Raymond V. Gilmartin
Chairman's Report
Merck & Co., Inc. Annual Meeting of Stockholders
April 23, 2002

At this point, I'd like to talk with you about our performance in 2001. I also want to talk about the opportunities we see ahead of us - which we believe are very exciting. Most important, I'd like to provide all of you with a greater understanding of our growth potential. My goal is to reinforce your confidence in Merck's future.

Throughout this meeting, you'll hear many reasons to believe in the future of this Company. Our pipeline is strong, with 11 new medicines and vaccines expected to be filed or launched between now and 2006. Large-scale clinical outcomes trials continue to demonstrate the value and growth potential of our existing products. Just two weeks ago, the FDA approved a label change for Vioxx to reflect data from VIGOR, our landmark gastrointestinal outcomes study, which showed that Vioxx reduced the risk of serious GI side effects compared to naproxen. And our unmatched scientific expertise continues to expand through recruitment and collaborative efforts. With this combination, we are well-positioned to achieve our long-term growth goals.

I'll start by reviewing last year's numbers. Merck's earnings per share were $3.14 in 2001, an increase of 8 percent over 2000. Net income grew 7 percent to nearly $7.3 billion. Sales grew 18 percent to $47.7 billion.

When I stood before you at this meeting last year, we expected to show 2001 growth rates that were competitive with other leading pharmaceutical companies. While our numbers are respectable in the face of key patent expirations, they did not meet the expectation that we set out at the beginning of last year. At that time we expressed comfort with a range of earnings that would have resulted in a growth rate of 9 to 12 percent.

2001 started strongly enough. Our five key growth drivers - Zocor, Vioxx, Cozaar/Hyzaar, Fosamax, and Singulair - were all performing well. They represented nearly 60 percent of our worldwide human health sales. Just two years after its successful launch, Vioxx had become the world's fastest-growing branded prescription arthritis medicine. Two new medicines, Cancidas and Invanz, were nearing approval. Our early- and late-stage pipeline was beginning to show its strong potential. In summary, Merck was well positioned to achieve its goals. We were on track to do what no pharmaceutical company has done - deliver competitive growth during a period of key patent expirations.

During the year, our five key medicines continued to perform well as a group - growing by 26 percent. But the coxib class of medicines in which Vioxx competes experienced lower than expected penetration into the arthritis and analgesics market. Even though Vioxx claimed half of the new prescriptions in the coxib class, its 2001 sales did not meet our expectations. This hurt our performance and led us to revise our earnings forecast for the year.

As we looked toward 2002, we recognized that the year would be one of balance--a year of managing through our patent expiration period while continuing to invest in the business for the long-term. To do this, we are increasing our research budget to $2.9 billion for the year, a double-digit increase over our 2001 R&D budget. Spending on basic research and product development will increase approximately 20 percent for the year. This continued investment in research supports the strategy that made us successful in the past and we believe will continue our success in the future - turning cutting-edge science into breakthrough medicines.

To support our current products as well as our next wave of product launches, we also will increase our marketing and administrative budget in the low single digits - adding new sales representatives to support our key products. In addition, we will generate operational efficiencies throughout the Company to ensure the most effective use of our resources.

To realize the potential of our future, we are investing in it today. As a result, we anticipate 2002 earnings per share to be at the same level as 2001. By focusing on the long-term growth of the business, rather than short-term fixes, we expect to deliver double-digit earnings per share growth in the core pharmaceutical business in 2003 and top-tier performance over the longer term. This growth will be driven by the continued performance of our five key franchises as well as the 11 new medicines and vaccines we expect to file or launch between now and 2006.

Our confidence in the future is based on the culture, talent and track record of Merck research. We excel at turning cutting-edge science into breakthrough medicines. For us, "breakthrough" isn't a slogan - it's our focus. We develop medicines that offer novel approaches to disease treatments; help large patient populations; and are effective, well tolerated and convenient. That's our winning combination.

Our research excellence has enabled us to launch 18 new medicines and vaccines since 1995 - more in that time than in any other period of Merck's history. This cycle of products led to record growth for Merck, culminating in 2000, when we led the industry in revenue growth for our core pharmaceutical business.

Four of our five key growth drivers were launched during this period - Vioxx, Cozaar/Hyzaar, Fosamax and Singulair. The fifth key growth driver is Zocor, our cholesterol medicine whose growth was spurred by a landmark study completed in 1994. Together, these five medicines now represent more than two-thirds of our worldwide pharmaceutical sales. And they clearly demonstrate that our ability to bring forward major advances in patient care results in rapid uptake of our products in the marketplace.

I'd like to take a few minutes to review the performance of our growth drivers.

Let's start with Vioxx. Worldwide sales for Vioxx in 2001 were $2.6 billion, up 18 percent from 2000, and the medicine claimed half of the new prescriptions in its class of medicines. For the first quarter of 2002, sales were $650 million, compared with $485 million in the first quarter of 2001.

