默克藥廠 (MRK) 2002 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to your Merck and Company first quarter earnings release teleconference.

At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments following today's presentation.

It is now my pleasure to turn the floor over to your host for today's call, Mr. Mark Strejbach. Sir, you may begin.

Thank you, Nick. Good morning, everybody, and welcome to our first quarter '02 earnings call and simultaneous Webcast.

You should have received your faxes this morning, and if you haven't, the financial statements have also been posted to the Web site.

This is Mark Strejbach, Senior Director of Investor Relations, and wanted to just walk through starting with the P&L, as is our tradition. You can see that EPS came in at 71 cents per share, in line with First Call Analyst

.

This was the same as first quarter '01. We'll walk through the P&L as usual, and then we'll look at the pharma business as a stand-alone.

Before I do that, I just want to mention that during this call I may discuss certain subjects that may contain forward-looking information as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include items such as guidance of earnings and other income statement components, statements related to our growth rate expectations, product positioning relative to competition.

And I caution that the actual results could differ materially from those that may be projected in these discussions.

Additional information concerning a number of factors that could cause actual results to differ materially from the information that we will provide today is available in our most recent 10-K.

So, moving then on to the P&L, sales were 12.2 billion, an increase of about seven percent over last year. Cost and expense, as you can see, were 9.8 billion.

That's up about nine-and-a-half percent, and that's largely driven by the materials and production cost of nearly eight billion -- up 13 percent. And this increase is entirely driven by the cost of goods within the metro business, as you'll see.

This resulted in a gross margin of 34.4 percent and we'll discuss that in a little bit more detail when we look at the pharma standalone.

As you know, this fluctuates based on the mix of our business. Recall that our guidance last quarter for full year 2002 was gross margin of 37 percent. We're still comfortable with that estimate for full year 2002.

And again, mix and fluctuation between the two businesses effects that quarter to quarter.

If we turn to marketing and admin it's about $1.5 billion and that's down a couple of percentage points. Now you do know that we added 1000 representatives in the U.S. last year.

And we are still planning to add 500 by about mid year this year, as we've said previously. And that will bring our total in the U.S. to about 6500.

Also reflected in these numbers, however, is the efficiency efforts initiated late last year, particularly towards the end of the year so it shows up in this quarter's numbers. And that really resulted -- these savings came from elimination of many non core activities, more efficient organization primarily in the marketing and sales support area.

So going forward, this gives us a lower cost structure in this area, but still allows us to strongly support our key franchises and our key activities. So strong support going forward would be for this inline products that well discuss in detail as well as some of the new indications and products that we'll discuss later on the call.

For full year, as we've said previously, we still expect to maintain low single digit growth for the year on marketing and admin.

Next moving to R&D, a similar story here, 530 million in R&D. That's a slightly decrease from first quarter '01.

As we've said, however, we plan to invest 2.9 billion in R&D for '02, a substantial increase over last year and we're still comfortable with that number. Recognize that the timing of R&D expenses fluctuate throughout the year in part based on the timing and the pattern of expenses for large clinical throughout the year.

As you know, if you followed us last year, there were several large studies that wrapped up including the heart protection study with Zocor, the life and renal studies for Cozaar. And so this pattern during the year will increase as new studies begin and the advancement of our pipeline products into later stage development will continue.

You know for instance we're in phase three all ready for HPV vaccine, the Substance P Antagonist for both emesis and depression. We expect the filing of emesis in fact, later this year.

And we expect to move KRP-297 our diabetes

compound into phase three.

So as a number of these late stage activities increase during the quarter, you'll see an increase rate of R&D spend.

And we're still comfortable with that full year number.

We continue to invest significantly in basic research maintaining our overall strategy of turning cutting edge science into break through medicines.

And in fact, even in this first quarter number, I can tell you that basic R&D was up a healthy 17 percent on a real volume basis.

As you know, we'll be filing or launching 11 new medications between now and 2006, and these R&D investments this year are absolutely aligned with that strategy.

Also reflected in these numbers, similar to marketing and admin, the benefits of our operational and structural changes last year, again towards the end of the year, to lower cost structure going forward, but again basic and late-stage clinical development will show healthy increases on the year.

Moving down, then, to the equity income and other income line, in equity income we show 44 million, roughly similar to last quarter. There are some details on the next page of the financial disclosures, and you can see, for instance, interest income was down slightly.

If you look to some of the alliances -- the joint venture, you'll notice moving down for

, there actually was small growth this year -- a few percent. But that was offset by exchange, so that resulted in the flat sales you see of about 400 million.

And then for

-- the vaccine business, that was down about 14 percent largely due to shortages of vaccine supply. And this is something we discussed last year, and those are be -- those are being worked through.

So, if we go back, then, to the first page, again you get to the net income number. I also want to point out that, as you know, earlier this year we announced our intent to IPO a portion of Medco followed by full separation.

And that filing has been made, and that filing will be amended with first quarter results for '02 for Medco when we provide new info to the SEC based on any comments they may have on the filing.

And therefore, I'm really not going to discuss the Medco results today.

You will see from the first page, however, that Medco sales for the quarter were up 14 percent, and you can see that's really reflected in the total top line sales.

So just pack to the P&L for a minute, I just want to comment that the tax rate was 30 percent -- same as last year. And that's in line with our guidance for the year which continues to be 30 to thirty-and-a-half percent.

Total -- all of this resulted in EPS for the quarter of 71 cents, as mentioned, in line with expectations.

Shares outstanding are still roughly 2.3 billion, but you'll see down just a couple of percent versus last year, and this reflects really the -- last year's treasury buyback of 3.9 billion which was our largest full-year spend ever.

I can tell you that this quarter, we spent approximately 500 million in this program, and that leaves us a remaining 3.2 billion under the current $10 billion authorization going back to 2000.

At this point, I want to turn to total pharma sales. So this would be the last page in your package, and it's labeled "Additional Disclosure Core Pharma Business."

This is one you're not used to seeing.

So as I mentioned, we are providing additional information, financial information this quarter on Merck pharma as a standalone, that is Medco. Of course, you know that we'll continue to report on a consolidated basis until the full separation of Merck and the Merck Medco business is achieved.

But until that time, we are now providing -- will continue to provide a look at Merck standalone.

I do want to caution that one cannot simply subtract one business out of consolidated to get to the other.

For example, you have the sales of Merck products through the Medco business. There are certain shared services and a common capital structure as one consolidated company.

And, of course, you've seen that in the past because we have to eliminate the double count. But really we're doing this a look at the core pharma.

And similarly if you want to talk about Medco as a stand alone, again, I'll refer you to the S-1 which was up yesterday and available SEC.freeEDGAR.com.

So again, this is just core pharma. You can't get to one by looking at the other and so we're making this easier for you.

