默克藥廠 (MRK) 2005 Q1 法說會逐字稿

Good day, everyone and welcome to the Merck first quarter 2005 sales and earnings conference call.

Today's call is being recorded.

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

Please go ahead, sir.

Thank you, Jennifer, and good morning, everyone.

Thank you for joining us at Merck's first quarter earnings conference call.

Although we have a number of people on the call already, I understand that more are calling in.

So let me begin by reviewing the Safe Harbor language.

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

These statements involve risks and uncertainties that may cause results to differ materially from those set forth in the statements.

The forward-looking statements 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 affect Merck's business, particularly those mentioned in Merck's most recent 10-K, which is posted on the website.

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

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

So let's begin the standard part of the call with a summary of today's news. 1Q '05 was a solid quarter, with results higher than the Company expected.

Collectively, our newer franchises are achieving strong top-line revenue growth, and Merck's pipeline is achieving an impressive record of progress.

We are making notable progress in permanently reducing our cost structure Companywide, and the implementation of our initiatives is well underway.

In short, our strategy is on track and delivering results.

Now, back on April the 13th, Merck preannounced earnings per share of $0.62 subject to final review of our first quarter results.

At that time, we attributed these anticipated results to a number of factors, including ongoing cost management, the favorable impact of foreign exchange, and overall revenue performance.

We also indicated that sales of Merck's products was consistent with the Company's expectations.

Upon conclusion of the final review, today we announced that worldwide sales were $5.4 billion for the first quarter of 2005, as Merck's newer franchises continued to grow, and the first quarter earnings per share came in at $0.62.

Merck now anticipates full-year 2005 EPS range of $2.44 to $2.52, and anticipates 2Q '05 EPS in the range of $0.60 to $0.64.

This guidance does not reflect the possibility of the establishment of any reserve for any potential liability relating to VIOXX litigation or any one-time impact that may result from the repatriation of permanently reinvested offshore earnings under the American Jobs Creation Act.

In addition, on April 14th, 2005, the SEC approved a delay in the effective date of the new FAS stock option accounting rule from the third quarter of 2005 to the first quarter 2006.

Therefore, the Company does not anticipate that current year results will reflect any impact of new stock option accounting rules.

As always, nothing has been excluded from our actual results and we continue our long-standing practice of citing only bottom-line GAAP results.

I will comment on the various components as we go through the P&L.

Before progressing into the detail of the first quarter, let me address one important point.

That being the status of VIOXX legal matters.

In the first quarter, we did not increase our legal defense reserve.

Recall, that by the year-ending 12/31/04 we had established a reserve of $675 million relating solely to legal defense costs arising from VIOXX legal matters.

As stated in the press release on Page 7, as of March 31st, 2005, the Company is being served or is aware it has been named as a defendant in approximately 2,300 product liability lawsuits, which include approximately 4,600 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 nation of legal matters, I will not be able to comment further on VIOXX on this call.

And again, I would refer you back to Page 7 of the news release for a complete update.

So let's now go to Page 13 of the press release and begin the P&L review.

Page 13 lays out the first quarter 2005 results, and as always, I will talk to each line item.

Sales in the first quarter were $5.7 billion.

That's a 5% decrease compared to the first quarter of last year, which included 661 million of VIOXX revenue.

If you were to exclude VIOXX sales from the first quarter of 2004, sales increased 8% in the period with growth in Merck's newer franchises and higher alliance revenue.

The overall revenue performance was include a 2% benefit from foreign exchange and a 1% benefit from price.

I will go into more detail later, but in summary, worldwide sales of Merck products were consistent with the Company's expectations, and SINGULAIR, FOSAMAX and COZAAR/HYZAAR, performance remains strong at 11% collectively.

And sales of Merck's other promoted medicines and vaccines to treat and prevent a broad range of conditions, such as infectious diseases, glaucoma, benign prostate enlargement, migraine, arthritis and pain, grew 12% as compared to the first quarter of 2004.

The effect of foreign exchange resulting from the weaker U.S. dollar during the period had a higher-than-expected favorable impact on results.

Consistent with our expectations, sales level in the quarter reflected actual demand, and this is a result of the ongoing effectiveness of our wholesaler distribution program.

As we have previously discussed, our overall product inventories are now less than a month and we expect that to continue.

Also within our top line are revenues from our alliances, primarily AstraZeneca LP.

In the first quarter, revenue from the Company's relationship with AstraZeneca LP were somewhat higher than initially expected.

The first quarter 2005 revenue from AstraZeneca LP recorded by Merck was $435 million.

Now, bear in mind there is inherent risk relating to this revenue given that Merck is not actively managing these products.

Therefore, our revenue recognition takes into account inventory levels at AstraZeneca LP, for PPI, and non-PPI products, as well as their shipments out.

Our 2005 guidance, as always, is updated based on recent results, as well as future expectations.

And reflects the dynamics of the PPI market.

Which contains multiple generic OTC products and the uncertainty that creates in terms of future volume and price.

Also keep in mind this guidance incorporates the expectation of non-PPI products, such as Adacant [ph], Plandel [ph], Lexel [ph], and Intecort [ph].

Given these uncertainties, we are reaffirming our estimated AZN 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 an increase of 11% versus the first quarter of 2004.

If you calculated the actual change in PGM dollars, you will see that decline 9% versus 1Q '04.

Now, if you were to normalize 1Q '04 to exclude VIOXX from the base, you would have seen PGM grow at levels generally in line with the adjusted growth on revenue that I've just described, i.e., +8%, ex-VIOXX.

