violated consumer protection laws with respect to
the sales and marketing of Vioxx(see Note 7). Other, net for the first six months of 2007
primarily reflects the favorable impact of gains on sales of assets and product divestitures.
Interest paid for the six months ended June 30, 2008 and 2007 was $116.2 million and $223.6
million, respectively.11.
    
    Taxes on IncomeThe effective tax rate of 14.1% for the second quarter of 2008 reflects a benefit of
approximately 9 percentage points primarily relating to tax settlements that resulted in a
reduction of the Companys liability for unrecognized tax benefits of approximately $200
million. The effective tax rate of 21.6% for the first six months of
2008 reflects a net
favorable impact of approximately 1 percentage point which
includes favorable impacts relating to the second quarter tax
settlements and the first quarter realization of foreign tax credits,
largely offset by an unfavorable impact resulting from the AZLP gain being fully
taxable in the United States at a combined federal and state tax rate of approximately 36.3%. In the first
quarter of 2008, the Company decided to repatriate certain prior years foreign earnings which
will result in a 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
in the first quarter based on a change in the Companys repatriation plans. The effective tax
rates of 24.9% for the second quarter of 2007 and 24.6% for the first half of 2007 reflect the
impact of costs associated with the global restructuring program.As previously disclosed, Mercks Canadian tax returns for the years 1998 through 2004 are being
examined by the Canada Revenue Agency (CRA). In October 2006, the CRA issued the Company a
notice of reassessment containing adjustments related to certain intercompany pricing matters,
which result in additional Canadian and provincial tax due of approximately $1.6 billion (U.S.
dollars) plus interest of approximately $990 million (U.S. dollars). In addition, in July 2007,
the CRA proposed additional adjustments for 1999 relating to another intercompany pricing
matter. The adjustments would increase Canadian tax due by approximately $22 million (U.S.
dollars) plus $22 million (U.S. dollars) of interest. 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. In connection with the appeals process, 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. The collateral is included in Other Assets in the Consolidated
Balance Sheet and totaled approximately $1.3 billion at June 30, 2008. The Company has
previously established reserves for these matters. While the resolution of these matters may
result in liabilities higher or lower than the reserves, management believes that resolution of
these matters will not have a material effect on the Companys financial position or liquidity.
However, an unfavorable resolution could have a material adverse effect on the Companys results
of operations or cash flows in the quarter in which an adjustment is recorded or tax is due.In July 2007, the CRA notified the Company that it is in the process of proposing a penalty of
$160 million (U.S. dollars) in connection with the 2006 notice. The penalty is for failing to
provide information on a timely basis. The
Company vigorously disagrees with the penalty and feels it is inapplicable and that appropriate
information was provided on a timely basis. The Company is pursuing all appropriate remedies to
avoid having the penalty assessed
 - 23 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 and was notified in early August 2007 that the CRA is holding the imposition of a penalty in
abeyance pending a review of the Companys submissions as to the inapplicability of a penalty.12.
    
    Earnings Per ShareThe weighted average common shares used in the computations of basic earnings per common share
and earnings per common share assuming dilution are as follows:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,(shares in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Average common shares outstanding
    
    
    2,144.5
    
    
    
    2,167.0
    
    
    
    2,153.2
    
    
    
    2,166.9Common shares issuable(1)
    
    
    9.8
    
    
    
    22.2
    
    
    
    12.6
    
    
    
    16.5Average common shares outstanding assuming dilution
    
    
    2,154.3
    
    
    
    2,189.2
    
    
    
    2,165.8
    
    
    
    2,183.4
 (1)
    Issuable primarily under share-based compensation plans.
 For the three months ended June 30, 2008 and 2007, 205.5 million and 151.5 million,
respectively, and for the six months ended June 30, 2008 and 2007, 205.3 million and 199.1
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.13.
    
    Comprehensive IncomeComprehensive income was $1,597.1 million and $1,656.4 million for the three months ended June
30, 2008 and 2007, respectively, and was $4,961.3 million and $3,432.4 million for the six months
ended June 30, 2008 and 2007, respectively.14.
    