Clearly this is consistent with our believe that full and fair disclosure of our entire financial position is critical for investors to have an accurate understanding of the company's profile. And in fact, we have cited better transparency in both businesses as something that will be a beneficial result of this separate.

So this is really to help you think about what Merck will look like post spin. And these adjustments are the same as what will occur post spin.

The last comment on this is we're not giving any guidance on this core pharma business. Guidance -- all of the guidance I've mentioned and will mention is all about consolidated as reported, but again, we felt it was important to give you a look at the core pharma business.

OK. So now let's just walk through that a little bit.

I think you'll see there's really no surprises here since the core pharma really drives the overall business except for instance on the top line, were you saw the Medco sales effect.

So at the beginning, in fact, I mentioned that total company sales increased seven percent for the quarter and Medco grew 14 percent on the top line. You can see here the pharma business decreased two percent to 4.8 billion.

And this decrease includes a negative three percent effective exchange and minus one on price. So overall the volume of the business was up about two percent.

Now there's several important factors contributed to this total and I want to spend just a couple of minutes walking you through them, because I think you'll really see the Merck story very clearly as we break it down before we move into some of the other P&L items.

Most importantly, I can tell you that our five largest products that's Zocor, Vioxx, Fosamax, Singulair and the Cozaar-Hyzaar franchise continue to perform quite well.

And those products collectively were up 23 percent in this quarter over last year. These products provide the platform for future growth that we've discussed in the past.

We expect strong growth to continue on the basis of expanding markets, new claims, and studies, and we'll discuss these when we get to the individual products.

There are two components offsetting some of that growth, however, but unlike the sustained growth of the big five, these effects are expected to be transient.

The primary offsetting factor is the U.S. patent expiration products.

We are now nearing the end of the patent expire period of several blockbuster drugs, previously each over a billion dollars. And those are Vasotec, Pepcid, Mevacor, and Prinivil.

These first three lost market exclusivity during the last year-and-a-half or so, and Prinivil will be next in just a couple of months, as we've discussed previously.

So, focusing just on these patent expire products in the U.S., these four products were down 43 percent versus last year.

And due to this decline in this group of products, as well as the growth in our other products, these four patent

products fell from making up 21 percent of our pharma sales last year to just 12 percent this year -- that is, in this first quarter.

So, playing -- having a smaller and smaller role in our total mix of business.

It's also worth noting that within this group, most of the sales are still contributed by Prinivil, which, as I mentioned, will lose market exclusivity at the end of June.

Now, Prinivil is already in decline. It's down about nine percent this quarter, and that's really reflecting the end of the product life cycle.

But one would expect that, based on the loss of exclusivity, again, the sales of these products will continue to represent less and less of our business. And essentially, this reflects the end of the patent expiration period, as we've been discussing.

I will also tell you that total vaccine sales for the quarter decreased 35 percent. And you'll see some of these changes on your product sheet.

And note that this is actually Europe, which flows through

the equity income line. And this decrease was essentially due to supply shortages which occurred last year during manufacturing process changes, and we've discussed those previously.

Importantly, we are producing, we're working through the backorders, and we expect to be caught up by sometime this summer. But clearly, this offset some growth, and, again, we would expect this to be a transient effect just as I described with the -- with the patent

products.

In addition, as you know, we have guided to and expect to see decreased supply sales from our AstraZeneca agreement, due to the patent expiration on Prilosec primarily, and so we'll expect that to continue, as we've said in the past.

So, there you have it really. There's quite a mix within this core pharma business based on several very different factors.

I want to make one last comment on the U.S. sales of -- U.S. pharma sales. And that is we're aware that some customers elect to purchase additional inventory in anticipation of future needs.

And I want to point out this wholesaler purchase behavior.

It is not due to sales incentives. We don't have sales incentives in place.

We do have a program in place with wholesalers as we've discussed in the past which allows them to identify these orders purchasing for use for future needs.

And really what that does is that helps us ensure effective manufacturing production here at Merck. Now when sales are effected in this way by wholesaler orders we provide that information at the individual product level as we describe it's impact of what we call buy in and buy out.

So we've consistently done that and will continue to do so.

I'll tell you that for this quarter, first quarter '02 there was a net buy out effective only about $50 million and that's across the entire product line.

I will tell you that our normal inventory levels with wholesalers is estimated to be about a month or less, that's one month or less. In effect, even with the buy ins we never get some more than two months in any given product.

But just to reinforce these first quarter levels are normal at a month or less based on our best estimates. And I'll provide a little bit more detail on some of the products effected as we get into the products.

In terms of ex U.S. sales, I just wanted to mention that pharma sales outside the U.S. were about 1.7 billion. And that's a decrease of five percent this quarter but it's largely due to adverse exchange effects.

Volume ex U.S. pharma was actually up seven percent.

So all of that discussion just on the total sales line.

Let me move down to the rest of the financials in the pharma business. And I think you'll see it's very consistent with what we've all ready on a consolidated P&L and you can see some similar patterns, so really no surprises but let's just walk through those quickly.

Materials and production costs are obviously much lower just for the pharma business, ex Medco. And these costs are in line with the similar sales volume in this quarter and last year.

Over 90 percent of the total companies marketing and admin expense show up here as does all of the R&D spending, so that matches the figure from the previous page.

The equity income pick up is the same line. And the difference of about 20 million in the other incumbent expense net is an adjustment made for the expensing of intangibles associated with the Medco acquisition.

Similarly if you did the comparison of last year's first quarter consolidated versus this pharma standalone which we're now showing you, there's a little bit bigger difference of about $45 million. And that's because last year's numbers would have reflected both intangibles and goodwill.

So those show up in the consolidated numbers, but for both of these years obviously those expenses would be attributed to the Medco business, not the core pharma business. So that's why you'll see these differences.

And again just another example of how the benefit of reporting each business on a standalone basis and how you can't necessarily tease these out from the consolidated.

I just want to draw your attention to a couple highlights on the margins for those of you who haven't already computed them.

You can see that the gross margins are about 82 percent, and that's consistent for both years. Now, this will vary based on product mix, of course, but you can see the net effect is stable for these -- for the last -- for this year and last.

We have seen for some time now we've been

a blending effect for two very different businesses that affect the overall gross margin. In effect, you again saw that this quarter based on the relative growth in revenue of Medco on the top line versus core pharma.

But what you can see here just looking at core pharma -- a healthy 82 percent gross margin and stable. If we then move down the operating margin and net income margins also stable year-to-year.

They're about 43 percent on operating and 32 percent on net.

So, again, the differences you see fluctuating in the consolidated is, again, this blending of the two businesses.

And so we hope you find it useful to actually look at the core pharma business in this way.

Finally, you do see a slightly lower tax rate for pharma alone, and this is rather than consolidated. And that's due to the mix of U.S. and foreign sales compared to the consolidated business.