Keep in mind that sales revenue in PGM dollars do not grow at precisely the same rate and in any quarter change due to product mix.

If you do the quick math, the result is a product gross margin of 76.3%.

As always, this figure is affected by final product mix in the quarter, manufacturing variances, and inventory adjustments.

Consequently, the resulting quarter PGM was slightly below our guidance range for the year.

But as stated, AstraZeneca products contributed more than anticipated in the quarter, and they carry a higher overall net margin, given the fact that Merck does not incur marketing and administrative expenses, but these products generally carry a lower PGM which affects this line.

That said, for the full-year 2005, we're comfortable with our guidance range, and therefore, reaffirming that product gross margin percentage is estimated to be approximately 77 to 78%.

Moving down, marketing administration.

First quarter 2005 M&A expenses came in at 1.6 billion, in line with the first quarter of 2004.

Excluding the impact of the $34 million recorded in 1Q '04 for restructuring costs relating to position elimination, marketing and administrative expenses increased 2% for the quarter.

Now, just as we saw the benefit from foreign exchange on the revenue line, the opposite effect is true here, where expenses are higher as a result of strengthening in foreign currencies.

Therefore, the underlying expenses were lower than our original expectations, reflecting the practical ongoing cost management during the period.

We are seeing a positive benefit from initiatives started in prior periods, without having a negative impact on either key productivity initiatives or Merck's ability to meet its business objectives.

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

As mentioned, in the first quarter, we did not increase our VIOXX legal defense reserve.

Regarding guidance, we continue to provide it on the change in the marketing and administrative expenses relative to a base period, excluding one-time items to help with your modeling.

And so we are reaffirming our full-year 2005 guidance.

That is, we anticipate marketing and administrative expenses to increase at a low single-digit percentage growth rate over full-year 2004 levels.

The full-year 2004 level I refer to excludes the following items.

The 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.

In other words, the guidance is low single-digit over full-year 2004, as reported, minus the $850 million pertaining to the three elements I've just described.

This guidance supports our continuing activity to back our current products as well as investment requirements in 2005 to prepare for anticipated new product launches.

Promotional expense continues to roll out our critical outcomes data, and the ongoing needs of the business.

Moving down to the P&L to research and development.

R&D for the quarter was $847 million.

That was consistent with our expectations.

This is a 15% decrease from 1Q '04.

But recall that in 1Q '04, we accounted for $125 million for the acquired research from the acquisition of Aton Pharma, and the licensing milestone payments resulting from the collaboration with H. Lundbeck for gaboxadol of $70 million.

If we exclude the impact of these items, R&D grew 6%.

No transactions of the magnitude we saw and took in 1Q '04 have occurred to date in 2005.

Internal R&D growth is at a strong mid-teens percentage rate, reflecting Merck's ongoing commitment to internal basic pre-clinical and clinical research.

Merck's efforts to expand its pipeline by entering new therapeutic categories, increasing our licensing activities, and accelerating late-stage development, continue to produce positive results.

Regulatory submission for late-stage programs for new product candidates, with the exception of ARCOXIA, are on track or ahead of schedule.

One such effort yielded results in this first quarter of 2005, when the NDA submitted to the FDA by Bristol-Myers Squibb for the dual PPAR alpha/gamma agonist muraglitazar, which is being globally developed and marketed by Merck and Bristol-Myers Squibb, was accepted for standard review.

We reached another milepost in the first quarter when, as anticipated, we filed a supplemental NDA with the FDA for the use of SINGULAIR for the prevention of exercise-induced bronchial constriction in patients 15 years of age and older.

The NDA for FOSAMAX PLUS D was approved by the FDA.

And another excellent example of progress in Merck's research department came in early April when Merck submitted a BLA to the FDA for ROTATEQ.

ROTATEQ is a vaccine to protect against rotavirus disease and is awaiting the FDA's acceptance for the application for review as submitted.

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

Merck is planning to submit a biologic license application to the FDA in the second quarter for ZOSTAVAX, a vaccine for the prevention of shingles and the reduction of shingle-related pain.

ZOSTAVAX is the brand name we have chosen and you will hear more about this in the coming months.

We are also planning on submitting a BLA in the second half of 2005 to the FDA for GARDASIL, a vaccine to prevent human papilloma infection and the associated development of cervical cancer and genital warts.

So to put it very simply, Merck's pipeline is moving, and when you compare our pipeline as to where it was in March of 2004, to where it stood two months ago on February the 15th of this year, the progress is obvious. 17 programs have moved into our Phase I pipeline.

And 13 have moved into our Phase II pipeline.

With regard to 2005 guidance on research and development expenses, which again I would remind you exclude joint ventures, we are reaffirming that our estimate will continue at the same level of 2004 expenses, reflecting the Company's ongoing commitment to fully fund key development priorities, and expand the pipeline, both internally as well as through external collaboration.

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.

Here you will see $316 million in income.

That's up 122 million over 1Q '04.

If you recall, the contribution equity income comes from all of our JVs, namely AstraZeneca LP, Sanofi Pasteur MSD, J&J Merck, Merial JV, and Merck Schering-Plough.

The $122 million increase was driven by several of these, including AZLP Astra USA products, the Merck Schering-Plough cholesterol franchise where VYTORIN continues to launch and we've got ZETIA performance, and Merial's promotional events, specifically on the flea and tick prevention products, Frontline.

As we have previously discussed on prior calls, there are several components to AZLP equity income, so it is inappropriate to draw significant conclusion just based on PPI products.