    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. Segment composition reflects certain managerial changes that were implemented in early
2008. In addition, in the first quarter of 2008, the Company revised the calculation of segment
profits to include a greater allocation of costs to the segments. Segment disclosures for 2007
have been recast on a comparable basis with 2008.The Pharmaceutical segment includes human health pharmaceutical products marketed either
directly 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 or
through joint ventures. 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, retailers, hospitals and government agencies. The Vaccines and
Infectious Diseases segment includes the majority of the Companys aggregate 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.
 - 24 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Segment revenues:Pharmaceutical segment
    
    $
    5,006.1
    
    
    $
    4,999.8
    
    
    $
    9,817.5
    
    
    $
    9,773.9Vaccines and Infectious Diseases segment
    
    
    1,026.6
    
    
    
    1,045.6
    
    
    
    2,012.2
    
    
    
    1,977.1Other segment revenues
    
    
    19.1
    
    
    
    44.0
    
    
    
    44.1
    
    
    
    80.7$
    6,051.8
    
    
    $
    6,089.4
    
    
    $
    11,873.8
    
    
    $
    11,831.7Segment profits:(1)Pharmaceutical segment
    
    $
    3,112.6
    
    
    $
    3,431.0
    
    
    $
    6,231.9
    
    
    $
    6,672.5Vaccines and Infectious Diseases segment
    
    
    645.6
    
    
    
    614.8
    
    
    
    1,270.2
    
    
    
    1,125.3Other segment profits
    
    
    119.2
    
    
    
    128.4
    
    
    
    265.2
    
    
    
    282.5$
    3,877.4
    
    
    $
    4,174.2
    
    
    $
    7,767.3
    
    
    $
    8,080.3
 (1)
    Includes the majority of Equity income from affiliates.
 - 25 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
 (1)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Pharmaceutical:Singulair
    
    $
    1,081.6
    
    
    $
    1,091.8
    
    
    $
    2,185.3
    
    
    $
    2,093.8Cozaar/Hyzaar
    
    
    941.1
    
    
    
    847.2
    
    
    
    1,788.0
    
    
    
    1,645.2Fosamax
    
    
    411.2
    
    
    
    785.6
    
    
    
    881.0
    
    
    
    1,527.8Januvia
    
    
    333.8
    
    
    
    143.6
    
    
    
    605.9
    
    
    
    230.7Cosopt/Trusopt
    
    
    217.4
    
    
    
    192.0
    
    
    
    418.8
    
    
    
    378.1Zocor
    
    
    176.8
    
    
    
    178.0
    
    
    
    355.9
    
    
    
    436.4Maxalt
    
    
    130.3
    
    
    
    109.0
    
    
    
    251.9
    
    
    
    216.4Propecia
    
    
    107.6
    
    
    
    98.3
    
    
    
    212.6
    
    
    
    193.6Arcoxia
    
    
    103.9
    
    
    
    88.7
    
    
    
    197.3
    
    
    
    169.1Vasotec/Vaseretic
    
    
    93.7
    
    
    
    127.5
    
    
    
    189.4
    
    
    
    249.1Proscar
    
    
    86.0
    
    
    
    113.1
    
    
    
    171.0
    
    
    
    238.4Janumet
    
    
    72.4
    
    
    
    24.3
    
    
    
    130.8
    
    
    
    24.3Emend
    
    
    65.4
    
    
    
    47.1
    
    
    
    125.0
    
    
    
    94.7Other pharmaceutical(2)
    
    
    625.4
    
    
    
    711.2
    
    
    
    1,215.2
    
    
    
    1,405.0Vaccine and infectious disease product sales
included in the Pharmaceutical segment (3)
    
    
    559.5
    
    
    
    442.4
    
    
    
    1,089.4
    
    
    
    871.3Pharmaceutical segment revenues
    
    
    5,006.1
    
    
    
    4,999.8
    
    
    
    9,817.5
    
    
    
    9,773.9Vaccines(4)and Infectious Diseases:Gardasil
    
    
    325.7
    
    
    
    357.5
    
    
    
    716.1
    
    
    
    723.0RotaTeq
    
    
    177.8
    
    
    
    119.1
    
    
    
    367.9
    
    
    
    204.1Zostavax
    
    
    66.1
    
    
    
    46.8
    
    
    
    139.6
    
    
    
    89.5ProQuad/M-M-R II/Varivax
    
    
    317.8
    
    
    
    343.5
    
    
    
    543.5
    
    
    
    589.6Hepatitis vaccines
    
    
    37.9
    
    
    
    79.6
    
    
    
    71.8
    
    
    
    151.1Other vaccines
    
    
    69.5
    
    
    
    95.9
    
    
    
    142.1
    
    
    
    188.0Primaxin
    
    
    201.3
    
    
    
