默克藥廠 (MRK) 2004 Q4 法說會逐字稿

Good day, everyone, and welcome to the Merck fourth quarter 2004 sales and earnings conference call.

Today's call is being recorded.

At this time, I'd like to turn the floor over to Mr. Graeme Bell, Senior Director of Investor Relations with Merck.

Please go ahead, sir.

Thank you, Felicia.

And good morning, everyone.

Thank you for joining us on Merck's fourth quarter earnings conference call.

Although we have quite a few people on the call already, I understand more will call in as we start.

Let me begin by reviewing the Safe Harbor language.

During the call we may discuss certain subjects that may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

These statements involve risk and uncertainty which may cause results to differ materially from those set forth in the statements.

The forward-looking statement may include statements regarding product development, product potential and financial performance.

No forward-looking statement can be guaranteed and actual results may differ materially from those projected.

Merck undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise.

Forward-looking statements in this call should be evaluated together with the many uncertainties that affects Merck's business, particularly those mentioned in Merck's periodic report and Form 10-Q and 8-K.

By now you should have had a chance to review our press release and other financial disclosures that we issued at 7:30 this morning.

If you haven't, let me remind you that all this information has been posted under annual other financial reports section within the investor information tab on Merck.com.

Let me begin the standard part of the call with a summary of today's news release.

Worldwide sales were 5.7 billion for the fourth quarter of 2004 and 22.9 billion for the full year as Merck's newer franchises continued to grow.

The fourth quarter earnings per share came in at $0.50.

This result, when taken into consideration with prior results, means that the full-year 2004 EPS was $2.61.

The worldwide restructuring program announced in 2003 to fundamental our cost base is now complete.

The full cost of the worldwide voluntary withdrawal of Vioxx are complete.

And I will discuss more in a moment.

Merck has reserved an additional $604 million in the fourth quarter solely for future legal defense costs arising from Vioxx legal matters.

Merck reaffirms full-year 2005 EPS range at $2.42 to $2.52 and anticipate 1Q '05 EPS in the range of $0.54 to $0.58.

The impact of all these actions is included in our results.

Nothing has been excluded and we continue our long-standing practice of citing only bottom-line GAAP results.

In addition, I will comment on the various components as we go through them.

Before progressing into the detail of the fourth quarter and full year, let me address two important points.

Namely, Vioxx withdrawal costs and legal defense costs arising from Vioxx legal matters.

In the third quarter of 2004, you will recall that Merck recorded an unfavorable impact on EPS of 25 cents relating to the voluntary withdrawal of Vioxx.

This included estimates of customer returns, of products previously sold, write-offs of inventory held at Merck and costs to undertake the withdrawal of the product.

In the fourth quarter results, there are no additional withdrawal costs of this type associated with Vioxx, and we do not anticipate any in the future.

Sales results reflect the expected unfavorable impact of approximately 700 to 750 million in foregone sales in the fourth quarter relating to Vioxx withdrawal.

Considering our foregone, we will never see them.

This information is supported by the content of page 16 in the press release.

Next let me address the legal defense cost arising from Vioxx legal matters.

The 604 million charge taken in the fourth quarter relates solely to legal defense cost arising from Vioxx legal matters and together with the approximate $70 million previously reserved is the minimum amount that we believe we can reasonably estimate will be spent of these costs over multi-year periods based on what we now know.

While we have a number of Vioxx lawsuits prior to September 30th, the voluntary withdrawal, those matters are primarily a product liability area and other legal costs reserved reflecting our experience with the defense.

The volume and types of legal matters has grown significantly after the voluntary withdrawal requiring defense on a number of new and expanding fronts.

These new matters include ERISA lawsuits and regulators, administrative and governmental inquiries, as well as international actions.

Our understanding of these costs associated with these matters has evolved recently.

Based on both actual costs incurred since the withdrawal, on the development of our defense strategy, and the structure and view of our expanded scope of Vioxx legal matters, when we were able to estimate these legal defense costs that are both probable and reasonably estimatable under GAAP, we added to our reserve for future legal defense costs.

Merck has historically accrued for such legal defense costs when they were both probable and reasonably estimatable.

As we have previously stated, Merck believes it has strong meritorious defenses in the Vioxx litigation.

In particular, we intend to vigorously defend the product liability cases on an individual basis.

Each of these cases is different because of the unique factors of each plan of experience, which could include different medical histories, different ailments, and different doctors who prescribed Vioxx in different doses for different durations.

We expect to try these cases over many years and to defend our other types of Vioxx litigation with equal resolve.

We also expect new cases to be brought in the future.

The taking of this charge is consistent with our commitment to defend the Company.

We will continue to monitor our legal defense costs and to view the adequacy of this reserve.

As stated in the press release on page 8, as of December 31st, 2004, the Company has been served or is aware that it is named as a defendant in approximately 575 product liability lawsuits, which include approximately 1,400 plaintiff groups alleging personal injury resulting from the use of Vioxx.

