默克藥廠 (MRK) 2004 Q2 法說會逐字稿

Good day, everyone, and welcome to the Merck second-quarter 2004 earnings conference call.

Today's call is being recorded.

At this time, I'd like to turn the call over to Mr. Mark Stejbach, senior director of investor relations with Merck.

Please go ahead, sir.

Okay, thank you, Felicia, and good morning, everyone.

Thank you for joining us.

I know it's been a very busy morning already, and I understand we have probably many more people calling in as we start.

So let me just start with the safe harbor language.

Before we move on, I want to remind you that during the call we may discuss certain subjects that may contain forward-looking information as defined in the Private Securities Litigation Reform Act of 1995.

This may include items such as guidance of earnings and other income statement components, statements related to our growth rate expectations, product development, product positioning relative to competition, and actual results could differ materially from those that may be projected in these discussions.

Additional information on a number of these factors that could cause actual results to differ materially from what we will provide today is available in our most recent 10-K, and that is available on our website.

Since a lot of you may not have had a chance to go through the press release in a lot of detail, I'll just remind you it's up on the website, as well as the "other disclosures" page, and we sent it out to our distribution list this morning.

But I'll just start with a quick summary.

The second quarter per earnings per share came in at 79 cents, and that's in line with the First Call mean and also the guidance range that we gave you last quarter.

There were no real surprises in the quarter, although we continued to make important progress on a number of programs which have been previously discussed.

A couple of those in particular, the new U.S. distribution program with the major wholesalers, that is working well.

And you'll see the comparisons from -- on --on the product sales that compares versus prior year, many products are affected, and I'll go through those as we move individually.

So within this quarter, we don't really see any buy-in effects.

The worldwide restructuring program to lower our cost basis, that continues to progress as expected.

That was a program we announced at the end of last year, and we'll give you an update on the guidance there.

We also continued to make both advancements and enhancements in our research pipeline, and I'll highlight those.

So the impact of all of these actions is included in the results, nothing has been excluded, and we continue our practice of citing only bottom-line GAAP results, but to help with transparency modeling, I will comment on the various components I've mentioned individually as we go through things.

So if we start on page 11 of the press release with the P&L review, you see that sales were $6 billion.

That's up 9%.

Now, included in that top line are several things.

There's about 20% growth rate of our five largest products, a 3% benefit from foreign exchange across the top line, and some of that growth is also offset by a decline in the revenues from AstraZeneca.

And we'll discuss that a little bit more later.

Consistent with our expectations as a result of this wholesaler program that was introduced in the fourth quarter of last, sales this quarter were not affected by buy-in/buy-out behavior.

However, of course, the year-over-year comparisons are affected by a net buy-out that was discussed during the second quarter a year ago.

And as a reminder, that buyout was $405 million, and I'll discuss that on the individual products later.

Now, as we discussed in the first quarter of this year, the product inventories are less than a month, and generally in the 2 to 3-week range among our key products with the major wholesalers.

So again, every indication is this program is going along as expected and we're quite pleased with that.

So the year-over-year distortion from the base period will continue this year until all this annualizes.

Looking ahead, just as a reminder, the third quarter last year was a net buy-in across the line of about $60 million, and then the fourth quarter had a buy-out of $250 million.

So you'll see that in the year-over-year comparisons in the second half of this year, so just bear those numbers in mind as you do your modeling.

So the bottom line is that the sales levels for the major products in this quarter reflects actual demand, and we expect that to continue.

Now, within the top line, I mentioned our revenue from AstraZeneca was down in the quarter, and we are now giving guidance to full year AstraZeneca revenues of $1.5 to $1.7 billion.

That's down a little bit from the 1.6 to the 1.8 that we had guided last quarter.

Now, this revised guidance, as always, is just an update based on the most recent results, as well as our future expectations.

As you know, our revenue recording has to take into account inventory levels at AstraZeneca, their shipments out and, as always, carries risk around -- around pricing.

The guidance reflects the dynamics of the PPI market, which many of you follow quite closely.

You have multiple generic competitors in terms of omeprazole, and there is the over-the-counter Prilosec, and the uncertainty all this creates, you know, potentially affects future volume and pricing.

So we do our best to take that into account and continually refresh this guidance.

So they're down this quarter versus the second quarter last year, and that reflects these dynamics that I've just described.

Also recall now as we move into the third quarter, third quarter last year is when the major impact of the generic availability for omeprazole was really felt.

And so that hasn't yet annualized.

So, therefore, we anticipate that the losses we're seeing will moderate later in the year, just based on the Prilosec comparison, and of course, as you're aware, this is the total revenues driven primarily by Nexium at this point.

So we're guiding down a little bit year-over-year, but, as I said, that comparison will ease a little in the back half of this year.

So all of that just on the top line.

So let's move down a little bit, walking down the P&L.

Materials and production came in at $1.1 billion.

That's up 14%.

Now that number includes the impact of this comparison to the buy-out period last year, as well as product mix within the quarter.

If you -- if you do the quick math on this, the result is a product gross margin percentage of 81.2%.

That's down just a little bit from last year, but it's up sequentially from earlier this year.

And as you've seen in the past, it moves around a little quarter to quarter, based on the product mix.

The year-to-date PGM percentage is 80.7, and that's consistent with our full-year guidance of 80 to 81%, and we are reaffirming that.

So while you'll see a little bit of volatility quarter to quarter, it stays within that range, we expect, and we're comfortable with that guidance for the year.

Moving down to marketing and admin, that came in at $1.6 billion.

That's up 2%, but the actual level there is about the same run rate as we saw the first quarter of this year.

Included in that is about $21 million in the restructuring costs from the program that we initiated in the fourth quarter and are continuing.

Excluding that restructuring, marketing and admin was flat for the quarter.

We're still guiding to flat marketing and admin for the full year, excluding the restructuring.

The total restructuring so far this year is about $55 million, and we expect for full year to be at 60 to 80.

So we're well into that plan.

We've revised that guidance a little bit for full year.

And just a reminder, these additional restructuring costs I've described, they are included in this line as required by GAAP, they're not excluded, but we're continuing to provide the guidance on the costs and the underlying marketing and admin separately to -- to help in your modeling.

Moving down the P&L to R&D.

R&D was 986 million.

That's up 25% versus last year.

And again, at close to a billion in the quarter, that's about the same as what we saw in the first quarter, and some of this growth rate, again, is driven by activity in the external alliances.

So you can see that we're up 24% year-to-date, but we expect this growth rate to moderate in the second half of the year.

However, we're still guiding to high-teens growth for the full year in R&D.