    185.7
    
    
    
    404.0
    
    
    
    382.8Cancidas
    
    
    160.7
    
    
    
    134.0
    
    
    
    309.5
    
    
    
    268.0Crixivan/Stocrin
    
    
    79.0
    
    
    
    75.3
    
    
    
    154.3
    
    
    
    157.6Invanz
    
    
    70.5
    
    
    
    46.2
    
    
    
    126.0
    
    
    
    87.8Isentress
    
    
    77.2
    
    
    
    4.1
    
    
    
    123.7
    
    
    
    6.5Other infectious disease
    
    
    2.6
    
    
    
    0.3
    
    
    
    3.1
    
    
    
    0.4Vaccine and infectious disease product sales
included in the Pharmaceutical segment (3)
    
    
    (559.5
    )
    
    
    (442.4
    )
    
    
    (1,089.4
    )
    
    
    (871.3
    )Vaccines and Infectious Diseases segment revenues
    
    
    1,026.6
    
    
    
    1,045.6
    
    
    
    2,012.2
    
    
    
    1,977.1Other segment (5)
    
    
    19.1
    
    
    
    44.0
    
    
    
    44.1
    
    
    
    80.7Total segment revenues
    
    
    6,051.8
    
    
    
    6,089.4
    
    
    
    11,873.8
    
    
    
    11,831.7Other (6)
    
    
    -
    
    
    
    22.0
    
    
    
    0.1
    
    
    
    49.0$
    6,051.8
    
    
    $
    6,111.4
    
    
    $
    11,873.9
    
    
    $
    11,880.7
 (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 $455.8 million
and $524.4 million for the second quarter of 2008 and 2007, respectively, and was $860.5
million and $1,021.9 million for the first six months of 2008 and 2007, 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.
 -  26 -




---



##### Table of Contents



Notes to Consolidated Financial Statements (unaudited)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Segment profits
    
    $
    3,877.4
    
    
    $
    4,174.2
    
    
    $
    7,767.3
    
    
    $
    8,080.3Other profits
    
    
    (15.8
    )
    
    
    29.8
    
    
    
    (27.9
    )
    
    
    30.0Adjustments
    
    
    100.9
    
    
    
    89.3
    
    
    
    199.7
    
    
    
    172.2Unallocated:Interest income
    
    
    143.4
    
    
    
    172.3
    
    
    
    313.0
    
    
    
    354.0Interest expense
    
    
    (50.6
    )
    
    
    (103.3
    )
    
    
    (123.2
    )
    
    
    (205.7
    )Equity income from affiliates
    
    
    (16.3
    )
    
    
    85.0
    
    
    
    (1.2
    )
    
    
    132.7Depreciation and amortization
    
    
    (349.3
    )
    
    
    (464.1
    )
    
    
    (712.4
    )
    
    
    (930.5
    )Research and development
    
    
    (1,169.3
    )
    
    
    (1,030.5
    )
    
    
    (2,247.6
    )
    
    
    (2,060.6
    )Gain on distribution from AstraZeneca LP
    
    
    -
    
    
    
    -
    
    
    
    2,222.7
    
    
    
    -Other expenses, net
    
    
    (461.9
    )
    
    
    (720.5
    )
    
    
    (921.0
    )
    
    
    (1,085.8
    )$
    2,058.5
    
    
    $
    2,232.2
    
    
    $
    6,469.4
    
    
    $
    4,486.6
   - 27 -




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Operating Results  Sales  Fosamax Fosamax Fosamax Plus D Gardasil Januvia Janumet Cozaar/Hyzaar* Isentress
 Fosamax Zocor Januvia Janumet Cozaar/Hyzaar Isentress Singulair RotaTeq
  Cozaar Hyzaar
 - 28 -




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Pharmaceutical:Singulair
    
    $
    1,081.6
    
    
    $
    1,091.8
    
    
    $
    2,185.3
    
    
    $
    2,093.8Cozaar/Hyzaar
    
    
    941.1
    
    
    
    847.2
    
    
    
    1,788.0
    
    
    
    1,645.2Fosamax
    
    
    411.2
    
    
    
    785.6
    
    
    
    881.0
    
    
    
    1,527.8Januvia
    
    
    333.8
    
    
    
    143.6
    
    
    
    605.9
    
    
    
    230.7Cosopt/Trusopt
    
    
    217.4
    
    
    
    192.0
    
    
    