Certain of these lawsuits include allegations regarding gastrointestinal bleeding, cardiovascular events, thrombotic events or kidney damage.

Given the ongoing nature of the Vioxx legal matters, I cannot comment further on our litigation strategy.

And again, I would refer you back to page 8 of the new release for a complete update.

Now, let's go to page 14 and 15 of the press release to begin the P&L review.

Page 14 lays out the fourth quarter 2004 results and page 15 the full-year 2004 results.

As I talk to each line item, I will address the quarter and then the full year respectively.

Turning to sales.

Sales in the fourth quarter were $5.7 billion.

That is up 2 percent and includes 19 percent growth from our 4 largest products.

An overall 2 percent benefit from price and a 2 percent benefit from foreign exchange.

This fourth quarter result also reflects the expected unfavorable impact of approximately 700 to 750 million in foregone sales relating to the Vioxx withdrawal.

It also reflects the favorable comparison to the fourth quarter of 2003, which was affected by both prevention of buy-in, as well as $250 million of buyout as we introduced our wholesale distribution program.

You'll recall that program was new in the fourth quarter of last year, and I'm pleased to tell you that this is the last time we'll have to talk about buy-in and buyout matters as this fourth quarter completes 1 year of the distribution program for U.S. wholesalers.

Consistent with our experiences, sales levels in the quarter reflect actual demand and were not affected by buy-in or buyout.

And as previously discussed, our product's inventories are now less than a month and generally in the 2 to 3 week range per product and we expect that to continue.

I will remind you about the effective buyout in the base period as we move through the respective products.

Full-year 2004 sales were 22.9 billion, that's up 2 percent, including 13 percent growth from our 4 largest products and overall 1 percent benefit from price and a 3 percent benefit from foreign exchange.

The full-year 2004 sales include the unfavorable affects of $492 million of estimated customer returns and product previously sold associated with the worldwide voluntary withdrawal of Vioxx.

Sales results also reflect the previously mentioned unfavorable impact of approximately 700 to 750 million in foregone sales in the fourth quarter of 2004 relating to the Vioxx withdrawal.

I'll go into more detail later.

But in summary, worldwide sales of Singulair, Fosamax and Cozaar and Hyzaar remain strong.

Also within our top line, are revenues from our alliances, namely AstraZeneca and Merial.

In the fourth quarter, alliance revenue from AstraZeneca was down 3 percent.

And our recognition has taken inventory levels at AstraZeneca for PPI and non-PPI products, their shipment out, and as always, they resist price and future volume given that we are not actively managing these products.

For the full year 2004, revenue from AstraZeneca reported by Merck was 1.48 billion right in line of our guidance of 1.4 to 1.5 billion.

That's down from 1.9 billion or 23 percent versus 2003 due to the availability of generic omeprazole [ph] as we expected.

Our 2005 guidance, as always, is an update based on recent results as well as future expectations and reflects the dynamic of the PPI market, multiple generics and OTC and other uncertainties that create with regard to future volume and price.

Also keep in mind this guidance incorporates the expectation of non-PPI products such as, plandel [ph], atacam [ph], lexel [ph], anticort [ph].

That said, we are reaffirming our estimated revenue to be approximately 1.4 to 1.6 billion for the full-year 2005.

Let's move down the P&L where materials and production came in at $1.3 billion.

That's up 5 percent versus the fourth quarter of 2003.

Now, that number includes the impact of this considering the buy-in over prior periods as well as product mix within the quarter.

If you do the quick math, that results in a product gross margin percentage for the quarter of 77.7 percent.

This was slightly lower than our 4Q '04 guidance range provided.

And that's primarily due to the final mix of products toward the end of the year.

For note, the fourth quarter represents the first full quarter without Vioxx, which had an above average gross margin as we discussed in October, hence the fourth quarter PGM better reflects the business going forward.

Turning to the full year, the full-year PGM was 78.4 percent.

And that includes the Vioxx withdrawal costs of 93 million taken into 3Q '04.

Excluding the Vioxx withdrawal cost taken in #Q '04, full-year '04 PGM was 79.2 percent, in line with our full-year '04 guidance.

For the full-year 2005, we are comfortable with our guidance range, and are therefore reaffirming the product gross margin percentage is estimated to be approximately 77 to 78 percent, ie, analogous to the 4Q actual run rate.

We continue to expect that manufacturing productivity will offset inflation on product costs.

Moving down to marketing and admin.

In 4Q '04 marketing and administrative expenses came in at 2.4 billion.

That's up 29 percent.

Let us clearly understand what is driving the growth.

The 4Q '04 number includes 2 specific charges that I want to identify for you.

It includes the 604 million charge for the additional reserve related solely to legal defense costs arising from Vioxx legal matters and 16 million for restructuring costs.