So continued strong investment there.

Just a -- a couple words on -- as I mentioned, both the advancement and enhancement of the pipeline.

In terms of advancement, as expected, MK-431, that's our DP-IV inhibitor for Type 2 diabetes, that moved into phase III in the second quarter.

You may recall we mentioned at our annual business briefing in December that we expected that to move into phase III in 2Q, and it has.

And we still are on track and anticipate filing that with the FDA in 2006.

In the near term, we expect to file 4 vaccines in the next year and a half.

Later this year we expect to file ProQuad, that's the combination of our M-M-R and Varivax vaccines, and this past quarter we showed at the National Immunization Conference that a single dose of ProQuad provides similar antibody response to the 2 vaccines given separately, as you would expect.

So we're on track with filing that in the second half of the year.

Another one of the phase III vaccines, RotaTeq, and this is for the prevention of rotavirus, that continues in a very large phase III study.

In the past quarter at the European Society for Pediatric Infectious Disease we showed phase II data.

Those data demonstrated 100% efficacy against severe rotavirus gastroenteritis, and 74% efficacy against any severity of gastroenteritis.

So we continue to expect to file RotaTeq in the second half of '05, along with our other phase III vaccines, those for human papillomavirus and shingles, and those are both also continuing in large phase III trials.

We also are continuing to advance our earlier stage pipeline.

And I just wanted to highlight that an updated pipeline chart, similar to what Peter Kim showed at our annual business briefing in December, will be included in our 10-Q filing in early August.

And, of course, this will then be updated next with our meeting in December of this year.

So that's on the advancement side.

In terms of the enhancement of the pipeline through external alliances, we continue to have a number of important activities there.

We earlier announced the collaboration with Bristol-Myers Squibb, so included in this R&D expense is a $100 million payment to Bristol.

That's for the joint collaboration for muraglitazar phase III dual PPAR for Type 2 diabetes, and also in the results in the quarter is our share of the development expenses for that product.

As you recall, we are sharing the development costs and collaborating on development of that product.

Also included in the quarter is the $20 million payment to Vertex, also previously announced.

And that's part of the global collaboration for VX-680.

That's an Aurora kinase inhibitor that's expected to enter clinical development later this year for the treatment of cancer.

And similarly, our share of development expense is also included here.

Last quarter, that is the first quarter of this year, we discussed the licensing of the phase III sleep disorder product, gaboxadol, from Lundbeck.

That was the deal for the U.S. market, and in this past quarter we also extended that agreement to include Japan.

Now, similar to the restructuring expenses that I discussed, all of the expenses on external alliances are appropriately included here in the R&D expense.

Our view is that the R&D strategy includes licensing, includes alliances, and so our reporting here reflects not only how we manage R&D, but also the underlying economics of these investment decisions.

So whether it's internal or external, it's all included here, and the guidance we give includes all R&D expenses.

So again, just to recap for the full year, we continue to expect a high-teens growth rate year-over-year.

Moving down to the next line, in terms of equity income, you'll see 221 million in income.

And that's up from 33 million last year.

Now, you recall that we indicated we expected to see total equity income bounce back this year.

It was down last year.

And, of course, we continue to see improvement from the Merck/Schering-Plough partnership, as the sales of Zetia continue to grow nicely.

Overall, we expect for full-year equity income of 850 to 950 million.

That's a little bit up from our prior guidance.

And it's an improvement over the recent years, as this line benefits from a positive contribution to the Merck/Schering-Plough partnership this year, that was a loss in 2003.

And, of course, later in the year there's the annualization of the generic impact from Prilosec within the AstraZeneca equity income.

Moving down to the next line, the other income and expense.

If you go to your other disclosures page where that's broken out, the -- we have an expense this quarter of 70 million, and that's versus 122 million in income last year.

So a tough year-over-year compare here.

You'll see lower interest income and expense, but the real difference here is down in other.

There's nothing unusual in this quarter.

But in the comparison from last year, recall that second quarter '03 included realized gains from our actively-managed investment portfolios.

So most of that difference is attributable to that gain last year, which came from just good portfolio management reflecting the interest rate environment at that time.

So the year-to-date shows income of 171 million.

Just as a reminder, that includes 2 items from the first quarter, both our sale of our equity stake in the European over-the-counter joint venture to our partner J&J, and also includes some gains on securities from consolidating the Banyu portfolio.

So that's in the other.

If you move down to, on that page, the joint venture detail, you see, consistent with past trends, some continued increases in top-line sales for the Merial animal health joint venture, and also the Adventist Pasteur MSD vaccine business in Europe.

The next line is obviously where there's been a lot of interest lately, and we're quite excited about it.

In our collaboration with Schering-Plough, Zetia sales reached 242 million.

Of that, 212 million was in the U.S.

We're just starting to see Vytorin sales outside of the U.S., based on very recent launches in Germany and Mexico, so you see 5 million.

But you can see how we'll be reporting this each quarter.

And again, once we -- similar to Zetia, once we're approved in the U.S. with Vytorin we'd also be breaking that for the U.S. on these calls.

So currently, as you know, we are awaiting approval of Vytorin in the U.S.

In the meantime, however, Zetia continues to perform well.

It has about a 6% new prescription share, and in the most recent monthly data, actually Zetia has now passed Provocol in new prescription share among cardiologists.

So we think this bodes well, both for continued use of Zetia, as well as cardiologists accepting the notion of inhibiting both sources of cholesterol, and clearly that's important for the strategy with Vytorin.

You're also aware of recently the new NCP recommendations to treat LDL even more aggressively than the current guidelines.

So we believe Zetia is well positioned there, with the majority of even currently-treated patients not being at the goal already, and with even more stringent goals recommended, we think this positions Zetia and Vytorin very well to compete in that market.

Now, just moving back and finishing off the P&L.

We come down to income from continuing operations.

That, of course, means core pharma, excluding Medco in the base period.

That's 2.4 billion.

Down on the tax line, taxes of 671 million.

That gives you an effective rate for the quarter of 27.5, and 29.2 year-to-date.

Now, recall that in the first quarter of this year, the effective tax rate was affected by the acquired research expense from the Aton acquisition.

As a reminder, that's a non-tax deductible expense, so you saw a higher effective tax rate than in the first quarter.

But for the full year, however, we are reaffirming our previous guidance of 28 to 29% for full year.

Moving down to net income and EPS.

Net income for the quarter was $1.8 billion.

And recall that everything related to Medco in the -- in the quarter last year is reduced down to that discontinued ops line.

Shares outstanding, 2.23 billion, that's down 1%.