Complex involves such factors as timing and tax differences.

And I will talk more about MSP performance in a moment.

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

Equity incomes from affiliates includes the results of Merck Schering-Plough collaboration combined with Merck's other JV relationships that I've just mentioned.

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

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

Here I would ask you to go to the other financial disclosures which was part of our distribution this morning, where we provide a backup.

And you will see here that we had expenses in the quarter of $27 million.

That's down compared to income of $273 million in 1Q '04.

So just as a reminder, in 1Q '04, other net income of 312 million, included a $177 million gain from the sale of equity stake in the European over-the-counter joint venture with our partners J&J, and approximately 100 million gain on securities relating to the integration of the Banyu portfolio.

Staying on the other financial disclosure page for a moment, if you move down to the joint venture detail, consistent with past trends, you will see some continuing increase in top-line sales from Merial, Animal Health joint venture, and also from Sanofi Pasteur MSD vaccine business in Europe.

Now, the next table is clearly where there is always a lot of interest and we continue to be excited about it.

In our collaboration with Schering-Plough Corporation, global sales as reported by Merck for ZETIA, branded EZETROL outside the U.S., reached $332 million in the quarter.

Of that, $269 million was in the U.S.

To date, EZETROL has been approved in more than 70 countries outside the U.S., and continues to achieve solid sales and market share growth.

In January, EZETROL was launched in France and Austria.

Within the U.S. prescription levels for ZETIA, increased by approximately 44% for the quarter, compared to the first quarter of 2004.

In March, ZETIA accounted for approximately 6% of total prescriptions in the lipid lowering market, and is now reimbursed in nearly 90% of all patients in managed care plans in the United States.

Since the launch of VYTORIN, ZETIA has maintained access with all plans and states.

As importantly, new RX share of ZETIA has held steady at just over 6% since the launch of VYTORIN, reflecting the strong underlying performance of ZETIA.

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

VYTORIN is a single -- the first single tablet that offers powerful LDL reduction through dual inhibition of both sources of cholesterol.

VYTORIN achieved worldwide sales of 179 million in the first quarter.

And of that, $157 million was in the United States.

Approved last July, VYTORIN has accounted for approximately 5% of new prescriptions in the U.S. lipid-lowering market.

The latest weekly data through 4/8/05 shows that VYTORIN has captured 5% of NRX's.

In terms of source of business, based on newly-acquired patients, approximately 40% on new initiated first-line patients, the other approximately 60% of new patients on VYTORIN come from switches.

Currently, VYTORIN is the lead switch brand in the market, and approximately half of the switches from VYTORIN are coming from Lipitor and ZOCOR monotherapy.

VYTORIN has achieved broad managed care access and has secured second tier access of approximately 84% of managed care covered lives.

Also contributing in 1Q '05 sales to VYTORIN was some modest trade inventory buying due to recent launches.

And as we know trade inventories fluctuate can occur with the new products in their launch phase.

A recently presented head-to-head study confirmed VYTORIN execute (ph) to Lipitor, the current market leader, at lowering LDL cholesterol and helping high-risk patients reach goal of less than 100 milligrams per deciliter or even less than 70 milligrams per deciliter.

The success of VYTORIN reflects a significant efficiency, efficacy, and goal attainment rated by physicians.

It is worth noting in addition, to the U.S., that VYTORIN INEGY has now been approved in more than 30 countries, including Argentina, Brazil, Germany, Malaysia, Mexico, and Singapore, with the most recent launches in the Netherlands in February.

The combined MSP cholesterol franchise share of the U.S. lipid lowering market continues to grow in the first quarter and reached approximately 11% of NRX and approximately 10% TRX for the month of March.

Since the launch of VYTORIN, MSP franchise NRX share has grown 78%, reflecting the unique value of both VYTORIN and ZETIA offers to both physicians and patients with hyperlipidemia.

At the upcoming European Atherosclerosis Society meeting starting this coming weekend, we will be presenting new data on INEGY and on EZETROL from various clinical trials.

Now moving back to finish off the P&L.

For the quarter, income before taxes was $1.9 billion.

If you look at the tax line, taxes were 551 million.

That gives you an effective tax rate in the quarter of 28.7%.

In this quarter and throughout the year, the tax rate is affected by the impact of changes in mix of foreign and domestic income, currency fluctuations, and continuing assessment of our tax reserve position.

Regarding 2005 guidance, current expectation is that the consolidated 2005 tax rate should approximate 27.5 to 28.5%.

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

And on that note, with the passage of AJCA in 2004, and the recently issued guidelines from the U.S.

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

Moving down to net income and earnings per share.

Net income for the quarter was $1.37 billion, compared to 1.6 billion for the same period in 2004.

That's down 15%.

Of course, this is affected by all of the factors we described above, relating to the voluntary withdrawal of VIOXX.

Shares outstanding as of March 31 were 2.21 billion.

That is down 1%.

During the first quarter, we spent $253 million on Treasury stock, and that still leaves 8.2 billion under current authorization from the Board, with no time limit.

So that brings us to an earnings per share of $0.62, compared with $0.73 for the first quarter of 2004.

And following our previous practice, we continue to provide quarterly earnings per share guidance, one quarter ahead.

So Merck anticipates second quarter 2005 earnings per share in the range of $0.60 to $0.64 and now anticipates 2005 earnings per share in the range of $2.44 to $2.52.

So please see Page 11 and 12 of the news release for a break down of Merck's full-year 2005 guidance.