The 604 million charge was taken in the quarter together with the approximate 70 million previously reserved, and is the amount we believe we can reasonably estimate we will spend for these costs over a multi-year period based on what we now know.

Regarding the restructuring program announced in October 2003, as of December 31st, 2004, the Company had eliminated 5,100 positions, including some additional opportunities beyond what we cited in October of 2003 and that has been identified during the course of 2004.

Most of the additional eliminations came from contractor positions.

And with these, the program is now complete.

Beginning in 2005 for the full year effective the restructuring program is expected to lower the Company's annual payroll and benefits costs by approximately 300 million without having a negative impact on either productivity initiatives or Merck's ability to meet its objectives.

These were savings realized in 2004 from this program, but the full-year annualization of these savings will occur in 2005.

And as previously stated, Merck is currently redesigning many of its critical business processes that will enhance our ability to maximize future opportunities.

Excluding the reserve relating solely to the legal defense cost arising from Vioxx legal matters and the 16 million for restructuring costs, marketing and admin was up 7 percent for the quarter.

For the full-year 2004, marketing and administrative expenses came in at 7.3 billion, that's up 15 percent.

Just to recap the drivers of this growth are, 2004 marketing and admin expenses include 604 million charged for additional reserves relating solely to legal defense costs arising from Vioxx legal matters. 141 million for estimated costs to undertake the withdrawal of Vioxx, which we reported in Q3 '04.

And the 105 million for restructuring costs.

Let me remind you that all these costs I've described are included in this line as required by GAAP.

That said, if you were to exclude the 850 of charges incurred, that's the 604 plus the 141 plus the 105, 2004 marketing and admin expenses were up 5 percent reflecting in part the results of exchange, in part the decision to allocate Vioxx promotional resource to other products following the withdrawal, and some early promotional expenses in preparation for the rollout of the head-to-head results of the FACT study for Fosamax, as well as ongoing needs of the business.

Regarding guidance, we're continuing to provide it on the underlying marketing and administrative expenses.

And to help you in your modeling, we are reaffirming the full-year 2005 guidance.

That is, we anticipate marketing admin expenses to increase at a low single-digit percentage growth rate over the full-year '04 level.

This guidance does not reflect the establishment of any reserves for any potential liability relating to the Vioxx litigation.

The full-year 2004 level referred to excludes the following items, restructuring costs relating to the previously announced position elimination, costs relating to the withdrawal of Vioxx, and the charge taken in the fourth quarter relating solely to future legal defense costs for Vioxx legal matters, ie, the guidance is low single-digit increase over full-year '04 as reported, 850 million to get you to the base rate.

Moving down the P&L to research and development.

R&D for the quarter was 1.1 billion, and that results in a full-year 2004 being approximately 4 billion.

That's up 22 percent for the quarter and year respectively.

This strong growth in the fourth quarter reflects Merck's ongoing commitment to both internal, basic, pre-clinical and clinical research, as well as new external research collaborations to augment Merck's internal research focus, such as with ONO and Rigel.

As we shared with you at our annual business briefing in mid-December our efforts to expand our pipeline by moving into new therapeutic areas, increasing licensing activities, and accelerating early and late-stage developments continue to produce positive results.

Although the FDA approval of Arcoxia has been delayed, regulatory submission and late-stage progress of Merck continues to be on track or ahead of schedule.

One such effort yielded results in December when Bristol Meyer Squibb submitted an NDA to the FDA for the dual PPAR alpha/gamma agonist, muraglitazar, which is being globally developed and marketed by Merck and Bristol-Meyers.

Muraglitazar has a potential to be the first in a normal class of drugs known as dual PPAR alpha/gamma agonists to control blood sugar and to treat the lipid abnormalities commonly found in type II diabetes patients.

In clinical trials, muraglitazar has reduced blood glucose level, including high density lipoprotien HDL cholesterol levels and decreased triglyceride levels in type II diabetes patients and is being generally well tolerated.

We reached another mile post in the fourth quarter when the rotavirus efficacy and safety trial or REST, completed enrollment at 70,301 infants.

REST was the final phase III trial in the Rotateq development program.

In the near term, Merck remains on track to file 3 vaccines for FDA approval in 2005.

These include, Rotateq for the prevention of rotavirus, which we anticipate filing in the second quarter of 2005;

Merck's zoster vaccine, which we anticipate filing in the second quarter of 2005; and Gardasil for human papilloma virus, which we anticipate filing in the second half of 2005.

During 2004, Merck successfully completed 50 transactions across a range of therapeutic areas including neuroscience, diabetes, obesity, and oncology, as well as early stage technology transactions.

As we have previously stated, our view continues to be that the R&D strategy includes licensing and alliances, and so our financial reporting reflects not only how we manage R&D, but also the underlying economics of these investments decisions.