In treasury stock this quarter we spent 216 million.

And that still leaves us 9.1 billion under the current authorizations from the board, with no time limit.

So all that brings you down to an EPS of 79 cents for the quarter, again in line with our guidance previously and also the First Call mean.

For full-year 2004 we're reaffirming our previous guidance that we first gave in December.

So that's 311 to 317, and we'll continue to roll out this quarterly EPS guidance one quarter at a time, as we have all year.

And so for the third quarter coming up, we expect EPS of 80 to 84 cents.

Okay, so now if we move into the product review, and you should have this on your other financial disclosures, the breakout by products, total, U.S. and foreign.

Overall, keep in mind there's about a $400 million buy-out in the base period of '03.

So now just working through the individual products alphabetically, starting with Cozaar and Hyzaar, sales there were 725 million, up 34%.

That's up 20% ex-U.S., which you've been seeing now for several quarters about that same growth rate.

In the U.S., we're actually up 70%, but that's because of the comparison to last year.

There was a $100 million buy-out in the second quarter last year.

During the quarter there was a 4.5% price increase on Cozaar-Hyzaar -- excuse me, on Cozaar and Hyzaar, and for 2004 full-year we're reaffirming the sales guidance of 2.7 to 2.9 billion.

Moving next to Fosamax, sales of 792 million.

That's up 45%, 32% ex-U.S., continued strong growth there.

In the U.S. we're up 58%, and that's benefiting from a comparison to last year, where there was a $170 million buy-out.

Now, many of you probably saw the headlines yesterday.

It wasn't a quarterly event, but I'll just mention we announced that the European patent office has rendered an oral decision to revoke our patent in Europe that covers Fosamax Once Weekly.

Typically, they provide written reasoning within 2 months, so at this point we only have the oral decision.

We announced that we disagree with the decision and intend to appeal, but we'll have to wait the -- await the formal written notification.

Now, if that decision is reversed on appeal, our patent for Weekly Fosamax in Europe will expire in 2018.

Now, based on other patents, Fosamax -- all forms of Fosamax are protected in most European markets until at least until 2007.

So the event yesterday is really at 2008 and beyond, but we'll be appealing it, and there are no particular time limits.

I was asked that several times yesterday.

We just have to play that out through the courts, or through this particular process.

For 2004, our sales guidance for Fosamax is reaffirmed.

That's 3 to 3.2 billion.

Moving next to Singulair, sales of 643 million.

That's up 52%.

That's helped by a buy-out comparison of 125 million last year in the U.S.

Now, we've just annualized the seasonal allergic rhinitis launch, which was last year in second quarter, so we're annualizing that but still showing very nice growth rate overall.

Total prescriptions up 21% in the U.S. for the quarter, and that's driven by growth in both asthma and seasonal allergic rhinitis.

During the quarter there was a price increase of 4.8% on Singulair, and for full-year '04, we're reaffirming the product guidance of 2.4 to 2.7 billion.

Next, on Vioxx, here we have among the large products, the only one with an unfavorable comparison.

Last year there was a 160 million buy-in, so sales in the quarter were 653, and that's down 18%.

That includes a negative 35% in the U.S., reflecting that tough comparison, but also offset somewhat by continued strong growth outside the U.S. of 25% growth.

And, of course, outside the U.S. we continue to be the leading NSAID and leading coxib.

Arcoxia sales were 62 million outside of the U.S., and were up to 92 million in the first half of the year.

And we continue, of course, to be under review in the U.S. for a broad range of indications.

Arcoxia is currently launched in 45 countries.

Two acute-pain studies were published this quarter, highlighting the efficacy profile with once-daily dosing of Arcoxia, and we've talked about that in the past.

One study in particular showing greater efficacy than acetaminophen with codeine, a common narcotic.

Also this quarter the FDA informed us that at this point they do not expect an advisory board meeting for Arcoxia.

As a reminder, we filed at the end of last year, and the 10-month review date for Arcoxia is October 30.

For 2004, our overall guidance for the coxibs is increased.

We are taking that to 2.8 to 3.0 billion, and you see on the year-to-date chart that we are already over 1.4 billion in the first half of this year.

And, of course, Arcoxia continues to do well outside of the -- outside of the U.S., but that guidance does not assume the benefit of a U.S. launch of Arcoxia, since, of course, as we've said all along, that would really depend on the timing late in the year, based on the 10 to 12-month PDUFA window.

Last product in details here.

In Zocor we also have an easier compare against a $144 million buy-out last year.

Sales are 1.4 billion, up 12% overall, but up 27% in the U.S. because of the easy compare.

And that is a contrast to being down 11% outside of the U.S., and that's reflecting generic competition.

That decline ex-U.S. is moderating somewhat, since we've now annualized many of the major market expirations.

So for 2004 guidance, we are reaffirming that as well, 4.9 to 5.1 billion, based on continued growth in the U.S., but declines ex-U.S.

So in summary on the product guidances, we've basically just reaffirmed what we've had all along, with the exception of the coxibs, where we took that up a bit.

So just in summary, a busy quarter, but no real surprises here.

Important progress on the restructuring program.

The U.S. distribution program with wholesalers is operating well.

We continue to advance our pipeline.

And our comprehensive licensing and external alliance program had significant activities again in the quarter.

One of these ongoing alliances, of course, our collaboration with Schering-Plough, is rolling out its second product, Vytorin, in some markets, and we hope to hear soon on the status in the U.S.

And, of course, we're expecting to launch in the second half of this year.

Finally, before moving on, I want to just comment on the change here in investor relations at Merck.

I'll be moving on from this position, heading back to our U.S. commercial operations, effective August 1.

So let me just say that I've met a number of interesting people over the last 2-1/2 years, have really enjoyed this experience and have also appreciated the interactions, both in person as well as virtual, that I've had with many of you.

I also want to just publicly thank my IR colleagues, Graham Bell [ph] and Laurie Peterson [ph], who many of you have worked with.

They really do a terrific job, they've been a lot of fun, I'm going to miss working with them.

But they will both be here, continuing to support you.

I also just want to thank our friends in financial services.

That team does a tremendous job every quarter, helping prepare for this.

And finally, unrelated, I'm pleased to announce that my successor, Mike Rabinowitz [ph], has been named.

He'll be taking over, again August 1 we'll be working through a transition.

Mike has a broad background here at Merck.

He has a financial background and also sales and marketing experience, and most recently he's been heavily involved in supporting our licensing activities.

So he's got a great perspective and I know you'll really enjoy working with him.

Later today we'll actually send out an e-mail to our distribution list with a little bit more on Mike's background and also his contact information.