Overall sales of Vioxx in 2001 were dampened by a controversy surrounding the cardiovascular profile of the class. However, our new label has helped put that issue into perspective and we believe should help sales get back on track. Even more exciting is the fact that Vioxx is now the first and only COX-2 that is proven to reduce the risk of developing serious GI side effects in patients with or without risk factors compared to naproxen. And Vioxx now is approved for rheumatoid arthritis.

Let me turn now to Zocor, our largest-selling product. In 2001, Zocor had an outstanding year, with total global sales reaching $6.8 billion, a 26 percent increase over 2000. A major highlight for the year was Oxford University's Heart Protection Study, the biggest study ever reported on the statin family of cholesterol medicines. This study demonstrated that Zocor helps to reduce heart attacks and strokes in a wide variety of patient populations - even those without elevated cholesterol levels.

The growth of Zocor continued in early 2002, with sales reaching $1.6 billion in the first quarter. That's an increase of 6 percent over this period last year.

Cozaar/Hyzaar, Merck's high blood pressure medicines, together are the number one medicines worldwide in a class of well-tolerated medicines known as AII antagonists. For 2001, sales of these two products reached $1.9 billion, an increase of 11 percent over 2000. For the first quarter of 2002, sales were $460 million, up 19 percent from the same period a year ago.

Last fall, the results of our RENAAL study showed that Cozaar is the first and only high blood pressure medicine to significantly reduce end-stage renal disease in Type-2 diabetes. And just last month, results of the LIFE study demonstrated that Cozaar significantly reduced the risk of stroke and other cardiovascular events compared with the beta-blocker atenolol.

At Merck, we recognize the significance of conducting large-scale clinical outcomes studies that help change the way disease is treated. These studies are a core part of our strategy because they help demonstrate the value of our medicines throughout their life cycles.

Our next key growth driver - Fosamax - remains the leading product around the world for the treatment of postmenopausal osteoporosis. Global sales were $1.8 billion in 2001, an increase of 38 percent. For the first quarter of 2002, sales were $560 million, an increase of 60 percent over this period last year.

The largest study of osteoporosis, the National Osteoporosis Risk Assessment, found that almost half of the more than 200,000 postmenopausal women assessed in the survey had low bone mass, putting them at risk of fractures. Given that millions of women over 50 have not been screened for osteoporosis, this study underscores the significant medical need that Fosamax can help fulfill.

Singulair, Merck's once-a-day tablet for asthma control, remains the number one prescribed controller in the United States and the largest selling medicine of its kind. Global sales of Singulair were $1.4 billion in 2001, an increase of 60 percent over 2000. For the first quarter of 2002, sales were $470 million, up 57 percent over this time last year.

Later today you will hear more from Ed Scolnick, head of research at Merck, about our Phase III trials for the use of Singulair in allergic rhinitis. This disease is more commonly known as hay fever to many of the 60 million people in the U.S. who suffer from it.

Our five key franchises were one reason why Merck experienced a phenomenal period of growth: from $16.7 billion in 1995 sales to $47.7 billion last year. With new science continuing to expand the use of these medicines, our growth drivers still have great opportunities ahead of them.

As impressive as this cycle of products has been, we're even more excited about our upcoming line-up of medicines and vaccines. For they have the potential to become our first breakthroughs of the new century and Merck's future growth drivers. Between now and 2006, Merck plans to file or launch 11 new medicines and vaccines - many of which target unmet medical needs and large and growing patient populations of 20 million or more.

As you can see, these compounds include new treatments for cholesterol control, allergic rhinitis, arthritis, diabetes, chemotherapy-induced nausea, respiratory disease, depression, anxiety, and HIV/AIDS. Many are new mechanism treatments that have the potential to transform the standard of care in their fields.

We also have promising new vaccines in the pipeline: one to treat HPV, an infection that can lead to the development of cervical cancer, and a vaccine against rotavirus, which causes severe diarrhea in infants.

Singulair for allergic rhinitis and Zetia for cholesterol control are already under consideration for approval by the U.S. Food and Drug Administration. Zetia is from our Merck/Schering-Plough Pharmaceuticals partnership. It represents a new paradigm of treatment that can build on the effectiveness of the enormously successful statin family of medicines in controlling cholesterol levels.

Last month, Merck announced plans to submit an expanded new drug application to the FDA for Arcoxia. We are doing this to include new efficacy data that will better position the product to compete successfully in the coxib class, where there are already three entrants. Accordingly, we announced the withdrawal of the original U.S. application.

We believe the new data, along with the data previously submitted, will provide a fuller picture of the product's efficacy and safety, and will position it more favorably for approval in the United States. Outside the U.S., the regulatory process for Arcoxia continues uninterrupted. Arcoxia has been approved in the UK, Brazil, Mexico and Peru.

With the strength of our current products and the novel treatment approaches of our pipeline products, we are well positioned to become a top-tier growth company over the longer term.

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Merck has always depended upon innovation to drive its growth. Genomics and other promising research technologies will fundamentally alter our industry over the next decade. Companies at the cusp of these new technologies will be the leaders of our industry. Those that fail to innovate are not likely to survive. That is why we are taking steps to ensure our leadership in cutting-edge science well into the future.