So whether it's internal or external, it's all included here.

Therefore, the full-year research and development expense of $4 billion includes the initial payment of $70 million to loan back [ph] in the first quarter of 2004, the $100 million to Bristol-Meyers Squibb in the second quarter, as well as the acquired research expense of 125 million resulting from the acquisition of Aton Pharma.

As we move into 2005, Merck continues to evaluate more than 40 other opportunities and is also actively monitoring the landscape for range of target acquisitions that meet the Company's strategic needs.

With regard to 2005 guidance on research and development expenses, which excludes joint ventures, we are reaffirming that it is estimated we continue at the same level as full-year 2004.

The full-year 2004 level referred to includes all licensing and acquired R&D expenses in that year.

Moving down to the next line.

In terms of equity income from affiliates, you'll see $286 million in income.

That's up from 6 million last year.

If you recall, the contributors to equity income come from all of our JVs, AstraZeneca LP, Sanofi Pasteur MSD, Kofi Annan, J&J & Merck and Merial JV, as well as MSP.

I'd like to point out in the fourth quarter performance includes a favorable comparison to 4Q '03, which if you recall was negatively affected by AVLP, recognizing the financial and physical risk of Prilosec as availability of generic omeprazole increased in the PPI market last year.

As we have previously discussed on prior calls, there are several components to AVLP equity income that make it inappropriate to draw significant conclusions just based on PPI products.

Complexities involve minimum timing and tax differences.

Also in the quarter was a positive contribution from Merck/Schering-Plough collaboration.

More on MSP performance in a moment.

For the full-year 2004 equity income from affiliates was $1 billion, which was in line with our guidance.

This includes the equity income contribution from Merck/Schering-Plough JV, which turned positive in 2004.

With regard to the full-year 2005 guidance on equity income from affiliates, we are reaffirming that it is expected to be approximately $1.3 to $1.5 billion.

Equity income from affiliates includes the results of Merck/Schering-Plough collaboration combined with the results of Merck's other JV relationships.

We continue to expect a positive income contribution in 2005 from the Merck/Schering-Plough collaboration.

Moving down to the next line in other income and expense net.

If you go to the other financial disclosures page, we have provided a breakout for you.

You'll see that we have income this quarter of $104 million.

That's compared to 89 million in 4Q '03.

Included in this quarter as other income is a relatively insignificant gain associated with Merck's licensing of MK431 and Emend to ONO in Japan.

There are related offsetting expenses in the R&D line associated with this strong product candidate that Merck has licensed in from ONO.

And I would encourage you to look back at the November 11 press release for additional details on the agreement granting Merck worldwide licensing for the injectable formulation of ONO 2506, the novel compound for stroke.

For the full-year 2004 other income of $344 million.

Just as a reminder that includes a $177 million gain reported in the first quarter of 2004 for the sale of our equity stake in the European over-the-counter joint venture with our partners J&J.

Staying on the other financial disclosures page for a moment, if you move down to the joint venture detail, consistent with past trends you'll see some continued increase in top-line sales for the Merial Animal Health joint venture, as well as for Sanofi Pasteur MSD vaccine business in Europe.

The next table on that page is obviously where there's been a lot of interest lately.

We continue to be excited about this line.

In our collaboration with Schering-Plough, global sales as reported by Merck for Zetia, Ezetrol outside the U.S. reached $328 million in the fourth quarter and of that 274 million was in the U.S.

If you recall, Zetia is the cholesterol absorption inhibitor developed and marketed by Merck and Schering-Plough.

For the full year, Zetia Ezetrol achieved global sales of $1.1 billion.

To update, Ezetrol has been launched in more than 50 countries outside the U.S. and continues to achieve solid sales and marketing share growth.

With the U.S. prescription levels for Zetia increased by approximately 53 percent for the quarter, compared with fourth quarter 2003.

In December, Zetia accounted for approximately 6 percent of total prescriptions in the lipid lowering market.

Zetia has maintained broad managed care access with approximately 80 percent of managed care lives having second tier access.

Vytorin marketed as Inegy in many countries outside the U.S., developed and marketed by Merck/Schering-Plough continues to maintain good momentum with all signs pointing to future success.

If you recall, Vytorin is the first single tablet that offers powerful LDL reduction through the dual inhibition of both sources of cholesterol.

Vytorin achieves worldwide sales of $76 million in the quarter, and of that $60 million were in the U.S.

It achieved worldwide sales of 132 million in the full-year 2004.

Since its approval in July, Vytorin has accounted for nearly 2 percent of new prescriptions in the U.S.

Weekly NRX share data based on week ending January 14 shows that Vytorin has captured 3.8 percent of NRX's in the U.S. lipid lowering market.

In terms of source of business based on newly acquired patients, approximately 40 percent are newly initiated first line patients.

The other approximately 60 percent of patients on Vytorin come from switches.