As you know, of course, Medco sales are all in the U.S., so on a consolidated basis, that would bias the tax rate up slightly.

In between the two years now on this sheet -- just the core pharma -- 29.1 versus 29.6 -- a slightly different tax rate for these two years.

But of course, as you know, that will move around a little bit from period to period based on product mix as well as the U.S. versus foreign sales within the pharma business.

OK? So, in summary then, before I move on to some of the individual products, we have described this as a transition year.

And I think you can see that quite clearly in this description. Slightly up pharma sales

exchange, strong growth from the key products, which still have quite a bit of growth left, and that's offset somewhat at this time by the last phase of the older products declining, and will now then move into a period beginning to see the next wave of product launches.

So, let me say that we continue to anticipate earnings per share -- EPS for 2002, and that's on an as reported basis -- so, again, not on -- making comments on core pharma. On the consolidated, as reported, we expect earnings per share to be the same level as 200l.

And 2002, as reported, will be affected by the benefit of the implementation of FAS 142 regarding goodwill amortization -- most of that relates to Merck's

acquisition of Merck-Medco, and also affected by the timing of the completion of our previously announced separation of Merck-Medco.

Regarding the second quarter '02 -- again, consolidated -- we're comfortable with the First Call range of analyst EPS estimates of 75 to 78 cents per share.

So, you now have the first quarter, I've just given you guidance on the second quarter, and, again, you

our guidance for the full year.

For 2003 now going forward, on the core pharma business, we do expect to deliver double digits earnings per share growth.

With that, I want to turn to some of the highlights on individual products. First, we'll start with Vioxx.

As you can see, the sales were 650 million, that's up 34 percent worldwide. Now most of that increase in the U.S. you see up at 37 percent and that's due to the comparison to first quarter '01 when we had previously described a buy out.

So essentially you have a more normalized quarter divided by out quarter which shows that difference.

In fact, recall that last quarter, this call for the fourth quarter, we had the opposite effect. We had unfavorable comparison of buy out over buy in and so that was previously discussed as well.

So you do see these large fluctuations, but really it shouldn't be any surprise that they're based on what we've told you.

Keep these patterns in mind when you're modeling going forward.

You can recall that last year throughout the year we discussed for Vioxx there were buy outs in both the first and fourth quarter but only on buy in third quarter. So '01 has two buy outs and one buy in and that can effect your sales growth rates from year to year.

In the prescriptions, though, recall that there was a dip in the third quarter of '01 for the class and that followed the publicity late in the summer concerning the cardiovascular profile of Cox-2 inhibitors. But the rebound growth continues since that time.

Also, I just want to mention for those who follow the weekly prescriptions closely, and some of you may have noticed a slight share loss for Vioxx in the last couple of weeks, recall that at the end of March there was publication of an article referencing a few cases of aseptic meningitis seen with Vioxx. A few cases. This has all ready been in the label for some time for Vioxx.

It's something that's been seen with NSAID. So we did not really regard it as a medical event but in fact became consumer publicity event as news of that played through news stations and the print media.

So in that week when you saw that drop it was coincident with all of these articles playing out in the news and in the papers. On a product like Vioxx, which is so well-known, has very high brand recognition many people take it, this kind of coverage can effect prescriptions.

Now moving on with Vioxx, just last week as you know, many of you participated in a conference call. We announced important new labeling changes. These are ones we've been talking about for some time and have expected.

Most importantly the Vigor which was a large GI event outcome study reported some time ago, we did receive a modification to the GI warning section of our label. And this is unique in the class.

Not other selected Cox-2 inhibitor has this change in their label.

This issue of NSAID induced gastropathy continues to be an important heath issue.

There are over 100,000 hospitalizations a year and over 16,000 deaths. And importantly, only about half of those patients who have these events have risk factors ahead of time.

And so we're very pleased that our label for Vigor shows that the benefits in that study were seen in both the high-risk and the patients without risk factors. So, for those who may question how appropriate a product like Vioxx is in these outcomes when only a small percentage of patients has -- have risk factors, again, your risk of a GI event is present whether you have baseline risk factors or not.

So, very pleased that that's reflected in the label.

Also, I'll mention that among these people who have GI events, four out of five don't even have symptoms ahead of time. So you can't necessarily predict based on symptoms what's going to happen in terms of GI events.

Also importantly, there was a change to the precautions -- again, not the warnings, but the precautions -- regarding cardiovascular language. And two effects there -- there were the results of the Vigor study that had been disclosed for some time and that you all know about, and that showed a lower cardiovascular event rate for naproxen versus Vioxx in the Vigor study.

And importantly, also in the label now are the results of -- the safety results of two large placebo-controlled studies in a large elderly population. And in that study, we saw essentially no difference between Vioxx and placebo on the rate of cardiovascular events.

In fact numerically, Vioxx was even a little lower. But this is very reassuring and we think is part of the body of evidence that supports our belief that the effects seen in Vigor were the result of the anti-platelet effect of naproxen.

Of course, Vioxx does not have an effect on platelets, consistent with its selective

, and that's reflected in the label. And so appropriate patients should be given anti-platelet therapy.

So I think that's a position Merck has always had, and now it's quite clearly laid out in the labeling.

Now that it is in the label, we can now begin full promotion of Vigor as well as discuss the modification of the GI warning as well as the new cardiovascular language. Bear in mind that while many of you on this call are familiar with these issues, the U.S. sales and marketing organization has not really been able to talk about it.

And so, now that we actually have this in the label and can begin the promotion, we're really excited about that opportunity.

At the end of the day, of course, arthritis patients want powerful, long-acting, once-a-day pain relief, and Vioxx clearly delivers on that. And we also importantly received the rheumatoid arthritis claim, and that, again, allows us to begin promoting the use of Vioxx for those patients.

So, collectively, we have a lot of new things we can talk about with Vioxx, as well as put context around some of the questions that have been raised, as we've said all along. So, a very exciting time for Vioxx.

Looking forward, I can tell you later this quarter we'll expect to see additional safety and efficacy data presented including cardiovascular safety at

in June, that's the European rheumatology meeting and that will be Stockholm, I believe.

Sticking with the coxibs for a minute, just a couple of things Arcoxia.

We're just starting to see sales data. We're currently launching the U.K. as we announced a short time ago where we were approved for osteoarthritis, rheumatoid arthritis, chronic muscular skeletal pain, post dental surgery pain, dysmenorrhea and acute gouty arthritis. Clearly, a very broad set of indications.

The label reflecting a 24 minute onset of action and long 24-hour duration. And like Vioxx, Arcoxia is always once a day for all indications.

So quite excited about that seeing the first European country launch.

We've also been approved in Mexico, Brazil and Peru with similar indications to the U.K.