I would point out that no elements of our guidance have changed from previously announced.

But as you can see, we have taken up the bottom end of our full-year 2005 EPS range by $0.02, reflecting in part the higher than expected first quarter results.

I just want to reinforce what I said a moment ago.

The R&D guidance reflects the Company's ongoing commitment to fully fund key development priorities and expand the pipeline both internally as well as through external collaborations.

And the marketing and administrative guidance supports our continued activity to back out current products, as well as the investments required in 2005 to prepare for anticipated new product launches, promotional expenses to continue rolling out critical outcomes data, and the ongoing needs of the business.

Again, this full-year 2005 EPS guidance range does not reflect the possibility of the establishment of any reserves for any potential liability relating to VIOXX litigation, or any one-time impact that may result from the repatriation of permanently-reinvested offshore earnings under AJCA.

In addition, on April 14, 2005, as previously mentioned, the SEC approved a delay in the effective date of the new FAS accounting rules for stock options from the third quarter of 2005 to the first quarter of 2006.

Therefore, the Company does not anticipate the current-year results reflecting any impact of the new stock option accounting rules.

So lets move to the product review.

You should have this in the form of the other financial disclosures page, where we break it out by product between total, U.S. and foreign.

So let's walk through the individual products alphabetically, and keep in mind that there is no effective buy-in or buy-outs in the base period.

Starting with COZAAR/HYZAAR, global sales remain strong. $719 million in 1Q '05, that's up 14%.

Of that, 234 million was in the U.S., and that was up 9%.

Retail sales data indicate that U.S. mail order adjusted prescription levels for COZAAR and HYZAAR were unchanged for the first quarter compared to the first quarter of 2004.

When analyzing this result, keep in mind three dynamics.

We do a lot of business in unaudited and non-retail segments.

Not only is the domestic angiotensin II antagonist class, the fastest growing in the hypertensive market, it is also very competitive and the class continues to grow at greater than 14%.

And thirdly, we are seeing growth in more highly discounted segments, i.e., federal, hospital, Medicaid, and HMOs.

In 1Q '05, the Department of Veteran Affairs selected COZAAR as the angiotensin II receptor blocker under the VA national formulary for patients with hypertension and type II diabetes with lymphography.

Performance ex-U.S. for COZAAR and HYZAAR continues to benefit from LIFE.

It is this study that has helped COZAAR and HYZAAR remain the number one branded AIIA in Europe.

To date, new indications for COZAAR have been granted by 61 countries based on LIFE.

And just last week, the FDA approved a new indication for HYZAAR based on the LIFE trial for reduction in the risk of stroke in patients with hypertension and left ventrical hypertrophy, but there is some evidence that these benefits don't apply to black patients.

So we look forward to promoting this new indication based on our LIFE outcomes data.

For your information, a 5.9% price increase on COZAAR and HYZAAR was made effective January 31, 2005.

For the full-year 2005, we are reaffirming sales guidance for COZAAR/HYZAAR anti-hypertensive franchise for 2.9 to 3.2 billion.

Moving next to FOSAMAX.

Worldwide sales for this franchise reached $772 million in 1Q '05.

That is up 2%.

Of that, 410 million was in the U.S. and that is down 7%.

The U.S. mail order adjusted prescription levels for FOSAMAX increased by approximately 3% for the first quarter compared to the first quarter of 2004.

The reconciling difference being attributable to price and volume in unaudited channels.

The weekly bisphosphonate NRX share trend for FOSAMAX has improved since the FOSAMAX Actonel comparative trials study, which came into promotion in mid December with a cumulative net gain of approximately 1%.

On February 25th, Merck filed a brief with the U.S.

Court of Appeals for the Federal Circuit in Washington, D.C. requesting reconsideration of the Court's decision that found Merck's patent claim for once weekly administration of FOSAMAX to be invalid.

Merck disagrees with the opinion of the Court Of Appeal and is awaiting the Court's decision related to its request for reconsideration.

Regarding our patent in Europe on FOSAMAX once weekly.

We offered our written statement in evidence to the Board of Appeal in the EPO, who subsequently circulated our statement to the opponents requesting their reply by July, 2005.

The appeals process here is expected to take approximately one to two years.

And recall that based on our patents, FOSAMAX is protected in some major European markets until at least 2007.

On April the 8th, 2005, Merck announced the FDA approval of the new FOSAMAX PLUS D. We expect to have this product available and in market within the next several days.

FOSAMAX PLUS D was approved and was launched in Mexico during the quarter.

The approval of FOSAMAX PLUS D will not extend the patent of FOSAMAX.

On January the 31st, 2005, a price increase for all strengths of FOSAMAX of 4.5% came into effect.

For full-year 2005, we are reaffirming our sales guidance for our osteoporosis franchise, at $3.3 to $3.6 billion.

Moving next to SINGULAIR.

Worldwide sales were strong for this franchise. $735 million in 1Q '05, that's up 18%.

And of that, 493 million was in the U.S., and that's up 16%.

The U.S. mail order adjusted prescription levels for SINGULAIR increased by approximately 12% for the first quarter compared to 1Q '04.

Some additional product news here.

The results of the PREVIA study, which was recently published in the American Journal of Respiratory Critical Care Medicine.

This study showed that SINGULAIR significantly reduced the number of asthma attacks that were triggered by colds by 31.9% and reduced the need for used inhaled corticosteroids by 39.8% when compared to placebo.

Upper respiratory infection, which is usually caused by viruses, and is referred to as common colds, are the most frequent triggers for asthma attacks in pediatric population.