Currently Vytorin is the leading switch brand in the market and approximately half of the switches come from Lipitor and Zocor.

Vytorin has achieved broad managed care access and has secured second tier access with over 80 percent of managed care covered lives.

At the upcoming American College of Cardiology meeting March 6th through the 9th, there will be additional abstracts presented on VIVA, Vytorin versus atorvastatin study, and Vytorin in elderly patients, so mark your calendars.

It is also worth noting that in addition to the U.S., Vytorin and Inegy has been approved in 15 countries including Argentina, Brazil, Germany, Malaysia, Mexico, and Singapore.

Inegy also received regulatory approval in 5 additional European nations, Spain, Portugal, Norway, Denmark, and Iceland during the fourth quarter.

Now, let's move back to the P&L.

On page 14.

For the quarter, income before taxes was 1.4 billion.

If you look at the tax line, taxes were 279 million.

When calculated, that gives you an effective tax rate for the quarter of 20.2 percent.

This lower tax rate in the fourth quarter reflects the impact of a change in the mix of foreign and domestic income and the impact of currency fluctuations.

For the full year 2004, income from continued operations before taxes was 8 billion.

Looking at the tax line, taxes on income were 2.2 billion, which gives you an effective tax rate of 27.1 percent for the full year.

This was below our guidance, but again reflects the impact of a change of mix of foreign and domestic income and the impact of currency fluctuations.

Regarding 2005 guidance, we are reaffirming our estimated consolidated tax rate to be approximately 27.5 to 28.5 percent.

This guidance does not include any one-time impact that may result from repatriation of permanently reinvested offshore earnings under the American Jobs Creation Act.

As of note, with the passage of AJCA 2004 and the recent issued guidelines from the U.S.

Treasury that clarified some of the Act's provisions, we are currently continuing our planning regarding with repatriation of foreign earnings that the Company may undertake.

Whatever actions we may take, keep in mind that our long-standing conservative financial management practices will not change.

The final decision, as you know, is subject to Board approval.

Moving down to net income and earnings per share, net income for the quarter was 1.1 billion compared to 1.4 billion for the same period in 2003.

That's down 21 percent.

Of course that is affected by all of the factors we described above relating to the voluntary world wide withdrawal of Vioxx and the charges relating to legal expenses in the quarter.

During the quarter, we spent 287 million in treasury stock and that leaves us 8.5 billion under the current authorization from the Board with no time limits.

So all that brings you down to an earnings per share of $0.50, which is in line with our guidance, compared to $0.62 cents for the fourth quarter of 2003, and earnings per share of $2.61 for the full year, also in line with our guidance.

Following our previous practice, we will continue to provide quarterly earnings per share guidance 1 quarter ahead of time.

For 2005, Merck anticipates first quarter earnings per share in the range of $0.54 to $0.58, and reaffirms full-year 2005 earnings per share in the range of $2.42 to $2.52.

Please see page 12 and 13 of the news release for a breakdown of Merck's full-year 2005 financial guidance.

You'll note that only 2 elements in the guidance for 2005 have changed, and I'll point those out as we go through the next part of the call.

Let's move onto the product review.

You should have as part of your other financial disclosures the product sheet which breaks down the total U.S. and foreign.

So let's walk through some individual products alphabetically.

Keep in mind during the discussion that $250 million of buyout as we introduce the wholesaler program in the fourth quarter of 2003.

Starting with Cozaar and Hyzaar, global sales remain strong. 764 million in 4Q, that's up 11 percent, and 2.8 billion for full-year '04, that's up 40 percent, that was at the top end of our guidance range.

Retail sales data excluding unaudited sources indicated that U.S. mail order adjusted prescriptions levels for Cozaar and Hyzaar increased by approximately 2 percent for the fourth quarter compared with the fourth quarter of 2003.

Keep in mind we do a lot of business in unaudited sources and you'll see this across all our products.

Performance X U.S. for Cozaar and Hyzaar continues to benefit from the life study.

It is this study that is helping Cozaar and Hyzaar remain the number one brand A2A in Europe.

Today new indications for Cozaar have been granted in 59 countries based on life.

In December a new formulation of Hyzaar, Hyzaar 10-12.5 was submitted for approval to the U.S.

FDA to better address titration flexibility needs.

For 2005 full year, we're reaffirming our sales guidance for Cozaar/Hyzaar, anti-hypertension franchise at 2.9 to 2.3 billion.

Next moving to Fosamax, worldwide sales for this franchise were strong. 831 million for 4Q, that's up 28 percent and 3.2 billion for full-year '04 up 14 percent.

That was at the top end of our guidance range. 4Q '04 and full-year '04 Fosamax performance include favorable comparisons to 2003, which were effected by the U.S. wholesaler buyout.

And I would remind you, in Q4 '03 there was a $60 million buyout and for the full-year '03, an $80 million buyout.