And we'll continue to pursue registration worldwide.

Now, as you're aware in the U.S., of course we withdrew the NDA for Arcoxia in order to add additional new data for a new indication of

.

And those are data that were not available at the time we made these registrations in the U.S. or elsewhere. But since the results of those studies -- that study became known to us and the compelling efficacy is shown, we decided we very much wanted to have this in our application.

And we're currently working on the resubmission and I don't have any new information for you at this time on the timing of that.

But this efficacy data in AS is compelling as I mentioned.

AS is a painful chronic inflammatory condition. It's difficult to mange.

It's treated largely by rheumatologists. And we think the inclusion of this data as well as the other strong data we've shown particular for RA and for gout with the rheumatology community we think we'll be very well positioned in this product for approval with the agency as we well as ultimately market acceptance.

We continue to believe that, particularly as classes become more crowded, your ability to different and point to strong reason to us a drug are important for it's acceptance.

I will mention that at the American Pain Society meeting this quarter we did show the Phase III efficacy and safety studies from our chronic low back pain study so that's in the public domain.

And looking forward, you can expect to see some additional efficacy and safety data at ASH, the American Society for Hypertension and

so both coming up again in the next couple of months.

Also, finally just on this coxib group, we remain comfortable with our previously issued guidance, 2.8 to 3.1 billion. That's for the coxibs worldwide for the year.

And moving to Zocor, sales, as you can from your sheet, were 1.6 billion. That's an increase of six percent and eight percent in the U.S.

However, as you know, that -- what's expected -- this is one product that was clearly affected by buying patterns.

There was a buyout of about 140 million this quarter, and we told you to expect some buyout because we described a $200 million buy-in just in the fourth quarter.

And that was due to anticipated -- anticipatory buying and events of a price action which occurred and also the withdrawal of Baycol.

So, given the size of that buy-in in the fourth quarter, reasonable to expect possibly to see additional buyout in the second quarter.

But, again, about 140 million in this quarter. Actually, if you adjust for these effects, sales for Zocor would have been up about 30 percent for the quarter in the U.S.

In U.S. for the first quarter, I can tell you total prescriptions were up about 18 percent, and that's growing at more than twice the rate of the class -- so, strong continued growth leading that class for Zocor.

I'll mention that the growth in the federal sector where we have a very strong formulary position -- year-over-year growth there is 35 to 40 percent both from increased use as well as benefiting from the Baycol withdrawal.

So, strong sales performance and prescription trends for Zocor.

In terms of data, the new data from the

protection study were shown at the

just last month again documenting the lifesaving benefits of Zocor 40-milligrams in several subgroups of patients with risk factors regardless of whether they had preexisting heart disease and regardless of their baseline cholesterol levels.

So this is really a brand-new way to think about treating some of these patients, and we think it has potential to both expand this market for Zocor as well as change how physicians think, really, about who to treat. We have mentioned we intend to file this data with the FDA this year.

I'll tell you that, for those interested, the World Congress of Cardiology is in May. I believe that's in Australia.

And there will be additional sub-analyses from this very important study presented at that meeting.

Just as a reminder on Zocor -- what you're focusing on the -- on prescription trends, focus on total prescriptions -- not new prescriptions, as they were impacted by changes late last year to package sizes.

So, essentially there were different classifications of prescriptions based on the change to the package. But, again, if you look at total prescriptions, that's the appropriate volume measure.

And also, I'll remind you to focus on Zocor -- not total Merck because, of course, Mevacor, though small volume, is in decline due to generic. So if you're looking at market share numbers, important to focus on the Zocor number.

OK, moving now then to Cozaar and Hyzaar, a very busy quarter for that franchise. Sales, first of all -- 460 million -- that's up 19 percent.

It's up about 60 percent in the U.S., but that's due on a comparison to a buyout in the first quarter of last year. There was a price increase of 5.9 percent at the end of February this year.

Cozaar continues to be the worldwide

leader.

And it is the second most prescribed branded anti hypertensive in the world. And still in the U.S. it's a leader among specialty physicians.

Also this quarter, we received the six-month pediatric extension from the FDA essentially extending our market exclusivity beyond the patent expiration period.

And clearly, in terms of the activities for Cozaar this quarter, it really speaks to the value of our commitment to research importantly clinical outcome research.

And from a marketing standpoint reinforces for us the importance of differentiating your products.

First of all the

study presented at ACC showed a 13 percent reduction in the composite cardiovascular event rate comparing Cozaar to a

beta blocker.

It showed a 25 percent reduction in stroke. And this study, as you'll recall, was in hypertensive patients with evidence of left ventricular hypertrophy, basically an enlarged heart often resulting from long-standing hypertension.

I should also mention that in this study the differential benefits for Cozaar were seen above and beyond simply blood pressure lower which was comparable. Beta blockers are very effective at lowering blood pressure.

And in this study this is really the first time you saw this difference that it was not due simply to lowering blood pressure. And I think previously some have said that new classes and new products like Cozaar may offer a convenience of once a day and better tolerability and we certainly that's true.

But this is really now drawing attention to an important clinical efficacy benefit that one might not have expected if you thought these benefits were only due to blood pressure control.

Unexpectedly in one cell population study about six percent of the patients in this study among blacks, this benefit was not seen effective

at a lower event rate.

So of the 24 different sub group analysis that we did this is the only one where this benefit for Cozaar was not maintained. So I think overall, this was really a landmark study that's provided important new insights and really raised important questions regarding the hypertension treatment paradigm.

And clearly I think we'll be looking at this data and just show analysis for some time. It's been very well received by the thought leader community.

We intend to file this study with the FDA.

And of course, we've just released the data and we're currently determining our regulatory strategy.

Also for Cozaar this quarter, in fact I guess last week, the Renal study, this was a study in Type two diabetics who showed early evidence of kidney dysfunction.

And in that study we saw actually a reduction in the risk of progression to end stage renal disease and that is dialysis or kidney transplant in favor of Cozaar. The FDA advisory committee meeting was held just last week and they recommend approval.

So, we'll of course, have to wait for the FDA. They're not bound by that decision.

But clearly we're quite pleased to see that.

We -- also on Cozaar, let me just say we continue to be comfortable with the previous guidance, and that's 2.2 to 2.5 billion for the year.

So, moving to Singulair -- Singulair continues to do extremely well in a very competitive market -- sales of 470 million -- up 65 percent. Although, I'll tell you, about 100 million of that

in the U.S.

There was a price increase of 5.9 percent at the end of February. But despite that, still very healthy growth.

It remains the number one asthma controller in new and total prescriptions due to its effective control of the underlying inflammation and the convenience offered by a non-steroid once-daily tablet that's been proven safe in a wide population -- adults, adolescents, and children as young as two.