During the first quarter, in many major markets in the European Union, we launched a new indication for SINGULAIR to treat symptoms of seasonal allergic rhinitis in asthmatic patients.

Also during the quarter, Merck filed a supplemental NDA with the FDA for SINGULAIR for prevention in exercise-induced bronchial constriction in patients 15 years of age and older.

At the upcoming American Thoracic Society meeting in May, Merck will present the results of several studies in abstract for the first time.

They include the results of the use of SINGULAIR in patients with perennial allergic rhinitis, EID, and patients with concomitant asthma and allergic rhinitis.

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

Moving next to ZOCOR.

Worldwide sales of this franchise were $1.1 billion in 1Q '05, that's down 15%.

Of that, 738 million was in the U.S., and that's down 18%, reflecting increased competition in the U.S. cholesterol modifying market, and in part, a shift to more highly discounted segments, i.e. federal, hospital, Medicaid.

U.S. mail order adjusted prescription levels for ZOCOR decreased by approximately 5% in 1Q '05, when compared to 1Q '04.

Ex-U.S. revenue was down 7%, and this decline reflects the progressive introduction of generic Simvastatin in many markets.

ZOCOR is available in approximately 95% of managed care lives.

It is the exclusive branded high efficacy statin for the U.S.

VA, and Department of Defense, and is available unrestricted in 89% of Medicaid patients.

Importantly, at the end of this first quarter of 2005, approximately 80% of managed care contracts have been renewed through June of 2006.

Upcoming patent expiries for ZOCOR include the following.

In May of 2005, France.

In July of 2005, Australia.

In June of 2006, here in the U.S.

And in April of 2007, in Italy.

For 2005 full-year, we're reaffirming our sales guidance for ZOCOR at 4.2 to 4.5 billion.

Now, if we look at Merck's other promoted medicines and vaccines, sales were 1.4 billion and that's up 50 -- 12%, sorry, up 12% compared to the first quarter of 2004.

For 2005, full-year, we're reaffirming our sales guidance for other reported products at 5.9 to 6.2 billion.

So as a reminder other promoted products as we think of them comprised of AGGRASTAT, ARCOXIA, CANCIDAS, COSOPT, CRIXIVAN, EMEND, INVANZ, MAXALT, PRIMAXIN, PROPECIA and PROSCAR, STOCRIN, TIMOPTIC and TIMOPTIC XE, TRUSOPT, VASOTEC and VASERETIC, and our vaccines.

So to complete this product review, I would just like to focus on two other products, namely ARCOXIA and CANCIDAS to give you some additional perspective.

ARCOXIA sales in 1Q '05 were $57 million outside of the U.S.

To date, ARCOXIA is being launched in 54 countries, in Europe, Latin America, and Asia.

ARCOXIA continues to see market share in key markets including Italy and the U.K. and is gaining market share in other launched markets.

Merck has incorporated revised labeling for ARCOXIA to reflect revisions to the prescribing information that have been requested by various regulatory agencies in countries where ARCOXIA is currently marketed.

Merck continues to work with regulatory agencies in those countries to provide product labeling for ARCOXIA, based on the latest scientific data.

On April the 7th, the FDA announced a series of important changes pertaining to the marketing of the non-steroidal anti-inflammatory class of drugs, including COX-II selective inhibitors and prescription and non-prescription over-the-counter non-selective NSAID medicine.

The FDA announcement did not address ARCOXIA.

The FDA conducted a thorough and careful scientific review of available data, which included the three-day public meeting of a panel of experts.

Merck respects the decision of the FDA decision on selective COX-II inhibitors and we look forward to discussions with the agency.

I want to remind that you our discussions between Merck and regulatory agencies are proprietary.

So I will not be able to say any more about this on today's call.

I can tell you that at the upcoming European Federation, National Association of Orthopedics and Traumatology meeting in Portugal in June, Merck will present data on etoricoxib and its use in knee and hip replacement surgery patients.

And at the European League Against Rheumatism meeting in Vienna, Austria also in June, Merck will present data regarding gastrointestinal tolerability of etoricoxib compared to diclofenac in sub groups of patients at risk of GI side effects, from the EDGE data set, and cardiovascular event rates with etoricoxib compared to NSAIDs in the EDGE study.

Moving to CANCIDAS.

Worldwide sales were $130 million in 1Q '05.

That's up 48%.

CANCIDAS is now the leading IV anti-fungal agent worldwide.

Strong performance from CANCIDAS is being driven by the sequential launch of the new empirical therapy indication.

In the fourth quarter of 2004, the FDA approved CANCIDAS for the treatment of empirical therapy for presumed fungal infection in fibro neutropenic patients.

The price increase for CANCIDAS increased 3% effective February 28.

So at this point I would like to draw your attention to several other scientific conferences that Merck will be attending over the coming months.

Recall that on April 6th of 2005, Merck announced that GARDASIL, the investigational vaccine against human papilloma virus, significantly reduced the combined incidents of 6, 11, 16, and 18 HPV persistent infections, new cervical cancer and genital warts, compared to placebo in the Phase II study data, which was presented for the first time in Lancet Oncology.

Analysis of this data will be presented at the International Papilloma Conference in Vancouver on May the 3rd.

The Phase III trial clinical data to evaluate GARDASIL is currently underway with over 25,000 patients enrolled in 33 countries in all regions of the world.

We expect this Phase III data to be available later on this year.