    418.8
    
    
    
    378.1Zocor
    
    
    176.8
    
    
    
    178.0
    
    
    
    355.9
    
    
    
    436.4Maxalt
    
    
    130.3
    
    
    
    109.0
    
    
    
    251.9
    
    
    
    216.4Propecia
    
    
    107.6
    
    
    
    98.3
    
    
    
    212.6
    
    
    
    193.6Arcoxia
    
    
    103.9
    
    
    
    88.7
    
    
    
    197.3
    
    
    
    169.1Vasotec/Vaseretic
    
    
    93.7
    
    
    
    127.5
    
    
    
    189.4
    
    
    
    249.1Proscar
    
    
    86.0
    
    
    
    113.1
    
    
    
    171.0
    
    
    
    238.4Janumet
    
    
    72.4
    
    
    
    24.3
    
    
    
    130.8
    
    
    
    24.3Emend
    
    
    65.4
    
    
    
    47.1
    
    
    
    125.0
    
    
    
    94.7Other pharmaceutical(1)
    
    
    625.4
    
    
    
    711.2
    
    
    
    1,215.2
    
    
    
    1,405.0Vaccine and infectious disease product sales
included in the Pharmaceutical segment (2)
    
    
    559.5
    
    
    
    442.4
    
    
    
    1,089.4
    
    
    
    871.3Pharmaceutical segment revenues
    
    
    5,006.1
    
    
    
    4,999.8
    
    
    
    9,817.5
    
    
    
    9,773.9Vaccines(3)and Infectious Diseases:Gardasil
    
    
    325.7
    
    
    
    357.5
    
    
    
    716.1
    
    
    
    723.0RotaTeq
    
    
    177.8
    
    
    
    119.1
    
    
    
    367.9
    
    
    
    204.1Zostavax
    
    
    66.1
    
    
    
    46.8
    
    
    
    139.6
    
    
    
    89.5ProQuad/M-M-R II/Varivax
    
    
    317.8
    
    
    
    343.5
    
    
    
    543.5
    
    
    
    589.6Hepatitis vaccines
    
    
    37.9
    
    
    
    79.6
    
    
    
    71.8
    
    
    
    151.1Other vaccines
    
    
    69.5
    
    
    
    95.9
    
    
    
    142.1
    
    
    
    188.0Primaxin
    
    
    201.3
    
    
    
    185.7
    
    
    
    404.0
    
    
    
    382.8Cancidas
    
    
    160.7
    
    
    
    134.0
    
    
    
    309.5
    
    
    
    268.0Crixivan/Stocrin
    
    
    79.0
    
    
    
    75.3
    
    
    
    154.3
    
    
    
    157.6Invanz
    
    
    70.5
    
    
    
    46.2
    
    
    
    126.0
    
    
    
    87.8Isentress
    
    
    77.2
    
    
    
    4.1
    
    
    
    123.7
    
    
    
    6.5Other infectious disease
    
    
    2.6
    
    
    
    0.3
    
    
    
    3.1
    
    
    
    0.4Vaccine and infectious disease product sales
included in the Pharmaceutical segment (2)
    
    
    (559.5
    )
    
    
    (442.4
    )
    
    
    (1,089.4
    )
    
    
    (871.3
    )Vaccines and Infectious Diseases segment revenues
    
    
    1,026.6
    
    
    
    1,045.6
    
    
    
    2,012.2
    
    
    
    1,977.1Other segment (4)
    
    
    19.1
    
    
    
    44.0
    
    
    
    44.1
    
    
    
    80.7Total segment revenues
    
    
    6,051.8
    
    
    
    6,089.4
    
    
    
    11,873.8
    
    
    
    11,831.7Other (5)
    
    
    -
    
    
    
    22.0
    
    
    
    0.1
    
    
    
    49.0$
    6,051.8
    
    
    $
    6,111.4
    
    
    $
    11,873.9
    
    
    $
    11,880.7
 (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 $455.8 million and $524.4 million for the second
quarter of 2008 and 2007, respectively, and was $860.5 million and $1,021.9 million for the
first six months of 2008 and 2007, 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.