You may have seen that we have submitted the

for Singulair and allergic rhinitis. This represents a whole new mechanism of action of this -- of a drug like Singulair for allergic rhinitis.

And that market currently is about $8 billion in the U.S.

So this is a large and well-developed market. It's one like arthritis in a way -- very symptom driven -- patients looking for relief.

And this is one where this product Singulair is also well accepted by the physicians who prescribed in the allergy market -- allergists, pulmonologists, and, of course, GPs. So, they're well familiar with Singulair and its convenience and safety, and now we'll be able to introduce it into a large market where we show efficacy comparable to the drugs that are out there.

So, now I just want to mention the last of our big five -- Fosamax -- sales this quarter -- 560 million. That's up about 60 percent.

And there's some buy-in there -- about 40 million. There was a price increase at the end of March -- 5.9 percent.

Really the story here on Fosamax is the continued rapid adoption of our once-weekly formulation which continues, and I can tell you that once-weekly is now nearly 85 percent of the new RXs for Fosamax.

So really now with once-weekly, we've added a real value in terms of convenience for patients combined with what we've always had -- the excellent fracture outcome data.

We continue to be strongly positioned in that market with about 56 percent of new prescriptions. Other competitors -- Evista, about 21; Miacalcin, 13; and Actonel, about 10 percent.

So, that's kind of the summary on the top five. Just a few points I want to make about new products and the pipeline.

Cancidas was -- is an important anti-fungal -- a product launched last year -- an important -- literally a lifesaving drug for many patients with serious fungal infections.

Launched last year -- received -- we have received an approval letter for esophageal candidiasis, and this will be important because it now extends the profile of the drug beyond aspergillus into a new area of fugal infection -- so, important for that product.

Also another hospital product INVANZ was approved right at the end of last year.

It's a once daily injectable antibiotic with excellent coverage of many bacteria and it's approved for a range of infections.

We're now just in the launch there. We've launched in the U.S. just in February and with Mexico and Brazil since then and we expect to continue to see approvals around the world throughout the year.

So these are important products for our hospital business in particular and they'll begin to contribute to sales this year.

And then moving forward just a couple of highlights regarding pipeline products, Zetia is a product you've heard a lot about recently.

It's the first and only cholesterol absorption inhibitor, a completely different mechanism of action from the H&G's although a highly complimentary one. We do know that in the marketplace, efficacy remains the highest priority.

Most patients, most lipid patients do not get to go on current therapy. That's not to say some couldn't but we know that in terms of how physicians treat today, most patients do not get to goal and that's where Zetia is really an important addition.

The data we showed at the ACC showed that by adding Zetia to ongoing standard therapy we got many more patients to goal, about 72 percent of patients got to goal adding Zetia versus 18 percent on the H&G and placebo.

So essentially what happens from an efficacy standpoint is by adding 10 milligrams of Zetia to a statins, you effectively achieve the LDL lowering of three titration steps of the H&G alone, essentially eight times the dose.

Each time you double the dose of a statin 10 to 20, 20 to 40, 40 to 80, you incrementally get about six percentage points LDL lowering. So with Zetia a simple edition to the starting dose of a statin gets you all the way to the efficacy seen at the high end of the dosing curve.

More data will be shown at the World Congress of Cardiology next month, similar to what you saw at the ACC but Zetia added statins. So we continue to be very excited about that product which is at the FDA.

On our Substance P Antagonist MK-869 just a couple of things regarding the emesis claim, this is for chemo induced nausea and vomiting. We're currently in phase three as you know.

We're expecting to file this year. There will be Phase II

data presented at the ASCO meeting, the American Society of Clinical Oncologists.

That will be next month, you'll see those results. And that's from treating cancer patients and looking at the effect on both the acute and delayed phase of emesis.

This is a brand new mechanism of action to treat chemo induced nausea and vomiting and offers the convenience for these cancer patients, who are on many therapies of course, of once a day oral tablet.

So with that, I'll kind of wrap my prepared remarks and turn to

, our operator and we'll begin questions.

Thank you Mr. Strejbach. And, ladies and gentlemen, the floor is now open for questions.

If you do have a question or comment at this time, please indicate so now by pressing the numbers one, followed by four on your touch-tone phones. If at any point your question is answered, you may remove yourself from the queue by pressing the pound key.

Questions will be taken in the order in which they are received, and we do ask that if you're on a speakerphone, please pick up your handset to provide optimum sound quality. Thank you.

And our first question coming from

of SG Cowen.

Please state your question or comment.

Thank you.

I have two questions. First, on Zocor, I'm not clear on the dynamics around this package size issue you mentioned.

Are you saying that the average number of days per prescription has increased? And if so, why is that?

And has a similar trend been seen in other cholesterol products to your knowledge?

And my second question is regarding the Artra Prilosec supply agreement.

Would you like to alter the view that a successful outcome to the Prilosec trial which I guess should be due around June could add three to five cents per quarter to your earnings or maybe five to 10 cents to the current year?

OK, thanks,

.

First of all, in terms of Zocor, no, it's not a matter of days of therapy. We changed some of the package sizes in which Zocor is offered to the trade. OK?

So, for instance, this makes it simply easier for pharmacists to dispense. Rather than counting tablets they can go with

bottle -- put a pharmacy label on it.

So, essentially what you have to look for there is as patients came in for refills, they -- from a technical standpoint in their pharmacy terminal system, this may shown up as a new prescription. So, you saw some fluctuations. In fact, it appeared to be beneficial back in December, and now that's kind of normalizing.

So it doesn't do anything with how physicians describe Zocor -- think about it. It really is just the technical fluctuations of these changes in the package sizes and how they're classified in the pharmacy terminal systems.

So, again, just on Zocor -- continue to focus on total prescriptions. That fluctuation is not seen in totals. It's just new versus refill. Nothing on

.

Regarding your second comment on AstraZeneca and the Prilosec litigation, a couple things -- as you know, it's our policy not to speculate on the outcome of litigation. That case has not ended

It's possible we could see a final ruling in the second quarter, but remember -- I think you know, but just for others -- that the supply sales we receive from AstraZeneca are really based on their ordering from us.

So that has to do with their business strategy, their management of inventory, their expectations of demand.

So we're continuing to stay with the expectation these sales will decrease through the year.

And it's still early in the year and I think as we know more and if this case does resolve, we'll be able to look at that. But there's simply too many unknowns in the system right now for us to change where we are.

Can I have the next question, please?

Thank you. And our next question is coming from

of Salomon Smith Barney.

Thank you. Could you give a little bit more color in terms of Merck's manufacturing issues in terms of the vaccines where you have some limited supply of a lot of those?

And also what had happened, I think you had some recalls with Trusopt? And there was also I think

for a time you couldn't supply enough of that. Thank you.