At the upcoming European Society of Pediatric Infectious Diseases in Spain on the 16th through 20th of May, Merck will present first detailed safety and efficacy results of our Rotavirus efficacy and safety trial, that is the REST trial.

At the American Society of Clinical Oncology in May, Merck is presenting an abstract Phase II trial data on our oral compound called SAHA for the treatment of cutaneous T cell lymphoma.

And at the same conference, study data on EMEND, our oral compound that helps prevent and control nausea and vomiting caused by initial and repeated courses of chemotherapy.

And in June, at the American Diabetes Association, Merck will present eight abstracts on MK-431, Phase IIB data.

Abstracts of the presentation will span June 10th through 12th.

An additional Phase II data will be presented at the European Society for the Study of Diabetes in September.

So in summary, our strategy is on track and delivering results. 1Q '05 was a solid quarter, with results higher than the Company expected.

Merck's first quarter EPS was $0.62.

Overall sales of Merck's product were consistent with the Company's expectations.

And collectively, our newer franchises are achieving top-line revenue growth.

Revenue from the Company's relationship with AstraZeneca LP was somewhat higher than our initial expectations.

The effect of foreign exchange resulting from the weaker U.S. dollar during the period was higher than expected.

We are making notable progress in permanently reducing our cost structure companywide.

And the implementation of our initiatives is well underway.

Our pipeline is achieving impressive record of progress.

We remain on track to file an additional two vaccines for FDA approval in 2005.

The FDA approved HYZAAR indication based on the life study.

The FDA approved FOSAMAX PLUS D. FOSAMAX PLUS D was launched in Mexico.

The NDA submitted to the FDA by Bristol-Myers Squibb for the dual PPAR alpha/gamma agonist muraglitazar, which is being globally developed and marketed by Merck and Bristol-Myers Squibb, was accepted for standard review.

Merck filed an SNDA with the FDA for the use of SINGULAIR and EIB in patients 15 years of age and older.

Merck submitted a BLA to the FDA for ROTATEQ.

And Merck anticipates second quarter EPS of $0.60 to $0.64.

And as stated earlier, we expect full-year 2005 EPS in the range of $2.44 to $2.52.

So just before we go to questions, two important administrative announcements.

First, please join us via webcast on April 26th at our annual meeting of stockholders, the formal proceedings will begin at 2:00 p.m.

Eastern time.

And finally during the quarter, so that you have two contacts here at Merck, Merck now has a new Director of Investor Relations who reports directly to me.

Some of you may have spoken to him already, others not.

So it is my pleasure to formally welcome Lan Emery [ph] to our team.

Lan's phone number here at Merck is area code 908-423-4465.

Now I'm sure you have some questions and I will be happy to take them.

So, Jennifer?

Thank you, Mr. Bell. [OPERATOR INSTRUCTIONS] We will take our first question from Carl Seiden at UBS.

Thanks very much.

Good morning, Graeme.

Graeme, for some investors, the dividend has become a very important part of owning Merck, and at the end of this year, or I guess by early next year you're going to have a change in the CEO position.

Can you comment in any way on how investors should think about whether or not a change in the dividend policy, one way or the other, might be in the cards?

And I guess the degree to which the Board in any way has expressed any kind of a commitment to the current dividend policy?

Thanks.

All right.

Thank you.

Indeed, we've stated many times before, and I will restate it again, that our dividend policy remains unchanged.

And we're committed to the dividend as we see it at the current level.

With regard to succession, that process is underway.

It is following a very clear process that was established for the known event.

And as we have previously stated, we expect to have an announcement by the end of this calendar year.

Next question, please.

Our next question comes from Jim Kelly at Goldman Sachs.

Good morning.

Two questions, if I may.

First, on FOSAMAX, new competitor coming with Boniva, and I'm just wondering if you have any commentary about the competitive dynamic they're going through 2005 and how you thought about that, how Merck has thought about that in the guidance.

And also on ZOCOR, you mentioned that there has been a shift to, I guess a shift towards the more -- lower margin business, and those were not your words, inside the unaudited channels and I'm just interested if in the unaudited channels has really the demand changed or the price points changed, a little bit of both, more one than the other?

Any color would be great.

Thank you.

So with regards to FOSAMAX, FOSAMAX and FOSAMAX once weekly remains the first and only osteoporosis medication indicated to reduce risk of both hip and spine fractures.

FOSAMAX is proven in prospective studies to reduce the risk of both hip fractures and first fibro fractures.

It is the only osteoporosis medicine out there with over ten years worth of safety and efficacy data.

On the subject of Boniva, it would be inappropriate to speculate on the impact of that.

I haven't seen the label per se.

But I mean just with regard to convenience of once weekly versus once monthly, I think it is fair to say that the once monthly requires a full hour, whereas Merck's FOSAMAX once weekly only requires 30 minutes of non-activity.

So we're again, extremely pleased with regard to the performance of FOSAMAX, and as indicated reiterating the guidance.

With regard to your question on ZOCOR, indeed the there has been a shift in and that's primarily volume.

Of course, there is always an element of price in the actual results, although that is not a significant contributor.

Next question, please.

Our next question comes from David Moskowitz with Friedman, Billings, Ramsey.

Thanks.

Good morning, Graeme.

I have some questions on the COX-II inhibitor franchise.

Number one, with respect to ARCOXIA, the MEDAL trial that is ongoing, can you update us on the time line for completion?

And has there been any change in the patients or can you update us on the dropout rate given the new information in the COX-II inhibitor market?