- 29 -



---



##### Table of Contents



Pharmaceutical Segment Revenues  Januvia, Janumet, Cozaar/Hyzaar Isentress, Fosamax Nexium Zocor.
 Singulair Singulair
 Cozaar Hyzaar Cozaar Hyzaar
 Fosamax Fosamax Plus D Fosavance Fosamac Fosamax
 Januvia Januvia
 th Januvia Januvia
 th Januvia Januvia Januvia Januvia


- 30 -



---



##### Table of Contents



Janumet Januvia Janumet, Janumet Janumet
 Zocor
 Maxalt Cosopt Emend Arcoxia Propecia
 Arcoxia Arcoxia
 Aggrastat
 (Nexium)
 Vaccines and Infectious Diseases Segment Revenues  Varivax, M-M-R ProQuad Gardasil RotaTeq, Isentress. RotaTeq Isentress, .
  Gardasil Gardasil Gardasil Gardasil,


- 31 -



---



##### Table of Contents



Gardasil Gardasil Gardasil Gardasil Gardasil
 RotaTeq
 Varivax ProQuad M-M-R Varivax ProQuad
 Varivax Varivax ProQuad M-M-R Varivax M-M-R ProQuad ProQuad M-M-R Varivax
 Isentress Isentress Isentress Isentress Isentress
 Isentress New
England Journal of Medicine


- 32 -



---



##### Table of Contents



Zostavax Cancidas, Invanz
 Zostavax Zostavax Morbidity and Mortality Weekly Report
 Zostavax Zostavax Zostavax
  Costs, Expenses and Other
   Fosamax


- 33 -



---



##### Table of Contents



Vioxx
  Tredaptive Tredaptive Tredaptive Tredaptive Tredaptive Tredaptive
 Cordaptive Tredaptive


- 34 -



---



##### Table of Contents



1


- 35 -



---



##### Table of Contents



Phase IAlzheimers DiseaseV950AtherosclerosisMK-1903CancerMK-0752MK-2461MK-1775MK-2206MK-5108CardiovascularMK-0448DiabetesMK-0941MK-4074MK-8245Infectious DiseaseMK-3281MK-4965MK-7009NeurologicMK-8998MK-4305Psychiatric DiseaseMK-5757
 Phase IIAlzheimers DiseaseMK-0249AtherosclerosisMK-6213CancerMK-0646MK-0822CardiovascularMK-8141DiabetesMK-0893HPVV503Infectious DiseaseV419V710NeurologicMK-0249OphthalmicSIRNA-027(1)MK-0140PainMK-2295*Psychiatric DiseaseMK-0249Respiratory DiseaseMK-0633SarcopeniaMK-2866StrokeMK-0724
 Phase IIIAtherosclerosisMK-0524A(extended-releaseniacin/laropiprant)MK-0524B(extended-releaseniacin/laropiprant/simvastatin)MK-0859(anacetrapib)CancerMK-8669(deforolimus;AP23573)Heart FailureMK-7418(rolofylline;KW3902)Hepatitis B VaccineV270(on hold)ObesityMK-0364(taranabant)OsteoporosisMK-0822(odanacatib)MigraineMK-0974(telcagepant)
 2008 U.S. ApprovalsCINV
Emendfor Injection
    (MK-0517)
  *
    
    Proof-of-Concept Molecule(1)
    
    Clinical Program conducted by Allergan, Inc.
   Zetia Vytorin Zetia


- 36 -



---



##### Table of Contents



Gardasil.
 Aggrastat Vioxx
 Segment Profits
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,($ in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Pharmaceutical segment
    
    $
    3,112.6
    
    
    $
    3,431.0
    
    
    $
    6,231.9
    
    
    $
    6,672.5Vaccines and Infectious Diseases segment
    
    
    645.6
    
    
    
    614.8
    
    
    
    1,270.2
    
    
    
    1,125.3Other segment
    
    
    119.2
    
    
    
    128.4
    
    
    
    265.2
    
    
    
    282.5Other
    
    
    (1,818.9
    )
    
    
    (1,942.0
    )
    
    
    (1,297.9
    )
    
    
    (3,593.7
    )Income before income taxes
    
    $
    2,058.5
    
    
    $
    2,232.2
    
    
    $
    6,469.4
    
    
    $
    4,486.6
  Fosamax Nexium
 Isentress RotaTeq


- 37 -



---



##### Table of Contents



Selected Joint Venture and Affiliate Information  Merck/Schering-Plough Partnership  Zetia Vytorin Zetia Ezetrol Zetia Vytorin Inegy Vytorin
 Vytorin
 Vytorin Vytorin Vytorin Vytorin Vytorin Vytorin Vytorin Vytorin Vytorin Vytorin
 Vytorin Zetia.
 Zetia Vytorin.