Sure, most of this stuff we reviewed as it occurred last year, so there's really nothing new here. But I will tell you that because we had some voluntary changes in our manufacturing processes late in the year, that did for a time interrupt production and that did lead to some back orders on supplies, largely in the vaccine products.

But we are working through that. We're back in production.

We're working through the back orders. And I think as I mentioned in my prepared remarks we actually anticipate that by the summer, possibly even earlier than summer we'll be caught up on those back orders so we are shipping there and we're in good shape.

I think your other question was on

and that was a separate issue. And yes, you're right, there have been some supply shortages there which has limited how much

in fact that we can ship.

But similarly we're working through that. That's a separate issue.

And we expect really by May-June of this year to be caught up as well.

So largely nothing new there. These things happen sort of third and fourth quarter up and running and we're going to see the backorders so we don't anticipate any issues there.

The next question please.

Thank you. And our next question is coming from

of Credit Suisse First Boston.

Yes, good morning. A question concerned Singulair.

I was wondering if you could just comment on the changes that you see in the allergy market with

and going OTC and the opportunities that may provide for you?

And could you just expand on what type of claim structure you expect for Singulair once that SNDA is approved?

Sure, thanks,

. In terms of Singulair AR what we've said is we've filed for allergic rhinitis. At this point, we're not getting more specific than that because clearly we've only recently submitted it and it's too soon to talk about labeling.

I think the important thing for us as I've mentioned is the brand new way to treat allergies, so we think that will be well received. There's a number of products out there that frankly are not that differentiated in terms of their efficacy or safety.

Singulair has a very clean safety and tolerability profile. Once a day convenience.

So we think that positions it well just generally.

And as I mentioned this is -- the physicians who prescribe Singulair all ready for asthma are many of the same physicians who would be able to prescribe it for allergies so you don't really have a start up issue there.

In terms of how it would compete I can tell you we've shown Singulair is as effective as the antihistamines that are out there all ready. And I can't really speculate on what's going to happen within that market.T

There's a couple of things going on there.

You have a new launch with Clarinex. You have Claritin patent expire, as well as over-the-counter. Questions raised in terms of how managed care will manage that class.

So I can't really speculate on what they will do, but I think perhaps even more importantly then, Singulair, a well regarded product that has broad managed care acceptance already, good physician acceptance launching into a new market.

So I think as we get closer to that, we'll -- and then certainly when we know more about our actual timing and labeling, we'll be able to comment further. But we think it is a very important

and this is a new product launch for Singulair.

Next question, please?

Thank you. And our next question is coming from

of Goldman Sachs.

Good morning. I just wanted to ask some questions about some of the cost items.

I know what you said about the -- mentioned about the guidance going forward.

Just want to make sure that the research item -- research and development of 2.9 billion -- that will be on a reported basis, that's not adjusting -- that's not also including the items inside the joint ventures, and that we'll see effectively since R&D I guess the implied growth rate then is about 25 percent for the rest of this year.

And I just wanted to know if you would confirm that. Thank you.

Sure,

.

In terms of R&D and for the benefit of others, the -- what we showed here on the P&L for R&D and what we guided to is Merck R&D. This does not include research expenditures through the joint ventures.

For instance, the Schering/Merck joint venture around the cholesterol business clearly Zetia development -- Zocor Zetia development -- those research expenses flow through the P&L for the joint venture and in effect the equity income line.

And so, in fact, until we have products launching there, we can expect a negative effect.

But this 2.9 -- just to be clear, the 2.9 guidance for the year does not include that.

It's Merck R&D spending. I can't confirm your number because you've done the math quicker than I can, but whatever the growth rate is, again, the difference in what you're seeing this quarter versus the rest of the year is the pattern of spending on studies of things that were in first quarter last year are rolling out, new things are moving forward.

So, yes, we're confirming the number of 2.9 billion for full year 2002.

Can I have the next question?

Thank you. And our next question is coming from

of Prudential Securities.

Hi. Couple of questions -- on Arcoxia, do you have all the data in hand now for ultimate FDA approval or do you have to gather more data, whether efficacy or safety, before resubmission and approval?

In other words, will you have to run any new trials?

And on Medco, when can we expect to see more restatement as well as forward guidance?

OK, let me take those in that order then.

In terms of our Arcoxia, as we said even when we announced I think on March 15 the withdrawal, we have the data from the

study.

There is -- there have been new -- no new studies requested by the FDA. And so I think as you

contingent on approval, no. And as I think you've seen now from approvals in other countries, it was largely the same applications that we're continuing there.

So we believe we have data sufficient for the claims for which we filed.

And now we're adding a new indication and we have data sufficient for that filing. We're not waiting on an new data or studies to be done.

There is, of course, the matter of the full analysis of the trial results, integration of this into

and discussions with the FDA over the integration and filing process. But no, nothing in terms of new studies or things needed for particular claims.

Regarding your question on Medco, what was in the S-1, yesterday, as you know it was a three-year view of Merck -- or Medco as a standalone business. And the process here is this S-1 is filed with the SEC.

The SEC will ask questions of us. Their typical policy is about 30 days.

But again, it's like predicting the FDA we can't comment on what they will do.

But basically, they will ask questions.

We'll respond to the questions. And at the time we respond to those questions we will also then update first quarter '02 from Merck Medco as a stand alone basis in much the same way I've now reported core pharma as a standalone.

So it could be next month again, it's based on the timing of the SEC. And the update will be made with the other updates in the S-1 in response to their questions.

Next question.

Thank you. And our next question is coming from

of Merrill Lynch.

Hi, good morning.

Just kind of couple of questions. I thought your previous guidance for 2003 was double digits for the entire business.

Now I think you repeated that it was double digits for pharma. One is this a change in guidance?

And two, I'm just trying to walk some math on Medco. You had 12.169 in total sales for the quarter.

And I subtracted out your net -- your Merck pharma number and I get 7.366 billion for total Medco sales. And you other reported Medco sales is 7.305 billion which suggests 61.6 million in sales of Merck products to Medco.

And that only works out to be about one percent of total Medco sales as I've calculated.

Is this percentage consistent with what is reported in the S-1 for Medco last year as a standalone?

Is this percentage changing or is my math incorrect? Thank you.

OK. A couple of things so walking through the -- your comments about the guidance.

Back in December you may recall at our analyst meeting, which you were at, at that time we had guided to double digit growth for the company in '03 following transition here in '02.

However, whenever we made the announcement about the intent to separate Medco, that's when we issued guidance that spoke to double digits for the core pharma business, and our guidance being contingent on the timing and the separation.

So, you may be recalling something that occurred prior to the Medco announcement.

But what I'd confirm today is very much what we announced when we announced the Medco separation.

And again, I can't give guidance on core pharma for this year, but for next year -- '03, when we expect this separation to occur before the end, that would be double-digit growth on core pharma EPS.