But we'll be transitioning over the next couple of weeks as we work through the quarter here.

So for now, however, I certainly remain very much on the job, and I'm sure you have some questions, so I'll be happy to take those.

Felicia, who's first in the question queue?

Thank you, sir.

Well, the question-and-answer session will be conducted electronically today.

If you would like to ask a question, please do so by pressing the star key, followed by the digit 1on your touch-tone telephone.

If you are using a speakerphone, please be sure your mute function is turned off to allow your signal to reach our equipment.

We'll proceed in the order that you signal us and take as many questions as time permits.

Once again, that is star, 1 if you'd like to pose a question.

Also if you find your question has been addressed, you may remove yourself from the queue by pressing star, 2.

We'll take our first question from David Maris of Banc of America.

Good morning.

A couple questions.

First, do you think the drug reimportation bill is dead for the next year?

And even if it's delayed, what do you think the likelihood of its passing, and what would be your competitive response if that goes through?

And then second, on the repatriation act for offshore funds, does the Company have any plans, spending plans or other financial plans, if it does go through?

Okay.

Sure.

Both of these, you know, unfortunately really put us into the realm of hypothetical and speculative.

You know, so I really wouldn't be able to give you a firm answer here.

I mean, in terms of importation, you know, our position is the same as it's always been, which is that patients, particularly seniors who don't have drug coverage, really need coverage.

The seniors with coverage aren't the ones going to Canada, and so the real issue here on the difference in pricing is that those without coverage do pay the highest prices, which is why Merck for the long -- for a long time has advocated getting people covered.

We think the Medicare drug benefit is a very important step forward, and that goes, of course, into effect in 2006, but, you know, we're phasing in with the discount card now.

Merck is well positioned within those programs.

We have contracts in place with the majority of those card issuers already, so we're very much looking forward to that.

In terms of a, you know -- a competitive response, I mean, really I'm not going to get into what all the possibilities are and what we would do.

We have to see how this plays out.

But we don't support importation, not surprisingly.

That imports price controls, which we're not in support of, and we also think there is a significant safety risk.

Again, we think all of this really comes down to the issue of coverage.

And that's why getting people into health plans with coverage is really the best solution.

And those same market forces that control drug costs in the U.S. should be allowed to basically address the issue of costs and prices for seniors.

So I think that's really the response.

In terms of trying to predict importation, you know, we really wouldn't be any better able to do that than you are.

We read the same things in terms of the ongoing debate.

So we'll have to see, you know, how that -- all that plays out.

In terms of the repatriation, it's too early to speculate.

We really need to see how that law, if passed -- we need to see how that works out, and plus the guidance they give on use of funds.

But our conservative financial management of the Company is unchanged, and, you know, with a low net debt level and a AAA rating, we're not exactly cash constrained.

But certainly if that law passes, there would be an opportunity for us because of significant overseas balances, and so we'll just have to see how it plays out and exactly how we could use the money.

But I wouldn't see any particular change in strategy for the Company.

Next question?

We'll go to Mario Corso of Summer Street Research.

Just a couple of quick questions.

In terms of the product sales guidance, if you look at most of them, Cozaar, Fosamax, Zocor, if you annualize where they were in the second quarter, you'd end up at or near -- or at or above the high end of the ranges.

You know, is there anything going on specifically with those products that might, you know, cause them to be more toward the low end?

And in terms of Arcoxia, no advisory panel, but does that give any real clue as to whether there will be the requirement for additional safety studies before final approval can be given?

Thanks.

Okay.

Sure.

In terms of the guidance ranges, Mario, I think, you know, again, these are guidance ranges and we're comfortable with that whole range.

But we're pleased that we continue to be able to reaffirm them since we first gave them.

And again, in the case of the coxibs, we took that up.

So, importantly, there aren't the distortions in the current years, so I think you are thinking about it the right way.

The sales in the quarter and last quarter, you know, reflect kind of ongoing demand.

And so what you do have within that guidance, of course, is large products globally in many markets, all with different competitive dynamics, so this is basically, as we do it, a bottoms-up roll-up and we look at all the markets where we market these products.

The different growth rates in a couple of the ones you mentioned, the growth rates overseas continue to be quite a bit stronger than the U.S.

So it's really our best estimate as, like any business, as you do your forecasting on an ongoing basis where we think we'll come out.

So there's no particular single factor that I would highlight, really, in any of them in terms of what's going on in the second half of the year.

The year-over-year comparisons will be affected, of course, by the buy-in patterns, but these sales are driven by demand and that's really just our best guidance on how it all rolls up.

In terms of Arcoxia, I mean, our position all along is that we would expect approval of the product based on the very comprehensive NDA that we submitted.

I'm not going to try to interpret what the lack of an advisory committee means.

That's always been the FDA's prerogative, and when we've been asked if the past if we think we'll have one, we've said it's up to the FDA.

And if they have one, we'll be there, and if not, you know, there's no need to have one.

But that's the FDA's call, and we don't have particular insight there.

That's their prerogative, and we're continuing to move through the process.

And we have always said we would expect the product to be approved, based on the application.

And again, looking at a 10 to 12-month PDUFA window puts you at the end of this year.

Now, as you're aware, when companies get approval or regulatory actions, the FDA, of course, can ask for additional information.

So far that hasn't happened, and so we'll expect to hear somewhere in that October 30 to end-of-year period.

And we'll have to take it from there.

But our position essentially is unchanged.

Next question?

We'll go to David Risinger of Merrill Lynch.

Yes.

Thanks very much.

And Mark, congrats on your new role.

We will miss working with you.

With respect to my questions, I had a couple.

First of all, why did you raise your coxib forecast?

Second, in terms of the sequential increase in earnings per share in the third quarter from what you just reported, what's the key driver there?

And then third, could you just review management's public comments about your long-term cost-cutting opportunities, beyond the plans that were disclosed this past winter?

Thanks.

Okay.

Sure.

In terms of your last point regarding lowering our cost structure, you know, we talked about this program, I think, in October of last year, which we said by 2005 we expected would yield annual savings in the $250 to $300 million range a year.

And -- and that remains on track.

So even though we've given you revised guidance on the restructuring costs this year, the total impact or benefit to the Company from 2005 and beyond, you know, remains unchanged.

Now, some of those benefits are actually even being seen as we progress, you know, later in this year.

So, long term we haven't given any particular forecast on cost structure.

We have said that, for instance, we are creating significant cashflow benefits from lowered inventories and -- largely as a result of the wholesaler agreement.

Also improvements in capital efficiency, which are lowering our CapEx expectations over the next few years.