- 38 -



---



##### Table of Contents



Singulair Zetia
 AstraZeneca LP
  Nexium Prilosec
  Sanofi Pasteur MSD  Gardasil Gardasil


- 39 -



---



##### Table of Contents



Liquidity and Capital Resources
 June 30,
    
    
    December 31,($ in millions)
    
    2008
    
    
    2007Cash and investments
    
    $
    16,772.4
    
    
    $
    15,390.0Working capital
    
    $
    7,874.3
    
    
    $
    2,787.2Total debt to total liabilities and equity
    
    
    10.8
    %
    
    
    11.9
    %
   Vioxx
 Vioxx


- 40 -



---



##### Table of Contents



Financial Instruments and Market Risk Disclosure
 Critical Accounting Policies
 Fair Value Measurements
 Recently Issued Accounting Standards  The Hierarchy of Generally Accepted Accounting
Principles
 - 41 -




---



##### Table of Contents



The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting Principles
 Disclosures about Derivative Instruments and
Hedging Activities
 Accounting for Collaborative Arrangements
 Business Combinations Noncontrolling Interests in Consolidated Financial Statementsan amendment of
ARB No. 51
 , Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities
 Legal Proceedings
 Vioxx Litigation  Product Liability Lawsuits  Vioxx Vioxx Vioxx
 - 42 -




---



##### Table of Contents



Vioxx
 Vioxx
 Vioxx Vioxx
 www.merck.com Vioxx Vioxx
   - 43 -




---



##### Table of Contents



Vioxx www.merck.com
 Vioxx
 Vioxx
 Vioxx Vioxx
 - 44 -




---



##### Table of Contents



Vioxx
   Other Lawsuits  Vioxx Vioxx Vioxx
  Vioxx Vioxx. Vioxx.
  - 45 -




---



##### Table of Contents



Vioxx Vioxx Vioxx
 Vioxx qui tam
 Shareholder Lawsuits  Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx Vioxx
 Vioxx
 Vioxx Vioxx Vioxx Vioxx
 - 46 -




---



##### Table of Contents



Vioxx Vytorin
 Vioxx Vioxx
 International Lawsuits  Vioxx Vioxx
 Vioxx Vioxx Vioxx Vioxx Vioxx
 Additional Lawsuits  Vioxx Vioxx Vioxx Vioxx
 Insurance  Vioxx Vioxx Vioxx Vioxx Vioxx
 - 47 -




---



##### Table of Contents



Vioxx Vioxx Vioxx
 - 48 -




---



##### Table of Contents



Investigations  Vioxx. Vioxx Vioxx Vioxx
 Vioxx
 Vioxx
 Reserves  Vioxx Vioxx
 Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx
 - 49 -




---



##### Table of Contents



Vioxx Vioxx
  Other
Product Liability Litigation  Fosamax Fosamax Fosamax Fosamax Fosamax Fosamax Fosamax
 Fosamax Fosamax Fosamax Fosamax Fosamax Fosamax
 Vytorin/Zetia Litigation  Vytorin Vytorin Zetia Vytorin.
 - 50 -




---



##### Table of Contents



Vytorin Zetia
 Vytorin Vytorin Vytorin Vytorin
 Patent Litigation  Propecia, Prilosec, Nexium, Singulair, Trusopt, Cosopt Primaxin Prilosec Nexium Zetia Prilosec. Propecia Trusopt Singulair Cosopt Primaxin Prilosec Nexium Zetia
 Nexium
 Nexium
 Primaxin
 - 51 -




---



##### Table of Contents



Other Litigation
 - 52 -




---



##### Table of Contents



Item 4. Controls and Procedures
    CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
   - 53 -




---



##### Table of Contents



PART II - Other Information
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   ($ in millions)Total Number
    
    Average Price
    
    Approximate Dollar Value of Sharesof Shares
    
    Paid Per
    
    That May Yet Be PurchasedPeriod
    
    Purchased(1)
    
    Share
    
    Under the Plans or Programs(1)April 1 - April 30, 2008
    
    1,490,700
    
    $39.73
    
    $3,660.7May 1 - May 31, 2008
    
    1,445,600
    
    $39.25
    
    $3,604.0June 1 - June 30, 2008
    
    1,569,400
    
    $36.54
    
    $3,546.6Total
    
    4,505,700
    
    $38.46
    
    $3,546.6
 (1)
    
    All shares purchased during the period were made as part of a plan announced
in July 2002 to purchase $10 billion in Merck shares.
 