Now, regarding your other question, again, this is kind of the issue I talked about of you can't really just get there by subtraction. If you look at the total sales for consolidated, we can't double count the Merck sales.

So, really if you want to look at Medco specifically, I really do have to refer you to the

, which goes into a lot of detail on Medco's stand-alone, Medco's business, and to some extent, the relationship between Merck and Medco.

And so I can't comment on that at this time, but I think you'll find all of that information there.

And that's clearly the more accurate representation as opposed to the subtraction because of some of the issues I mentioned previously.

Next question?

Thank you. And our next question is coming from

of J.P. Morgan.

Thanks very much. Mark, a couple of questions on Zetia.

You had described the -- kind of the efficacy positioning based on the incremental

lowering of this -- you know, 18 to 19-percent range as being equal to three

.

You know the last data that we saw at

showed an efficacy range for Zetia that was meaningfully wider than we've seen before -- I think on the low side

lowering of just 12 to 13 percent and on the high side in the low twenties.

Is there something about the nuances among those trials that makes it inappropriate to think that the efficacy range could be wider than we think, or is that an accurate characterization of efficacy? And similarly, on the side effect side, you know, as you know, we've seen for the first time this modest elevation in liver enzymes when Zetia is used on top of

.

Are you guys at the point where you think that finding is real or is that preliminary? And if it is real, is it clinically meaningful?

Thanks a lot.

OK, sure. Thanks,

.

So, regarding Zetia, in terms of the range in efficacy, it's like anything else.

You have to consider the base line and the denominator.

So what I've described is accurate. This -- the percentage you see looking at a starting dose of

compared to the highest dose of

and what you get by Zetia adding to that starting dose and getting to that same level.

Now, in terms of the data presented at

, there were -- there were several studies. There was one with co-administration with Zocor and several doses of Zocor, with Lipitor and several different doses of Lipitor, and the broader study, which actually had Zetia all in one study added to, I think all of the statins on the market as well as some Baycol patients who had been in the study at that time.

So importantly, as you go from study to study you have to consider what patients are one.

In many of these studies because the goals of these studies is to assess what additional efficacy do you get by adding Zetia to existing statins, particularly for people who are not yet at goal, what do you expect. So by the measure of getting them to goal, I've shown you those numbers, a dramatic improvement in getting to goal.

But in terms of looking at how much of a treatment effect do you get? I would have to say it depends.

Because it depends on the baseline characteristics of the patient where they are with their cholesterol levels. And of course was statin they're on and what statin dose.

So adding 10 milligrams of Zetia to 10 milligrams of Zocor you get a very high percentage increase in LDL -- lowering. If you add Zetia to Zocor 40, a powerful dose that all ready has quite an LDL lowering, the incremental of adding Zetia to 40 would not be as great adding it to 10.

So that's the cautions you compare across all of these studies. It's a mixed issued on patients and dose.

But again, importantly, across any statin in any dose, greater LDL lowering and getting more patients to goal. So that's how to think about efficacy.

Regarding safety, I'm not sure that I would confirm that you -- we preliminary saw anything. In terms of I think what you're asking is the questions around the incidence of liver enzyme elevations seen in those studies.

I can tell you a couple of things. One in -- across most of these studies there's in the Zetia alone arm virtually no occurrences.

So remembering that Zetia is being added to an H&G. All of the H&G's reflected in their label have an effect on liver enzyme elevation. It's often transient and during the initial phase of therapy as patients are getting to whatever LDL lowering they're going to get on that dose.

In fact that's the same time period studies in these studies. So what you see with all of the H&G's is this effect on liver enzymes, a biochemical marker elevation. And I want to separate that from evidence of liver toxicity.

With Zetia in all of those studies presented at the ACC there was no evidence of liver dysfunction, liver abnormalities, jaundice, Hepatitis, et cetera. Now, having said that then, I'm essentially saying no we don't think there is a clinically significant or statistically significant difference at all with Zetia on liver issues.

And a way maybe to understand this is to pick one example. If you look -- if one were to look at the data on Zocor and Zetia you would see that there was a different, and apparent numerical difference in the number of patients with sustained liver enzyme elevations in Zocor and Zetia versus Zocor alone.

There were six patients in the combining arm. And I think five of them were elevated to some extent at baseline.

And actually four of those six patients, I believe were on Zocor 40 milligrams, clearly a very high dose.

So when you tease this all apart actually, even in the combined

the percentage -- the incidence you saw of any liver enzyme elevation was entirely consistent with the background

that you see with any

therapy.

And there's no evidence that Zetia alone has any liver safety issues or that adding it to a statin raises any liver enzyme issues.

S

So, thanks for the question, but we feel very comfortable with the profile we've seen of Zetia across a number of studies against placebo. And, again, with the

, you see a profile similar to what you see with

.

And lastly, let me just point out that in talking to a number of cardiologists, and I know some of you have as well at

, a transient effect on liver enzyme elevation is not their primary safety concern.

The bigger safety concern, particularly at the highest dose of

, is the mechanism-based effects that you see in terms of myalgia and more seriously,

, which is something that can happen quickly and is a very serious concern.

We've not had a single case of that in any patient on Zetia. So, feel quite comfortable with that product going forward. You'll see more data next month.

And I think as the data continue to unroll for Zetia, you'll see a confirmation of what I've described.

Next question, please?

Thank you. And our next question is coming from

of Fulcrum Global.

Good morning, everyone. Can you hear me?

Yes.

In reference to Arcoxia, possibly to help all of us, can you give us the rollout schedule overseas -- EU?

Would it be throughout the EU by the end of this year? When -- what is the status of Arcoxia in Japan?

And I'm wondering why, since the FDA has not requested any additional studies for your withdrawn

, that you are not able to give us let's say the quarter that you intend to refile Arcoxia. Thank you.

Sure. Thanks,

.

First of all, in terms of the

strategy in the rollout, no, we're not willing to give that largely for competitive reasons. We don't need to signal when Arcoxia will be showing up in various places around the world.

I will tell you that, as we mentioned previously, we continue uninterrupted in the regulatory process with Arcoxia outside of the U.S. You're seeing several Latin and South America countries.

The U.K. is the first European country. We of course expect others to follow, but I really don't want to get into what our regulatory strategy is in Europe or in any particular market.

So, we do expect to see continued rollouts.

With regard to Japan, I can tell you that, no, we're not expecting Arcoxia there.

You, of course, know that in Japan, it's quite typical to have products released much later. And so I really don't have a comment there, although I will point out that even Vioxx is not yet approved in Japan.A

And no we don't expect to see our

either.

Oh, and then sorry you also asked about timing.

No, we don't have a comment on timing. I think that's not inconsistent with our general practice which is even for heart protection

Zocor, back in December we said in '03. So in terms of the filing timing for competitive reasons we don't need to signal.