Excluding these affects, sales increased 13 and 14 percent for the fourth quarter and full year respectively.

U.S. mail order adjusted prescription levels for Fosamax increased by approximately 2 percent for the fourth quarter compared to 4Q '03.

Regarding our patent in Europe for Fosamax once weekly, we offered our written statement in evidence to the EPO, the European Patent Office, supporting the once weekly patent by the due date of December 29th.

Recall that all forms of Fosamax are protected in European markets until at least 2007.

In the fall, the results of the Fosamax Actonel Comparison Trial or FACT were presented at the American Society for Bone Mineral Research showing that Fosamax once weekly increased bone marrow density or BMD, more than Actonel once weekly with similar tolerability.

Our sales force began to talk about the data and facts with doctors in December.

The 12-month extension of this double blind study and a second similar design study are underway.

For 2005, full year, we're reaffirming the sales guidance for our osteoporosis franchise as $3.3 to $3.6 billion.

Next moving to Singulair, worldwide sales were strong for this franchise. 731 million for 4Q '04, up 44 percent, and 2.6 billion for full-year '04, up 30 percent.

That was at the midpoint of our guidance range. 4Q '04 and full-year '04 Singulair performance included favorable comparison to 2003, which reflected by the U.S. wholesaler buyouts.

Again, I would remind you 4Q '03, there was a $90 million buyout, full-year '03 is a $70 million buyout.

Excluding these affects, sales increased 17 and 26 percent in the fourth quarter and full year respectively.

U.S. mail order adjusted prescription levels for Singulair increased by approximately 15 percent for the fourth quarter compared to the fourth quarter of 2003.

Singulair is currently the most widely used product in the total respiratory market as measured by total prescriptions in the U.S.

Its growth is fueled by continuous positive physician and patient experiences and the growing body of evidence supporting the use of Singulair in treating both pediatric and adult patients who suffer from asthma and allergic rhinitis.

At the upcoming American Academy of Allergy, Asthma and Immunology quarterly annual meeting in March, Merck will present the results of the allergic asthma study as an abstract for the first time.

For 2005 full year, we're reaffirming the sales guidance for our respiratory franchise at 2.9 to 3.2 billion.

Moving next to Zocor, worldwide sales for this franchise were 1.3 billion for 4Q '04, that's up 8 percent, and 5.2 billion for full-year '04, that's up 4 percent.

This was above the top end of our guidance range. 4Q '04 and full-year '04 and Zocor performance includes favorable comparisons to 2003 which were affected by U.S. wholesaler buyouts.

And again, I would remind you, 4Q '03, there was a $135 million buyout.

In full-year '03, a $320 million buyout.

Excluding these affects, sales declined 5 percent in both the fourth quarter and full year, reflecting the patent expirings outside the U.S. and increased competition in the U.S. cholesterol modifying market.

U.S. mail order adjusted prescription levels for Zocor decreased by approximately 1 percent for the fourth quarter compared to 4Q '03.

Effective December 17th of 2004, the list price of Zocor at all strengths increased by 3.7 percent.

For 2005 full year we're revising the sales guidance for the cholesterol modifying franchise upwards to $4.2 to $4.5 billion.

Now, if we look at Merck's other promoter products and vaccines, sales were 1.5 billion for 4Q '04, up 14 percent, and 5.5 billion for full-year '04, up 9 percent.

That was at the midpoint of our guidance range.

For 2005 full year, we're revising the sales guidance for our other reported products.

We are tightening the range by moving up the low end of that range.

We now anticipate revenue from other reported products to be in the range of $5.9 to $6.2 billion.

As a reminder, other reported products comprise of price of Agrastat, Arcoxia, Cancidas, Cosopt, Crixivan, Emend, Invanz, Maxalt, Primaxin, Propecia, Proscar, Stocrin, Timoptic and Timoptic XE, Trusopt, Vasotec, Vaseretic and our vaccines.

To complete the product review, I'd like to focus on 2 other reported products, namely Arcoxia and Cancidas to give you some additional perspective.

Arcoxia sales in 4Q '04 2004 was $77 million outside the U.S., and we're up to $230 million for the full-year 2004.

To date Arcoxia has been launched in 51 countries, in Europe, Latin America, and Asia.

Merck is working with the European Medicines Agency as it completes its assessment of the Arcoxia class.

And as a matter of policy we don't discuss our ongoing interactions and discussions with EMEA, CHMP or other regulatory agencies.

During the quarter, the U.S.

Food and Drug Administration issued an approvable letter on the MDA for Arcoxia.

The letter informed us that before approval of the MDA could be granted additional safety and efficacy data for Arcoxia are required.

We are working with the FDA to address its request.

In the meantime, results of the 7,111 patient EDGE study comparing gastrointestinal tolerability profile of Arcoxia 90 milligrams versus diclofenac 50 milligram 3 times a day will present the full meeting of ACR.