And also, has FDA weighed in on using diclofenac as a comparator in that trial?

And then my second question is on VIOXX, can you update us on any plans for a relaunch of that product?

Thank you.

Okay.

Thank you, David.

So with regard to COX-II MEDAL, as we've previously said, even with the events of the panel, the MEDAL trial continues, as we expected.

There was no fundamental change in that.

In terms of timing of MEDAL, obviously it is an event-driven trial, and we expect that sometime in the first half of 2006.

And I think it is worth reminding you that when we have MEDAL, as well as EDGE I and EDGE II, collectively, we will have pooled data that covers in excess of 36,000 patients there.

So MEDAL continues as we expect.

With regard to FDA in terms of the inclusion of diclofenac, we heard the discussion with regard to clinical trials, and you heard Merck reiterate that the design of MEDAL was based on the scientific data at that time.

So again, it would be premature to speculate in terms of what clinical trials are going to be required within the COX-II market generally, let alone specific to Merck.

And with regard to VIOXX and the product launches, I indicated, we can't go into a great deal of detail here, but what I can tell you is that we certainly look forward to our ongoing discussions with the agency.

Next question, please.

We will go next to Mara Goldstein at CIBC.

Yes, thank you very much.

Hi, Graeme.

I'm wondering on the cost control side, you've obviously highlighted that as a reason for upside in the quarter, if maybe you could delve into it a little bit with us.

Is this a function of faster-than-expected early retirement by individuals?

Is this coming from reduction in planned expenditures on CapEx?

Thanks, Mara.

Of course, we had our program, which we announced in October of 2003, which was to permanently reduce our cost structure with regard to the elimination of the 5,100 positions, and I think we characterized the savings that we expect in the full year of 2005 to be approximately 300 million.

And we've also given you on previous occasions a sense of the initiatives around CapEx.

To talk specifically about the quarter, as I indicated, there are a series of ongoing initiatives in all aspects and divisions within Merck, which are all contributing to the overall reduction in the cost base.

And these initiatives are well underway.

And we're seeing the benefit of those coming through, for instance, in this period.

Next question, please?

Our next question comes from Scott Henry at Oppenheimer.

Thank you.

Graeme, a little bit following on that question, I guess in late January, you guys looked at Q1 at $0.54 to $0.58, and then it came in at $0.62.

Can you go into any greater detail in terms of where the upside came from?

I think in the past, you had just said some revenue lines.

Additionally, as we go out through '05, are there any one-time events that we should be thinking about going forward that you are aware of at the current time?

All right.

So with regard to how you think about where the result is, as I indicated, they came from the revenues generally, I think I've broken down the products, and one specific piece that we have provided for the first time this quarter, to give you some clarity on that, was indeed the revenue coming from our relationship with regard to AstraZeneca which came in at $400+ million for the quarter.

So that was certainly a contributing factor.

As well as the ongoing performance of our franchises.

Certainly, you have got the benefit of FX in there.

And with regard to one-time events that you can expect in the quarter, as I had basically indicated within the context of guidance, the R&D line came in as we expected for 1Q '05, and the R&D guidance that we have provided, basically reiterates our commitment to both internal and external research for the balance of this year.

With regard to the M&A guidance, as I indicated, it is there, in support of our investment required in 2005, in readiness for new product launches, as well as the continual rollout of critical outcomes data.

Next question, please?

We will go next to Timothy Anderson at Prudential Equity Group.

Thanks.

If I could just go back to the dividend question and your answer.

Just to clarify, are you saying that the Board has basically determined it will hang on to the dividend even when a new CEO comes into the Company?

Or would it be put up for consideration at that time?

And then on specific timing of the first few VIOXX court cases, is the first one still likely to go around the very end of May?

And then switch data on VYTORIN, how much is coming from ZOCOR specifically using the data that you guys use?

Okay.

So with regard to the dividend, again it would be speculative to determine what exactly the Board are thinking on this.

I don't have insight into that.

What I can tell you, as I indicated before, that we are committed to the dividend policy at the level we currently see.

And I think, Tim, if you look back over many, many years, 70-plus years, you will basically see a very solid commitment to dividend.

Now, clearly, across that passage of time, there have been many events within Merck, but I think the dividend policy has always been there, because we consider the payment of dividend an absolute critical vehicle for returning value back to shareholders.

With regards to VYTORIN and switches here, let me just -- I indicated that approximately half are coming from switches.

About 27% of that is ZOCOR-related.

About 24% of that is Lipitor-related.

And with regard to VIOXX, you're absolutely correct.

That we expect the first trial, the first one is May 23rd, in the State of Alabama, the second one is May 31, in Texas.

Next question, please?

Our next question comes from Jami Rubin at Morgan Stanley.

Thank you, just a follow-up on those VIOXX-related questions.

Graeme, there was some discussion about the Alabama case potentially being tossed out.

Can you comment on that?

And secondly, if you could provide any color at all on these upcoming cases?

Are these golden plaintiffs?

Is there anything you can tell us about them?

Thanks.

So with regard to that, we believe we have strong meritorious defenses with VIOXX, and we will vigorously defend ourselves against them.

With regard to the upcoming trial, indeed you're correct, that we filed a motion for summary judgment, in the Rogers case in Alabama, and the court hearing for the motion of summary judgment is set for April 26.

But we do not know when the Court will rule on that motion.

Next question, please?

[OPERATOR INSTRUCTIONS] We will go next to David Risinger at Merrill Lynch.

Thanks very much.

I had a couple of questions, Graeme.