 Item 4. Submission of Matters to a Vote of Security Holders
  1.
    
    All of the following persons nominated were elected to serve as directors and received the
number of votes set opposite their respective names:
 Names
    
    For
    
    Against
    
    AbstainedRichard T. Clark
    
    1,726,834,169
    
    40,371,624
    
    27,747,644Johnnetta B. Cole
    
    1,654,276,170
    
    112,868,463
    
    27,808,804Thomas H. Glocer
    
    1,723,150,026
    
    42,192,325
    
    29,611,086Steven F. Goldstone
    
    1,700,004,263
    
    65,387,263
    
    29,561,911William B. Harrison, Jr.
    
    1,733,693,248
    
    33,220,742
    
    28,039,447Harry R. Jacobson
    
    1,714,546,214
    
    52,624,976
    
    27,782,247William N. Kelley
    
    1,640,053,651
    
    127,066,625
    
    27,833,161Rochelle B. Lazarus
    
    1,659,065,633
    
    107,964,025
    
    27,923,779Thomas E. Shenk
    
    1,612,523,261
    
    154,575,586
    
    27,854,590Anne M. Tatlock
    
    1,668,399,466
    
    98,621,822
    
    27,932,149Samuel O. Thier
    
    1,657,798,852
    
    109,379,062
    
    27,775,523Wendell P. Weeks
    
    1,669,618,126
    
    97,242,391
    
    28,092,840Peter C. Wendell
    
    1,670,269,323
    
    96,750,440
    
    27,933,674
 2.
    
    A proposal to ratify the
appointment of an independent registered public accounting firm for
2008 received 1,738,682,017 votes FOR and 29,510,260 votes AGAINST, with 26,761,160
abstentions.
 - 54 -




---



##### Table of Contents



3.
    
    A stockholder proposal concerning management compensation received 59,128,671 votes FOR and
1,431,137,170 votes AGAINST, with 31,287,357 abstentions and 273,400,239 broker non-votes.4.
    
    A stockholder proposal concerning an advisory vote on executive compensation received
670,490,602 votes FOR and 717,160,569 votes AGAINST, with 133,902,027 abstentions and
273,400,239 broker non-votes.5.
    
    A stockholder proposal concerning special shareholder meetings received 856,369,728 votes FOR
and 633,464,775 votes AGAINST, with 31,718,695 abstentions and 273,400,239 broker non-votes.6.
    
    A stockholder proposal concerning an independent lead director received 647,314,773 votes FOR
and 841,198,136 votes AGAINST, with 33,040,289 abstentions and 273,400,239 broker non-votes.
 
 Item 6. Exhibits
 Number
    
    
    
    Description3.1
    
    
    
    
    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 May 31, 2007) 
Incorporated by reference to Current Report on Form 8-K dated May 31,
200710.1
    
    
    
    
    Cholesterol Governance Agreement, dated as of May 22, 2000, by and
among MSP Distribution Services (C) LLC, MSP Marketing Services (C)
LLC, MSP Technology (US) Company LLC, Merck Cardiovascular Health
Company, Merck Technology (US) Company, Inc., Schering MSP
Corporation, Schering Sales Management, Inc., Schering Sales
Corporation, Schering MSP Pharmaceuticals L.P., MSP Cholesterol LLC,
MSP Singapore Company, LLC, MSD Technology Singapore Pte. Ltd., MSD
Ventures Singapore Pte. Ltd., Osammor Pte. Ltd. (to be renamed
Schering-Plough (Singapore) Pte. Ltd.), Citimere Pte. Ltd. (to be
renamed Schering-Plough (Singapore) Research Pte. Ltd.), Schering
Corporation, Schering-Plough Corporation, and Merck & Co., Inc.
(Portions of this Exhibit are subject to a request for confidential
treatment filed with the Commission)10.2
    
    
    
    
    First Amendment to the Cholesterol Governance Agreement, dated as of
December 18, 2001, by and among MSP Distribution Services (C) LLC,
MSP Marketing Services (C) LLC, MSP Technology (US) Company LLC,
Merck Cardiovascular Health Company, Merck Technology (US) Company,
Inc., Schering MSP Corporation, Schering Sales Management, Inc.,
Schering Sales Corporation, Schering MSP Pharmaceuticals L.P., MSP
Singapore Company, LLC (the Singapore Partnership), MSD Technology
Singapore Pte. Ltd., MSD Ventures Singapore Pte. Ltd.,
Schering-Plough (Singapore) Pte. Ltd., Schering-Plough (Singapore)
Research Pte. Ltd., Schering Corporation, Schering-Plough
Corporation, and Merck & Co., Inc. (Portions of this Exhibit are
subject to a request for confidential treatment filed with the
Commission)10.3
    