So those are really the -- on the cost side, the things we've talked about.

And I think in terms of a strategy, we have said that, you know, the market is going to continue to be very competitive, and having a competitive cost structure, protecting your margins, is going to be important to ensure that you get the bottom-line benefits of product sales on the top line.

So nothing really new there, but again I'll reiterate the 250 to 300 million savings from this restructuring program beginning in '05 is unchanged.

That's, you know, what we've expected.

In terms of a couple of your other questions, in terms of the coxibs, I mean any time we change the guidance is just based on new information, meaning most recent results.

So I think if you look at it, we realize we're already over 1.4 billion in the year, and so taking that guidance up to 2.8 to 3.0, this includes, you know, what you're seeing in the U.S. for the coxib market isn't really growing, but shares largely stabilized.

But we continue to see growth outside of the U.S., and so obviously we're expecting that to continue, just with Vioxx.

And, of course, Arcoxia is still in a rollout situation.

We're launched in 45 countries, we're actually approved in more than that.

So we're going to see sequential rollouts, and, you know, it just includes the growth we're seeing with Arcoxia.

So it's really just an update to the forecast.

And that's why I wanted to emphasize, I don't want anyone to infer that the information on the advisory committee meeting or something U.S. has changed our guidance on coxibs.

Those are independent.

We're still not including a U.S. launch in that number.

Really it's just based on the timing, end of year.

If we could launch this year, I think we'd certainly want to do that.

But we're not baking that into the guidance, if you will, just based on end-of-year timing.

So, I think-- I think -- oh, I'm sorry, you also asked about growth rates for the third quarter and the fourth quarter.

A couple things to keep in mind.

When you're looking at the year-over-year comparisons, both for the third quarter and the fourth quarter, you know, last year's choppiness creates these unusual comparisons.

So part of that is the fourth quarter last year had a significant buy-out, that was the 250 million.

Other things in terms of lines in the income statement to be aware of, based on our guidance with R&D, we expect that growth rate in R&D to moderate later in the year.

It's been a very high growth rate in the first part of the year, partially in our comparison, but also by the significant external lines activity completed in the first half of the year.

We'll show that marketing and admin in the second half of the year, even including the restructuring costs.

You'll see that moderate a little bit.

We'll annualize the impact of Prilosec, in terms of AstraZeneca revenues.

So I think you really have to look at all of those various components.

It's not so much a matter of what's the growth rate over last, it's really what's going on in the third and fourth quarter this year, based on all those line items.

And then where you fall out may still create unusual growth rate comparisons.

But again, that -- that has more to do with last year.

So, hopefully that gives you a sense of -- I think of it more in terms of how do the third and fourth quarter of '04 look, and what do those numbers look like, as opposed to growth rates, because that will be affected by those other items.

And again, with half the year in and an 80 to 84-cent guidance range on the third quarter, and yearly guidance reaffirmed, I mean, I think you have a pretty good sense of how we expect the year to come out.

And we'll update it again, of course, next quarter.

Next question?

And we'll go to Mara Goldstein of CIBC World Markets.

Yes, thanks, Mark.

Two questions.

One is, should we anticipate in your third-quarter results a payment to Schering-Plough related to the approval of Vytorin, and where will that come in on the JV line, or will you just expense that in the -- in the Merck P&L?

And then secondarily, since Arcoxia revenue is about, I guess, 62 million in the quarter, which it seems like now you're getting some critical mass there.

Could you just give us some colorado as to where those sales are falling, and what countries?

Sure.

Well, first of all, in terms of Vytorin, there is -- there's not a milestone associated with the U.S. approval of Vytorin.

But consistent with how we've done this all along, all of our expenses -- any expense related to this collaboration with Schering-Plough comes into equity income.

You know, the one exception being the direct selling expenses in some of the overseas markets, such as Europe.

But any milestone payments would come in through equity income.

So essentially they would be an offset to our income, but again, there isn't one associated with Vytorin.

So that's where it would be.

In then terms of Arcoxia, you know, you're right.

We're now close to 100 million in the first half of the year and growing and rolling out.

And the launches are going well.

I would guess I would highlight a couple things in a couple of markets in Latin America, like, I believe, Brazil and Mexico.

You know, we have very nice market shares, and well ahead of Beckstra.

In the case of the U.K., which was the first market we launched, you know, it's a good example where Merck has continued to extend its market share.

And in the case of, again, Arcoxia significantly ahead of Beckstra So about the only market where we're behind, outside the U.S., is Germany, where we're not launched.

So, on a global basis Merck's franchise ex-U.S. within the coxibs has about a 56% share.

And that's grown, certainly, since Arcoxia has launched.

So it'll continue to roll out in these various markets.

But in some of the first markets we launched, we're seeing good growth, again additive to the Merck portfolio.

And, you know, that's good news for us.

So all of that's included in that guidance.

Next question?

And as a reminder, that is star, 1 if you'd like to pose a question, and if your question has been addressed, you may remove yourself from the queue by pressing star, 2.

We'll go to Tim Anderson of Prudential.

Thanks.

On Arcoxia, if you get full approval on the 10-month action date, would you likely launch in '04, or would that most likely launch earlier in '05?

And is that really the reason why -- why the guidance -- I mean not Arcoxia U.S., but the performance internationally of Arcoxia, is that why we're seeing the coxib guidance pick up for the year?

It seems like that could be the reason.

And then Mevacor OTC, you guys have historically been pretty quiet on this in your initiative here.

It would seem like they're still very active.

Can you give us an update on what's happening here or when this would likely go before an FDA panel, or when it would likely go OTC?

Sure.

Thanks, Tim.

In terms of Mevacor OTC, I don't have a particular update there.

We continue to be supportive of the opportunity, just based on the number of people with even mild cholesterol who could benefit from treatment or who don't see a doctor.

And so we think Mevacor OTC makes sense.

You know, we've had that position all along.

The agency previously was not supportive of that, but their position around over-the-counter switches has changed a little bit as well.

But that's really being managed by our joint venture with J&J, so they're continuing to work with the FDA on it, and we continue to want to pursue that, but there's no -- that I'm aware of, there's advisory committee scheduled and I don't have a sense on timing on that.

So, you know, for competitive reasons, they probably wouldn't want to share their actual time lines, but I'm not aware of any public announcements of advisory committees.

So that's an ongoing effort where they're working with the agency again -- they being the J&J/Merck over-the-counter joint venture in the U.S. -- working with the agency in terms of satisfying their -- their questions and concerns previously about such a switch.

So we'll continue to pursue it through that -- through that venture.

