Merck Announces Strong Financial Results for the Third Quarter 2006 Led by the Performance of SINGULAIR, VYTORIN and Vaccines

Business Wire, Oct 20, 2006

* Company Posts Third-Quarter Earnings Per Share (EPS) of 51 Cents, Including the Impact of Reserving an Additional $598 Million Solely for Future VIOXX Legal Defense Costs and Excluding Restructuring Charges; Reported Third-Quarter EPS of 43 Cents

* VYTORIN and ZETIA Achieve Combined Global Sales of More Than $1 Billion in the Third Quarter

* Vaccine Sales Growth Strong; GARDASIL Reached $70 Million in the Third Quarter

* Merck Raises Full-Year 2006 Guidance and Now Anticipates EPS Range of $2.48 to $2.52, Excluding Restructuring Charges; Reported 2006 EPS Range of $2.18 to $2.25

* U.S. Food and Drug Administration (FDA) Approved JANUVIA, the Company's Once-Daily and First-in-Class Treatment for Type 2 Diabetes; and ZOLINZA, Merck's Medicine for Advanced Cutaneous T-Cell Lymphoma (CTCL)

WHITEHOUSE STATION, N.J. -- Merck & Co., Inc. today announced that EPS for the third quarter of 2006 were $0.51, including the impact of reserving an additional $598 million in the third quarter solely for future VIOXX legal defense costs and excluding a net $0.08 charge for site closures and position eliminations primarily associated with the global restructuring announced in November 2005. Reported EPS, including the impact of the net restructuring charge, were $0.43 for the third quarter of 2006 compared to $0.65 for the third quarter of 2005. Net income was $940.6 million, compared to $1,420.9 million in the third quarter of last year. Worldwide sales were $5.4 billion for the quarter, comparable to the third quarter of 2005.

Excluding the impact of the restructuring charges, EPS for the first nine months of 2006 were $2.02. Reported EPS were $1.81, including the impact of the $0.21 net restructuring charges taken during the year. Net income was $3,959.9 million and worldwide sales were $16.6 billion for the first nine months of 2006. Total sales increased 2% for the first nine months.

"The third quarter results reflect the recognition of the medical value of GARDASIL, our vaccine for cervical cancer. This week's approval of our first-in-class diabetes drug, JANUVIA, marks the fifth product approval this year for Merck," said Richard T. Clark, chief executive officer and president. "Given the results of the quarter, we remain on track to meet the goals we set for ourselves with our new business strategy."

Materials and production costs increased 25% for the third quarter of 2006, including $199.6 million recorded in the third quarter for costs associated with the global restructuring program, primarily related to accelerated depreciation and asset impairment costs. Excluding these costs, materials and production increased 9% for the quarter. The gross margin was 71.5% which reflects a 3.7 percentage point unfavorable impact relating to the restructuring costs as noted above. For the first nine months of 2006, the gross margin was 73.9% which reflects a 3.4 percentage point unfavorable impact relating to restructuring costs.

Marketing and administrative expenses were $2,370.6 million, an increase of 43% in the third quarter of 2006. Included in marketing and administrative expenses is an additional $598 million reserve solely for future legal defense costs for VIOXX litigation recorded in the third quarter. Excluding this cost, marketing and administrative expenses increased 7% for the quarter. The results reflect the increase in the level of activity to support the three recently-approved vaccines and the imminent launch of JANUVIA in the United States.

Research and development expenses were $945.4 million for the quarter, comparable to the third quarter of 2005.

Restructuring costs were $49.6 million for the quarter, representing separation and other related costs associated with the Company's restructuring program announced in November 2005. In the third quarter of 2006, the Company eliminated approximately 500 positions, bringing the total to approximately 3,900 since the inception of the program. Merck remains on track to eliminate 7,000 positions by the end of 2008.

Full-Year 2006 EPS Guidance

Merck anticipates full-year 2006 EPS of $2.48 to $2.52, excluding the restructuring charges related to site closures and position eliminations. Merck anticipates reported full-year 2006 EPS of $2.18 to $2.25. Please see pages 10 - 11 of this news release for details of Merck's full-year 2006 financial guidance.

Third-Quarter Performance Highlights

Worldwide sales were strong for SINGULAIR, a once-a-day oral medicine indicated for the chronic treatment of asthma and the relief of symptoms of allergic rhinitis, reaching $868 million for the third quarter, representing growth of 25% over the third quarter of 2005. Sales for the first nine months were $2.6 billion, a 21% increase over the comparable 2005 period. SINGULAIR continues to be the number one prescribed product in the U.S. respiratory market.

Combined global sales of ZETIA and VYTORIN, as reported by the Merck/Schering-Plough partnership, exceeded $1.0 billion for the third quarter.

Global sales of ZETIA, the cholesterol-absorption inhibitor also marketed as EZETROL outside the United States, reached $502 million in the third quarter, an increase of 41% compared with the third quarter of 2005. Sales for the first nine months were $1.4 billion, an increase of 39% over the comparable 2005 period.