First, could you quantify the foreign exchange impact on earnings per share?

Second, could you quantify the VYTORIN inventory buy-in in the first quarter?

And third, could you discuss why -- I'm sorry, why FOSAMAX dollar sales in unaudited channels are decreasing so much?

Thank you.

All right.

With regard to FX, as you know, David, we would not characterize it in terms of impact on EPS.

I think it is sufficient to look at the other financial disclosures and as you can see, the contribution from FX.

With regard to VYTORIN buy-in, as I mentioned, that is expected as products going to launch phase, and it is expected to normalize in 2Q '05.

With regard to FOSAMAX, again, it really is a function of a shift and price to these higher discounted products, so I can't be specific in terms of breaking down the dollars and how it is affecting the performance.

Next question, please?

We will go next to Steve Scala at S.G. Cowen.

Thank you.

Regarding ZOCOR, I'm wondering what Merck's response will be if Ivax is successful in getting six months of exclusivity in its generic version, delaying competitors which would appear to be in opposition to Merck's intentions.

For instance, would Merck launch its own generic to make sure there was enough generic ZOCOR around?

In an odd way, it would appear that if Ivax is successful, defying Merck intentions, I would imagine Merck earnings would have to move up fairly significantly in 2006.

So I'm wondering what you could tell us about that.

And separately, in the 10-K, it stated that you expected finalization of the CHMP COX of class review in April and now that we're almost at the end of April, I'm wondering if that is still the expectation.

So let me take the second part first.

Indeed, that is still our expectation.

We still expect that to occur here in the end of April.

With regard to ZOCOR, with regard to Ivax, with regard to that citizen's petition, the discussion between Ivax and the agency and their CP is really for them to comment on and it would be inappropriate for me to speculate on because we're not part of that discussion at all.

As we've mentioned many times, we, Merck, are not in the generic business.

Nor do we intend to become June of 2006.

So it is a known event that generic Simvastatin will become available in June of '06.

And we welcome that into the marketplace as we then begin to refocus on our newer franchises.

Next question, please?

We will go next to Chris Shibutani at JPMorgan.

Thank you.

If I could just clarify on the R&D, your guidance then, for year-on-year growth this year is not quite apples to oranges in that what we have is the reported last year including in licenses and then this year obviously you're not speculating upon that.

Secondarily, for the international VIOXX product litigation, could you characterize what is happening there, is there anything that resembles class action?

And from a time line standpoint, we're obviously watching the U.S. for the end of May, are there other particular cases that we should be aware of so as to avoid surprise in the coming months.

Thank you.

Chris, let me start with your last question, first.

We have shared with you that the first two cases will be forthcoming in the month of May.

Beyond that, it would be inappropriate for me to comment on VIOXX.

Also, it would be inappropriate for me to try and characterize and talk to what is happening ex-U.S. with regard to VIOXX.

In terms of R&D guidance, let me just clarify that.

For the full-year 2004, we, Merck, reported R&D of 4 billion and 10 million.

That 4 billion and 10 million included all of the IP R&D, included all of the milestone payments, included those types of transactions.

So at that level, when we say for 2005, we are expected to be at the same level, including all of those.

My commentary and my remarks was merely to articulate how to think about it in a year-over-year basis.

Everything is always included here.

The only thing which is excluded from our 2005 R&D guidance are any dollars relating to the JV activity.

Next question, please?

We will go next to George Grofik at Citigroup Smith Barney.

Thanks for taking my question.

Just a couple of questions on the VIOXX litigation.

First, can you provide us an update on the percentage of cases in State versus Federal Court?

And secondly, can you give us a sense for which states are handling the bulk of the VIOXX litigation?

Thank you.

George, on both of those questions, it would be inappropriate for me to comment based on the ongoing legal matters with regard to VIOXX.

Next question, please?

Our next question comes from Craig Baskin at Luma Sales.

Hi, thank you for taking my question.

I wanted to ask a couple.

One of the reasons that you cited for coming in at $0.62 was that the impact of foreign exchange was larger than you expected.

Since the dollar hasn't moved very much between now and when you gave guidance in January, I'm wondering why you were surprised.

That's my first question.

And my second question is, you said the AstraZeneca revenues were 435 million, which were greater than you anticipated.

What was -- what were your anticipations?

Thank you.

Thank you, Craig.

With regard to FX, obviously it is an ongoing dynamic and we make certain assumptions and assessments with regard to when we do our planning here at Merck, and the movement that we saw was just a function of the dynamic in the market relative to our original assumptions so I can't really quantify that.

Nor can I quantify the increase within the 435 with regard to AstraZeneca.

And as I stated, that revenue has inherent risk associated with the various components of that relationship.

Next question, please?

Our final question comes from Leanne Jow at Carris & Company.

Good morning, Graeme.

Neil Swag.

Should we assume that the Company will wait until its annual meeting in December to give '06 financial and earnings guidance?

Thank you.

I think, Neil, we started a practice several years ago, whereby we waited until the early part of December to share with you our next-year expectations.

And we don't expect that to change.

So indeed, we will have our annual business briefing in December, and you can expect to have a view of full-year '06 in that moment in time.

So, I think a great deal went on on the call today.

And what came through very clear in my mind was a discussion around dividend, and I just want to reiterate that we are committed to our dividend.

So with that, we look forward to a discussion of future achievements with you on our next call.

We appreciate your interest and participation.

Thank you.

And goodbye.

This does conclude today's conference.

Again, we thank you for your participation.

You may disconnect at this time.