In terms of the guidance and Arcoxia, well, I think there's a couple things here, you know, driving the guidance.

I mean, it's also the results in Vioxx on a global basis.

Again, Merck's share outside of the U.S., it's the leading coxib and the leading NSAID, having passed diclofinac, I think, in the first quarter.

So, the Merck franchise is doing well.

Again, both products together, the guidance is for both products.

Arcoxia is off to a good start.

It's continuing to grow, as I think Mara said, it's starting to get to some critical mass.

It's additive overall to the franchise, which is good.

So that's -- that's really what's in the guidance.

And then in terms of Arcoxia, you know, I'm not going to predict a launch date, you know, other than to say certainly we have, you know, we're very excited about the possibility of launching Arcoxia as soon as would be practical.

And the only reason we're not including it here is we have no way to predict the FDA's action.

I've tried to give you the window of -- 10 to 12 months is October to December.

You know, if you got in right close to Christmas, you'd have to figure out, you know, labeling promotion, etc.

You know, we just don't want to predict and count on the launch, just given the regulatory uncertainty that we can't predict.

But if we got it on October 30, I guess I'd put it this way.

We'd have no incentive to unduly delay the launch.

I mean, certainly we'd want to move it forward.

Similarly, I guess I would say on Vytorin, you're all aware of the PDUFA date there.

The 10-month goal is July 24.

So we could be hearing soon.

We've -- we have said and our partner Schering has said a second half of the year launch.

That's just based on you don't know exactly when it would come.

But we would certainly, you know, want to move forward as expeditiously as possible, and want to do it right.

So, I don't -- I'm not -- I wouldn't expect significant delays on either of those products.

We're just following the normal process in the case of Arcoxia.

You're just dealing with holidays and the end of the year, that's all.

Next question?

And we'll go next to David Moskowitz of Friedman, Billings, Ramsey.

Yes, thanks very much.

And, again, good luck, Mark, with your new endeavor.

It's been a pleasure working with you.

So, a couple questions that I have is, number one, could you please go over the reduction in the AstraZeneca supply sales line?

Obviously, you guys are, I think, are more in tune with the current trends.

You've aligned your guidance with actual market trends.

So could you tell us what's happening, which products are affecting this guidance, you know, is it pricing, rebating or demand?

And the other question is, the share buy-back program, I remember it's a pretty large program, about 10 billion.

And I didn't see any share buy-backs this quarter, essentially.

A very flat share count.

So is that a reflection of the value that you see in Merck's stock at this point?

Thank you.

Okay.

In terms of the last question, you know, our share buy-back program has nothing to do with our -- what we see as value of Merck stock.

This is just a mechanism we've used over the years, significantly to return value to shareholders.

The Company generates cashflow, you know, beyond our needs, and we're not a bank and we don't think shareholders are looking for us to hold the money.

So dividends, consistent dividend policy over time, and share repurchase are two excellent ways to deliver that value.

And over the last 5 years, it's something like 90% net income has gone into dividends and share buy-backs.

So we don't speculate in Merck stock, we are just generally in the market over time, you know, buying up shares based on the results of the business.

So in terms of share repurchase this quarter, I did mention it was 216 million.

That's about the same as last quarter, which was 228.

So we did purchase 4.6 million shares.

And, again, this varies over time, you know, largely just based on, you know, the results of the business.

So that program will continue.

There's no specific targeted amount.

And again, just a way to return value to shareholders, so ongoing process there.

Your other question, David, had to do with AstraZeneca.

So you actually rattled off several of the things that contribute to this.

So it's clearly demand for the product, since we are a supplier to AstraZeneca for these products.

Demand for the product certainly has an impact on us.

Prilosec, in particular, is one where we took, you know, the impact at the end of last year, and as I said, that's starting to annualize but, clearly,demand for branded Prilosec has fallen off.

That certainly affects us, and we're feeling that.

In terms of Nexium, I mean Nexium, as you're aware, is the bulk of those revenues, just based on the product.

And, you know, our revenues reflect 27% of the net sales of Nexium.

So that's the biggest contributor.

But the dynamics you discussed that are driving it and the guidance down this year is clearly a decline in Prilosec, which has a full-year impact this year, which was partial last year as the generics really didn't come in until later in the year.

It always includes pressure and risk from pricing, both, you know, direct pricing in the market, as well as rebates/ That's all in there because, again, our percentages are running off of their net sales.

And then demand for the product, as well as, you know, where inventories may be at AstraZeneca, their customers through the chain.

So I can't pinpoint something for you.

It's really all of those things together.

And each quarter we update it based on the orders from AstraZeneca, what's happening in the marketplace, and where those various pieces are.

So the best I can do is, as I said, suggest that it's hurt us this quarter in particular, because we haven't annualized Prilosec.

The comparison gets a little bit easier, but the guidance we've provided is for a full year, and that's the best information we have on all of those factors which, again, and we don't control most of them, or really any of them.

So we will update that, continue to monitor it and update it as we go throughout the year.

But we would expect at this point the comparisons to get a little bit easier in third and four quarter.

Next question?

We'll go next to Scott Henry of Oppenheimer.

Thank you.

Mark, I was hoping you could comment on the reimbursement outlook for Singulair in allergic rhinitis.

I'm hearing some comments that some people may be trying to place some restrictions there.

But I'm curious if that remains very small scale, or if you're noticing that.

Additionally, if you could just comment on any updates we could expect over the, you know, next 6 to 12 months over the HPV vaccine and development.

Okay, Scott.

In terms of Singulair Allergic Rhinitis, I'm not aware of any significant changes in the reimbursement status there.

Singulair has very broad acceptance on managed-care formularies, I think, based on the continuing growing evidence of its value in both asthma and AR, and across a wide range of patients, I mean, down to children as young as 1 or 2, in a variety of dosage forms.

So there's still good demand for Singulair, it plays an important role in terms of the clinical treatment of those conditions.

I think the only restrictions that we've experienced over time has been some managed care plans not wanting Singulair AR -- or Singulair to be used for allergic rhinitis as a first-line therapy for people who haven't tried antihistamines.

And, you know, which is fine with us, so we've worked closely with our managed-care customer who are able and desirous to put those kind of controls in place.

But, as you know, allergic rhinitis is a very big market.

Chronically dissatisfied people tried lots of medications r combinations of them.

There's an ongoing churn.

So access to Singulair generally, and particularly for asthma, is, I think really the driver.

It's critically important and we haven't really seen in the main any major constraints.

And, again, we're happy to work with the customers on what, you know -- what we would agree with them is appropriate use for allergic rhinitis.