And also because, of course, any time any drug files with the FDA there are discussions with them ahead of time about the submission and we don't get into that discussion.

So I think, again, if you look at us historically, we either make no comment on the time or give very broad ranges.

here we're willing to get more specific, of course, is one we've actually submitted or filed and that's, you know, again consistent with how we've done it. So I expect moving forward we would be treat Arcoxia very similarly.

And that you would expect a standard review of the refiled Arcoxia?

We're not making any comments on what the FDA will or won't.

I mean we had previously said that when we filed we had expected a standard review, but again we haven't even refiled yet so I'm certainly not going to get into speculating on what the FDA will with file that they don't yet have. But certainly, we'll keep you posted as things move forward.

Thank you, Mark.

Next question please.

Thank you. And our next question is coming from

of

.

Yes, thank you.

Unless my numbers are incorrect it looks like the other revenue section in the U.S. was very weak in the quarter. It looks like it was negative to the -- about the same amount that the entire year of 2001 was, I'm wondering what's going on there?

And in terms of Cox-2 sales, if you annualize the first quarter number that gets you roughly flat for the year. So are we to assume A, that growth is coming from Arcoxia internationally?

Or B that you're B that you're planning on actually gaining market share back in the U.S.? Thank you.

Sure. First of all let me just say in terms of the coxibs, you do have to of course take into effect the buying patterns that you see and of course, comparisons to last year as I mentioned there's a couple of buy outs, there's a buy in.

In terms of the prescription trends, I can tell you that if you look at the rolling quarter versus the pervious quarter

is up, you know, two or three percent. So as I said, versus last year towards the end of the year we're seeing a resumption of growth.

I won't -- I don't really want to comment or get into predicting market shares, although I will tell you that we have confirmed this guidance. We have received the labeling that we have expected.

We're quite excited about it.

We're just about to launch that as we speak.

And so, I guess what I would say is we're comfortable with that number moving forward.

The -- and the labeling was, again, what we expected and was also why we're confirming the numbers as expected and are comfortable with.

The prospects for Vioxx -- as I mentioned, both the exciting news about the GI warning being able to fully promote that to managed care as well as physicians, and also, again, being able to discuss cardiovascular in some context.

In terms of your question on other, I'm assuming and perhaps that you're looking at the sales as reported on products and doing a backout.

Recall that also in that number as I mentioned are the supply sales from AstraZeneca. And as we have guided and continue to

we expect those to decrease.

Also that's certainly one contributing factor to that number to back it out.

Could I have the next question, please?

Thank you. And our next question is coming from

of

.

My question's been answered. Thank you.

OK. Next question?

Thank you. And our next question comes from

of Chesapeake Partners.

Question's been answered. Thank you.

Thank you. And our next question comes from

of Gerard Klauer.

Mark, I wonder if you could clarify for me something that's confusing me.

The -- my estimates would be that the amount of revenues coming from the supply agreement on Prilosec are well over $1 billion.

And given that there's uncertainty as to whether the patent may go off in the second quarter or may be prolonged into 2003, it would seem to me that you'd want to issue guidance contingent on when the Prilosec patent expired.

For example, you know, if it were to expire in the second quarter, I would think that your guidance would be reasonable if flat this year and up double digits next year.

But if it extended into next year -- the patent expiration, I would think you'd want to give guidance for maybe up this year and flat next year or something like that. Can you explain to me how you have the flexibility to live with the uncertainty on the Prilosec patent expiration?

Well, I think for all of us in the pharmaceutical industry, we live with the risk of uncertainty every day in a number of areas.

Now, I think just to be a little more specific here, no, we don't provide a specific breakout on the AstraZeneca numbers.

But, again, I'll remind people that this is a 32 percent of net sales supply agreement, so the what you see or what we see going into our number is going to be affected by AstraZeneca's business strategy, by their own inventory management, how they order from us.

I mean this includes Prilosec, of course, but also Nexium. Importantly, it's smaller volume, but growing quite nicely, and that's at about 27 percent.

So just to be clear, you know, you've got a growing product, a declining product with some big question marks remains in terms of generics and when, and you also have function factoring in there their own strategy and therefore

demand of orders from us, which -- and I'm certainly not going to get into predicting how they're thinking about that business.

You know, I can only say that we are seeing a decline and would suspect that to continue.

And then moving forward,

if we think about as I said the case, you know, perhaps it could end sooner in the second quarter.

But I'm not going to speculate out from that case. And I certainly am not going to speculate on what that happens after that case in terms of which generics, when, how many, you know, what additional legal matters may occur after that, I mean we just can't go there. So that's why we have to live with the uncertainty because there's just so many factors at play here.

And what I can tell you is that generally speaking consistent with overall demand for those products, particularly Prilosec we expect it to decline. And, you know, we just have to take it from there.

Next question, please.

Thank you. Our next question is coming from

of

.

Good morning.

Two questions. Firstly, will Merck participate in supply agreement sales when Proctor and Gamble launches Prilosec over the counter?

And secondly, where do we stand in initiating the cardiovascular safety studies for Vioxx and for Arcoxia? Thanks.

Sure, in terms of -- well first of all I'm not saying it is or isn't going to happen

with Prilosec. If that were to happen, yes, we do have a financial interest in that as part of the terms of our agreement. We haven't discussed it further.

But if there would be something and if those things occur, you know, we'll of course address that at that time.

And then in terms of the cardiovascular safety studies, we don't have any additional discussions at this point.

We are still planning to do clinical outcomes to cardiovascular research as we discussed to confirm the cardiovascular safety of it. But at this time the studies have not started but I don't have any additional detail on that study.

So we'll have to wait until we know more of exactly the type size structure design of that study before we can make any comments.

I think we have time, maybe for one more question.

Thank you. And our final question is coming from

of

Partners.

Just

. Can you tell us the average price paid for the buy back shares in the first quarter?

And is the buy back effected at all by the Medco filing for the rest of the year?

No, actually I can't give you the actual number. We're generally in the market every day or days when we can be in the market.

What I can tell you is going forward our treasury buy back programs is not effected by the Medco IPO or the separation. We have about 3.2 billion left in our authorization. And, you know, historically that's been an important part of how return value to shareholders and so we don't expect that to change.

But I don't have any more specifics.

So, with that, let me thank everybody for participating.

I also want to say that, since this has been my first call, I've met and at least talked to many of you. It's been a pleasure. I look forward to working with you.

Also, I want to publicly acknowledge the work of my colleague,

, who's been just completely invaluable during this transitional period.

And many of you know her and know exactly what I mean.

So thank you all and have a great day. Good-bye.

Once again, ladies and gentlemen, we do thank you for your participation on today's Merck and Company teleconference. Please disconnect all lines at this time. And have a wonderful day.