    
    
    
    Master Agreement, dated as of December 18, 2001, by and among MSP
Technology (U.S.) Company LLC, MSP Singapore Company, LLC, Schering
Corporation, Schering-Plough Corporation, and Merck & Co., Inc.
(Portions of this Exhibit are subject to a request for confidential
treatment filed with the Commission)10.4
    
    
    
    
    Master Merial Venture Agreement, dated as of May 23, 1997, by and
among Rhône-Poulenc S.A., Institut Mérieux S.A., Rhône-Mérieux S.A.,
Merck & Co., Inc., Merck SH Inc., and Merial Limited (Portions of
this Exhibit are subject to a request for confidential treatment
filed with the Commission)31.1
    
    
    
    
    Rule 13a  14(a)/15d  14(a) Certification of Chief Executive Officer
 - 55 -




---



##### Table of Contents



31.2
    
    
    
    
    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
 - 56 -




---



##### Table of Contents



Signatures
  MERCK & CO., INC.Date: July  31, 2008
    /s/ Bruce N. KuhlikBRUCE N. KUHLIKExecutive Vice President and General CounselDate: July 31, 2008
    /s/ John CananJOHN CANANSenior Vice President and Controller - 57 -




---



##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description3.1
    
    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 May 31, 2007) 
Incorporated by reference to Current Report on Form 8-K dated May 31,
200710.1
    
    Cholesterol Governance Agreement, dated as of May 22, 2000, by and
among MSP Distribution Services (C) LLC, MSP Marketing Services (C)
LLC, MSP Technology (US) Company LLC, Merck Cardiovascular Health
Company, Merck Technology (US) Company, Inc., Schering MSP
Corporation, Schering Sales Management, Inc., Schering Sales
Corporation, Schering MSP Pharmaceuticals L.P., MSP Cholesterol LLC,
MSP Singapore Company, LLC, MSD Technology Singapore Pte. Ltd., MSD
Ventures Singapore Pte. Ltd., Osammor Pte. Ltd. (to be renamed
Schering-Plough (Singapore) Pte. Ltd.), Citimere Pte. Ltd. (to be
renamed Schering-Plough (Singapore) Research Pte. Ltd.), Schering
Corporation, Schering-Plough Corporation, and Merck & Co., Inc.
(Portions of this Exhibit are subject to a request for confidential
treatment filed with the Commission)10.2
    
    First Amendment to the Cholesterol Governance Agreement, dated as of
December 18, 2001, by and among MSP Distribution Services (C) LLC,
MSP Marketing Services (C) LLC, MSP Technology (US) Company LLC,
Merck Cardiovascular Health Company, Merck Technology (US) Company,
Inc., Schering MSP Corporation, Schering Sales Management, Inc.,
Schering Sales Corporation, Schering MSP Pharmaceuticals L.P., MSP
Singapore Company, LLC (the Singapore Partnership), MSD Technology
Singapore Pte. Ltd., MSD Ventures Singapore Pte. Ltd.,
Schering-Plough (Singapore) Pte. Ltd., Schering-Plough (Singapore)
Research Pte. Ltd., Schering Corporation, Schering-Plough
Corporation, and Merck & Co., Inc. (Portions of this Exhibit are
subject to a request for confidential treatment filed with the
Commission)10.3
    
    Master Agreement, dated as of December 18, 2001, by and among MSP
Technology (U.S.) Company LLC, MSP Singapore Company, LLC, Schering
Corporation, Schering-Plough Corporation, and Merck & Co., Inc.
(Portions of this Exhibit are subject to a request for confidential
treatment filed with the Commission)10.4
    
    Master Merial Venture Agreement, dated as of May 23, 1997, by and
among Rhône-Poulenc S.A., Institut Mérieux S.A., Rhône-Mérieux S.A.,
Merck & Co., Inc., Merck SH Inc., and Merial Limited (Portions of
this Exhibit are subject to a request for confidential treatment
filed with the Commission)31.1
    
    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
 - 58 -