In terms of HPV, I don't have any specific timing on new data there.

We continue in a very large phase III trial, something like 38,000 or 40,000 patients.

We're in phase III and we've indicated a filing in the second half of next year.

So that means over the next 12 months, we need to finish that -- finish the trial, get all the data, clean it, prepare it -- an application for the FDA and then file.

So there will be a lot going on.

Precisely when data will be available and/or when it's presented -- will be presented, you know, we don't know yet.

As you're aware, these kinds of trials are event driven.

So it's not as if patients are studied for X period of time and then come out of the study.

We continue to accrue patient experience.

And it's the incidence of both HPV infections, as well as the development of lesions, that really power that study.

So we've given our best estimate in terms of the filing on when we think we'll be able to do it.

And we'll update that timing if there's a change, but there's no -- at this point, no specific plan as to when the data would be available or presented, just given those uncertainties.

But, clearly, it remains an important high-profile product, and, you know, we will keep you posted.

Next question?

We'll go next to Steve Scala of SG Cowen.

Thank you.

This is mainly a clarification, but the Q3 guidance, I believe, implies Q4 earnings of 75 to 79 cents.

That would be up 21 to 27% to achieve the low end of the annual guidance.

That would seem steep and would be the best quarter you've reported since Q4 of '01.

It would also appear to require something other than easy comparisons and a moderation of R&D spending.

So I'm wondering, Marc, is there something I'm missing that I should be considering?

Okay.

I'll trust you on the math here, Steve, as I understand the sentiment in terms of what's the growth rate comparison in the fourth quarter.

But it really is a number of those things.

Again, this year, demand for the products, or rather, sales of the products, is driven by demand.

And, you know, we continue to see growth of the in-line products.

Better contribution from some of the newer products, such as Cancidas, Proscar getting the benefit of the MTOPS study, Arcoxia rolling out around the world.

So, you know, the trends in all those products are in there and, again, we no longer have to deal with the distortions of buy-in, buy-out.

So that means those sales in the fourth quarter for the -- all of our products will reflect, you know, the demand in the market for those products.

And, again, it is an easy compare on sales/ Again, we all remember what happened in the fourth quarter of last year.

So now that we're out of that business, it will be the last quarter to annualize, but there is a favorable compare.

Again, just within the guidance, walk down the page.

R & D becomes an easier comparison later in the year, marketing and admin we've said will be easier later in the year.

And, of course, what you have going on in marketing and admin is less and less restructuring expense, you know.

It's bigger in the first quarter, smaller this quarter.

You can look at the guidance and see there's less in the back half of the year, as well as us starting to actually capture some of the savings benefits.

So, you know, that's in that line.

We had a tough compare this quarter on the year-over-year in the other income and expense because of those security gains in the second quarter, so, you know, assuming no big impact one way or the other, there's another factor.

AstraZeneca comparison gets easier, because, again, we're driven now more by Nexium, and Prilosec sort of washes out.

On the equity income line, Zetia continues to grow nicely.

Last year, we said the partnership with Schering-Plough was loss for Merck.

This year it's positive, and clearly it's improving because your costs are essentially in place in terms of marketing spend, R&D.

But Zetia continues to grow.

So that continues to increase in terms of its contribution to Merck.

And then, of course, we would expect a launch of Vytorin in the second half of the year.

So I'm not going to predict anything specific about the impact of Vytorin.

It depends on expenses and sales and when it all happens.

But it's clearly a positive catalyst for the Company.

So it's really as we look at all of those things.

There's nothing hidden or surprises.

It's just based on all those trends and all of these factors, and I've got to encourage you not so much to focus on the growth rates year over year.

It's really more driven by what's the run rate this year for all of those things.

Build your model that way.

And then the percentages will just fall out, you know, where they do.

Next question?

And as a reminder, that is star, 2 if you'd like to remove yourself from the queue.

We'll go next to Neil Sweig of Fulcrum.

Good morning.

Best wishes, Mark.

My question is related to Zocor.

What patents for Zocor remain to expire in any major markets?

You're down to about $400 million a quarter in Zocor foreign sales.

That's one question.

The second question is, maybe you can repeat what has been stated previously in terms of what Vytorin, let's say upon launch in August/September, will have an impact on Zocor sales in the second half of this year.

And the last question relates to will the pricing on Vytorin be available rather immediately upon FDA approval of Vytorin?

Thank you.

Okay, Neil.

Thanks.

Let me tick through some of these.

In terms of Zocor outside the U.S., the major markets that have annualized already now in terms of patent expiration are Canada, U.K., Germany, Scandinavia, Holland and Japan.

Of the major markets left, we still retain protection in France and Italy.

I don't have the specific dates on those.

France is at least through '05, and then Italy maybe at little longer.

Some of it depends on the intellectual property there.

So there's no impact certainly either this year or next year in terms of additional major patent expirations for Zocor.

So I think you -- as you've noted, you can kind of start to look at the run rate.

The year-over-year comparisons are kind of annualizing, and we'll see where we go from there.

In terms of -- in terms of Vytorin and the launch and the impact, you know, that's a pretty complex one to parse out, and I know that, you know, it's -- it's something that all of you are focusing on.

I guess I'd point to a few things.

The HMG market continues to grow nicely.

Recall middle of last year it had really slowed considerably, down to just a couple percentage points.

The most recent quarter, the HMG market was, I think, 13% mail-order adjusted prescription growth rate.

So strong growth.

Zocor is continuing to benefit from the outcomes data, the experience behind it, our managed-care formulary positions, and now, of course, with NTP guideline recommendations, you know, we see that at least as another positive for the market.

Exactly how much or how that plays out, it's hard to say because it largely reinforces where most physicians are already.

Treating more patients, particularly high-risk patients, moe aggressively into lower goals is, you know, it's sort of the current trend.

So, you know, we think those are positive.

So how that plays out, I think, in terms of Zocor, the guidelines are clearly well in line with the results from the heart protection study.

In fact, NCP mentioned the heart protection study as one of the catalysts for revisiting the previous guidelines.

At the same time, you know, you could argue that these guidelines bode quite well for Vytorin and the efficacy profile that that product has.

We've said all along that Vytorin we would expect to compete head-to-head against everything in the market for first-line therapy, and therefore that includes Zocor, but more importantly Lipitor, and I say more importantly simply because it's the market leader and the largest product on the market.

So as we are today with Zocor, we have about a 21% share.

So I think Vytorin is going to capture patients across the board.

It remains to be seen at what level.

Some of that certainly will come out of Zocor, but we would expect even more to come out just based on the proportions, you know, across the board.