In the study, Arcoxia demonstrated significantly fewer discontinuations from due to GI side effects compared to diclofenac, commonly prescribed.

Also in this study, the rate of confirmed thrombotic cardiovascular events was similar for Arcoxia and diclofenac.

Moving on to Cancidas, worldwide sales were 132 million for 4Q '04, up 46 percent, and 430 million for full-year '04, up 56 percent.

Cancidas is now the second most prescribed IV Anti-fungal agent in U.S. and Europe.

Its strong performance is being driven by a sequenced launch of new improved therapy indications.

In 4Q '04, the FDA approved Cancidas for the treatment of empirical therapy for presumed fungal infection in febrile neutropenic patients.

Approval was based on the results of the largest perspective anti-fungal empirical therapy trial published to date in neutropenic patients with persistent fever.

This study recently published in New England Journal of Medicine showed that Cancidas was as effective as Ambazon for empirical therapies of presumed fungal infection in these patients.

In addition, the study showed the safety profile of Cancidas was superior to Ambazon with regard to several pre-specified safety measures.

So in summary, this was a solid quarter for Merck.

Merck's newer franchises continued to grow.

Merck's U.S. distribution program continues to be successful.

Merck's restructuring program announced in October of 2003 is complete.

The cost associated with the worldwide voluntary withdrawal of Vioxx are complete.

Merck has taken a $604 million charge for future legal defense costs arising from Vioxx legal matters that is consistent with our commitment to defend the Company.

Merck continues to advance and enhance its pipeline.

Merck's comprehensive licensing and externalized program is active.

Merck remains on track to file 3 vaccines for FDA approval in 2005.

And Merck reaffirms full-year 2005 EPS in the range of $2.42, $2.52.

Finally, I just want to comment on a change here in Investor Relations at Merck.

I took over head of the group on January 1st, and I look forward to appointing a new Director of IR to my team as soon as possible so that we can continue to have 2 contacts here at Merck.

For now I'll be your sole contact in IR, aside from my trusted administrator, Lori Peterson.

Now I'm sure you have some questions, so I'll be happy to take them.

So, Felicia?

Thank you. (Operator Instructions).

We'll go to David Moskowitz of Friedman, Billings, Ramsey.

Yes, thanks very much.

Good morning, Graeme.

Good morning.

Couple of questions here.

Number 1, could you give us more clarity on when the first case for Vioxx litigation is going to come?

Can you talk about when and where?

I believe there's been a change in one of the first venues.

Then 2, with regard to the COX-II inhibitor FDA panel meeting that's going to take place next week -- next month, could you talk about your role in that meeting?

Are there any new studies that you're going to present on Vioxx and will you have Arcoxia data there?

And then lastly, with respect to the U.S. patent expiration on Zocor, now less then a year and a half away, can you talk about when you may start to wind down the resources or even pull resources from that product?

And could you talk about what you did with Nevacor as you were rotating over to Zocor in terms of a timeframe for limiting resources behind the older product?

Thanks.

All right.

So with regards to the lawsuits, I think we've already indicated that we expect them sometime in the first half of 2005.

With regard to the specific location, I can't speculate on where that will be.

I think we've seen that moving around also.

With regard to the our participation in the upcoming FDA COX-II panel, yes, Merck has been asked to participate in the agency's advisory committee, and we will present data on both Vioxx and Arcoxia and we look forward to presenting that data and participating in the meeting discussion.

On your Zocor question, we've just increased our guidance for full-year '05, clearly the franchise performed well in 2004, relative to what's going on in the HMG market, and we continue to support it appropriately.

I think it's a known event, June of '06, and we'll resource it appropriately up to that time.

Next question, please.

We'll go to Carl Seiden of UBS.

Thanks very much, Graeme. 2 quick questions.

I think you reiterated the prior filing targets for the vaccines this year.

I think management has been quoted as saying that they were going to look into or were hoping about possibly accelerating the HPV filings.

I was just wondering if you could tell us what events is that contingent upon and when will we know if you're successful on that?

And secondly, also on, I guess the legal road map for Vioxx, we have the date for this MDL status, I guess, of January 27th.

Can you give us a feeling, do you get the road map on the 27th, or is that just when things are presented to the Court in any guidelines on how long it takes back to hear from the Court as to what the MDL rules of the road would be?

Thanks.

All right.

So with regard to your HPV, the comments previously mentioned, we continue to remain on track, and I gave you a sense of the timing with regard to HPV.

I think the comments were in the vein of continuously looking for any opportunities to be more efficient and effective.

And if and where we can accelerate, we certainly would seize that opportunity.

So the Gardasil filing is as I've just indicated.

If that changes, we'll certainly update you on that.

With regards to the legal road map, you're absolutely correct in that the MDL is in the coming days.