So that strategy, you know, we'll just have to play out once we get approval and see how this market continues.

And then in terms of your last question on pricing.

I don't know, you know, precisely the minute that becomes available.

So, you know, let me just say that we would expect to launch following approval pretty rapidly, and so sometime between the approval and an actual launch, you know, the price will be out there.

And so I don't think there's, you know, any great mystery.

But I'll also say, and again caution people, you know, as I always do, catalog price is certainly part of the mix here.

It's not everything.

It's part of the pricing equation.

We have said that we would expect to price the product competitively and not to create price as a barrier.

However, this is not an arbitrage market based on price.

This is really based on clinical demand for the product, and we think the profile of the product and physicians' interest in that product, whatever it is, is really what determines its usage, although we recognize price is a component of that, and that will all be out soon enough and we'll see how things play out.

But, again, we don't see price as a major driver today or in the future to utilization.

It really is the profile of the -- of the product and what it provides for patients and physicians.

Next question?

We'll go next to Jim Kelly of Goldman Sachs.

Great.

Thank you very much.

My question has to do with -- I'm looking, Mark, at the year-to-date growth rate figures on volume, and so since this should take in account some of the wholesaler stocking and normalize it, and when I see that the U.S. volume number is down 2%, and we know that that has a favorable comparison because there was something like $370 million worth of stock out a year ago.

I'm wondering what -- are there any other factors that are making this a tough comparison?

I guess it's probably 100 million or so worth of sales to AstraMerck.

Anything else we should we think about, and how should we think about this for a run-rate going forward, more from a big-picture perspective?

And one last one, if I may.

We-- a lot of questions about this Arcoxia.

Is it in the guidance?

Is it not in the guidance on the sales side?

But if it were to be launched this year, wouldn't there also be a cost component associated with that?

Thank you.

Sure.

On your last one, Jim, sure, any product launch is going to have costs, and so I was specifically saying that the guidance on the sales range for the coxibs was just commenting that we're not building kind of a bullish launch sales effort for Arcoxia into that guidance.

And, you know, how and when it tracks to income, you know, that's a whole, you know, separate story.

I was just pointing out that it's not included.

So it's not included in any of our guidance, whether it's bottom line or coxibs, just to clarify.

In terms of the year to date, it's really a mix as you look across a lot of those products.

You're right, Jim that there are easy comparisons certainly for -- in the second quarter.

I think the first quarter is actually a net buy-in last year, so you really kind of have to start going back and saying, okay, well, you know, what are my year-over-years looking like?

In the second half of the year, there is the big buy-out in the fourth quarter.

If you -- if you go to then, I guess, in your models you would call it the other line, you know, you are going to see a negative compare there.

And again, just to review, the largest component of that is the AstraZeneca revenues, and I've indicated those are down, and down more in the first half of the year than we expected to be in the second half, you know, based on run rates.

So that's clearly one, you know.

The next step is the, you know, all other promote -- or off-label nonpromoted products.

That's something that continues to decline over time.

There also in the -- you still see a little bit of a decline in Prinavil, for instance.

You know, that was, I think, about 20 million, you know, year-over-year.

So it's really mixed, you know, across the board.

But I guess I would also point out to a couple products on a year-to-date basis, you know, they're showing good strong growth patterns, you know.

Cancidas is up 75% year to date, 72% in the U.S.

Proscar is up 17%, and that's been enhanced now.

We've just launched the MTOPS study.

That was in May.

We launched that indication, indicating the benefits of using Proscar as well as an alpha blocker together, in terms of additive clinical benefits and outcomes.

So it's really a mix across the board, and some of it on compare.

And then, as we said, it's -- that's just on the volume side in terms of all the things that impact that sales volume number.

And then in terms of EPS, of course, many of those other line items are what drives it.

And again, that's just the U.S.

If you look ex-U.S. where volume is affected, ex-U.S. is largely Zocor, but now that's annualizing.

So if you look across a number of other products for ex-U.S., you see some nice, strong growth rates.

And clearly there's some foreign exchange in there also, if you look at sales, but if you look at volume, you know, in the second quarter volume outside the U.S. was plus-7.

Even with the Zocor drag, it's only plus-4 year-to-date.

So that's clearly improving.

So you've got to look at the individual products and what's going on.

And, again, outside of the U.S. it's mostly the impact on Zocor.

Within the U.S. it's the buying patterns and then also some of those individual products, as mentioned.

Next question?

At this time, we'll take our final question from Alan Sebulsky of Apothecary Capital

Yes.

Two questions, Mark.

One, on the minority interest line, I would have assumed that line would have disappeared once Banyu was consolidated.

Can you just touch base on exactly what's going on at that line?

And secondly, in the joint venture line, is there a significant change or comparison in the APLP component, the equity income line and the AstraZeneca payments that would account for some of the improved guidance in the equity income line?

Okay.

Sure, Alan.

In -- in terms of minority interest, one component of that has gone away, which was Banyu, as you suggested.

So that's out year-over-year.

But the other components of that remain, and that's in our annual -- those are basically preferred stock.

So the dividends on that preferred stock is part of the minority interest, as it's always been.

So that's -- that's not changed.

But you're right, the Banyu pieces come out.

In terms of equity income, you know, there's various components here.

There is the partnership with Schering-Plough.

There is the arrangement with AstraZeneca, and then to a lesser extent there's Merial, MSD Adventist Pasteur, also J&J/Merck.

So it's really all of those joint ventures together.

So much like any of the other guidance, when we give guidance or update it, we're rolling all of those things up.

Now, in terms of -- of AstraZeneca explicitly, I think as I talked at the end of last year, you know, some of the items that affect us there are the same things that affect us in terms of the marketplace, with having, you know, the generics come in, etc.

Now, as you're aware, there were also a number of other items, such as tax and timing issues at the partnership level, that affect equity income.

So it's not a straight thing from the marketplace, but those are impacts to some extent.

And then there are a number of other items.

So if I just look -- if you look quarter-over-quarter, we're showing some improvement, but I guess what I was saying is, you know, part of what's helping us improve year-over-year is continued improvement in Merck/Schering-Plough.

But it's really -- I can't point to any one thing that says we roll up all of the joint ventures that contribute into equity income.

You know, we saw some room to take up the guidance about 50 million at both ends.

So, you know, those are the items in there.

So with that, I know people still have a busy day of digesting all this and doing additional calls.

So thank you all for your participation, as well as your kind words, some of you.

And I will certainly be around and look forward to catching up with you as I transition out of investor relations.

Thanks very much.

Have a good day.

Bye.

And that does conclude today's conference call.

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