The expectation is that this is an opportunity to present respective information, and we wouldn't expect to have any outcome of that at the conclusion of the hearing this week.

I don't have any sense of when we would hear a decision coming out of that discussion.

But once again, when we get that, we'll share that with you.

Next question, please.

We'll go to David Risinger of Merrill Lynch.

Thanks very much.

Good morning, Graeme.

A couple of questions.

First, excluding the litigation reserve, we're estimating that Merck would have earned closer to $0.68 per share in the quarter.

And so in terms of thinking about a core operating EPS number, is that close to what the core operating EPS were in the fourth quarter?

And then if so, looking at the first quarter guidance of $0.54 to $0.58 for 1Q '05, are there any unusual items in the first quarter guidance number?

All right.

With regard to your first question, the $604 million charge taken in the fourth quarter relates solely to legal defense costs arising from Vioxx legal matters.

Together with the approximate 70 million we had previously reserved.

Our understanding of the costs associated with the legal matters has evolved recently, based on both actual results incurred since the withdrawal, on the development of our legal defense, and the structure or view of the expanded scope of legal matters.

So, the 604 million charge in the quarter one can't hypothesize around that at all.

With regard to 1Q '05 guidance, that's our best estimate at this moment in time.

And it does not include any unknown events at this time.

Next question, please.

Thank you. (Operator Instructions).

Next to Timothy Anderson of the Prudential Equity Group.

Thanks.

A couple of questions.

Does the fact that you're raising your '05 Zocor sales estimate say that the degree of cannibalization from Vytorin is coming in less than what you guys originally thought, or is it more a reflection of better category growth than what you guys have been forecasting?

And then also on Vytorin, you talked about some data coming up at ACC.

As I understand it, you guys have at least one head-to-head study versus Crestor also running.

And I'm wondering when we might see results from that, could it potentially be coming in at ACC as well?

With regard to your first part of your question, Zocor sales, they are a function of the dynamic of the HMG market.

I think we all watch that very carefully.

Some people look at daily script, some people look at weekly scripts, others look at rolling.

I think what we've seen over recent time is a certain amount of dynamic going on in there.

It's certainly not representative of cannibalization.

I think as we've talked about the strength of Vytorin and Zetia within these set of results, it's clear the contribution that that's making.

With regard to the HMG market generally, we know that it's expanding it 16 percent.

And we know other products that have came out on the product recently haven't quite been taking the foothold that was perhaps anticipated.

And again, that has an effect on the more established products in the market.

With regards to your second question on the upcoming meeting, the VIVA abstract will identify the results of the Vytorin versus the atorvastatin study.

And that, along with the Vytorin in elderly patients are the only abstracts that we're anticipating sharing at ACC.

Next question, please.

We'll go to Steve Scala of S.G. Cowen.

Thank you.

I have a question also about the reserve.

And I admit maybe this is splitting hairs.

But just to clarify, this is not a reserve for compensation of alleged victims, but only for the defense against those alleged victims.

So the assumption remains that you will lose no cases.

Is that correct or not correct, Graeme?

Okay.

There's 2 things in that.

You're absolutely correct, the reserve that we've set up is purely associated with legal defense costs.

And it makes no assumption about the second part of your question.

Next question, please.

We'll go to Edward Montgomery of Goldman Sachs.

Good morning, Graeme.

I just wanted to flush out the R&D spin.

I just missed the actual percentage increase that you talked about in Q4 and also for the full year.

Okay.

Plus 22 percent for both the quarter and the full year.

And again, that includes all of the licensing activities, for both the quarter and the year.

And, of course, in 4Q you have various events which would have triggered milestone payments.

So the growth rate for 4Q was 22 percent.

Next question, please.

And at this time, we'll take our final question from Jami Rubin of Morgan Stanley.

Thank you.

Graeme, if you could just review with us when we would expect to see data on the herpes Zoster and Rotateq vaccines?

And if you plan to file second quarter, do you expect a normal 12-month review or would any of those vaccines, specifically the Rotateq, be subject to accelerated approval?

Thanks.

All right.

I think it's fair to say that in keeping with our practice on disclosing results, you wouldn't expect to see phase III results until the products have been filed, accepted, and even approved.

So we generally work that as we progress towards filing of these products at the appropriate scientific forum, we would disseminate the phase II -- the balance of phase II data.

So if you think about the Rotateq rotavirus, we anticipate filing in the second quarter of 2005, upon the advent of that event, the next appropriate scientific forum it may be that we would present phase II related data.

With regards to the timing in terms of acceleration, I can't speculate on that.

I mean, we've been seeing the padufa dates of 10 to 12 months and we wouldn't expect it to be outside of that range at this point.

So with that, if that was the last question, thank you for your participation.

I'll be available for the rest of the day to take your calls.

Good-bye.

That does conclude today's conference call.

We thank you for your participation.

You may disconnect at this time.