Last year we acquired Rosetta Inpharmatics, a leading informational genomics company based in Kirkland, Washington. Rosetta's state-of-the-art tools and software will help Merck accelerate drug discovery, allowing us to incorporate the latest technology in all phases of research. An example of Rosetta's expertise was reported in the journal Nature in late January, in which gene expression profiling developed by Rosetta was used to predict disease outcomes in breast cancer patients.

Also last year, we broke ground for a new basic research facility in the heart of Boston's medical and scientific community. When completed in 2004, this new basic research facility will become part of Merck's global research effort that will span 11 major sites in seven countries.

We continue to explore the full spectrum of product licensing - from early- to late-stage opportunities - as well as targeted acquisitions to supplement our existing internal research capabilities. We have entered into hundreds of licensing agreements that provide us with everything from access to new drug prospects and disease areas to new techniques for discovering and developing drugs. And we continue to build our research team with outstanding new talent in neuroscience and other key areas.

Earlier this year, Merck announced plans to establish Merck-Medco as a separate, publicly traded company. This is an exciting development for Merck, and for Merck-Medco.

The results of the 1993 acquisition of Merck-Medco have been highly successful. In less than 10 years, Medco's revenues have grown from $2.2. billion to $26 billion, and the number of covered lives has doubled to 65 million.

Merck-Medco has grown to become the leading pharmacy benefits manager in the country in terms of revenue. It operates the world's largest Internet pharmacy, and it now serves more than 1600 clients.

Today it is clear that Merck-Medco is a much different company than it was nine years ago. The environments in which both businesses operate have changed dramatically as well. While both businesses have benefited greatly from being part of the same company over the past nine years, today we believe they have the potential to grow faster on their own than they would together.

Last week, we announced the filing of an S-1 with the Securities and Exchange Commission and we expect the initial public offering to take place in mid-year, subject to market conditions. The full separation of Merck-Medco should be completed within 12 months of the initial public offering, subject to an IRS ruling and other customary conditions.

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We are confident that our continued focus on the underlying strengths of our business will drive a new cycle of growth for our Company. They are:

This strong foundation will allow Merck to capitalize on a new and greater set of opportunities and will drive shareholder value over the long term.

At the same time, we recognize that access to our medicines is of concern to patients, policy-makers and healthcare providers around the world. Our efforts to broaden access continue across many fronts.

In the United States, we continue our strong advocacy for market-based solutions that meet the needs of Medicare beneficiaries - and others without pharmaceutical coverage. Recognizing that it will take time before permanent solutions are in place, Merck is looking for ways to increase access to its medicines today.

Through our Patient Assistance Program, we have been providing medicines free of charge to low-income patients in the U.S. without pharmaceutical coverage for nearly 50 years. While other companies recently announced discount card programs, Merck announced changes to our program to make it easier to use. Our Patient Assistance Program has no application fees, no co-pays, no age restrictions, no targeted discounting and no fixed income limits for eligibility. Last year, we helped more than 350,000 patients through this program. We expect that its use will continue to grow until lasting, workable solutions are found to address the needs of the millions of patients without drug coverage in this country.

Outside the U.S., Merck has taken a leading role in expanding access to HIV/AIDS therapies in resource-constrained countries. In March of last year, Merck announced that we would offer our HIV/AIDS medicines at prices at which we will not profit to the world's poorest countries and those hardest hit by the epidemic. Our actions have helped to spur greater access to HIV medicines in nearly 50 countries. In Romania, for example, our actions have helped ensure that all HIV positive patients now have access to drug therapy and other HIV/AIDS-related services.

But it will take more than lower-priced medicines to stem the tide of the global HIV/AIDS epidemic. It will take strong public-private partnerships that help deliver life-saving medicines and improve basic health-care systems.

Our partnership with the Republic of Botswana and the Bill & Melinda Gates Foundation is a remarkable example of what can be done to strengthen a nation's response to HIV/AIDS across the entire spectrum of education, prevention, care and treatment.

We've made great progress in helping the people of Botswana since the partnership began in July 2000. Training programs for physicians, nurses and pharmacists have been established; coping centers for people living with HIV/AIDS have been opened; clinical labs have been upgraded; and counseling services to support HIV testing have been provided. This program has become a model of comprehensive HIV/AIDS care that can, and should, be replicated in other developing countries.

The most noteworthy of our actions regarding public-private partnerships is our donation program with Mectizan. Now celebrating its 15^th anniversary, the Mectizan Donation program is still the model for success in building global health partnerships. Through this program we are helping 30 million people a year in more than 30 countries. By giving just one tablet a year to the people at risk of this disease - we are helping to eliminate river blindness as a public health problem.

In the presentations that follow you will hear more about other Merck medicines that one day will change the ways in which diseases are treated. Whether it is our HIV/AIDS medicines and vaccines or our novel mechanism for diabetes, we remain committed to providing the best of medicines and vaccines.

With that in mind, I'd like to introduce Ed Scolnick, Executive Vice President of Science and Technology, and President of the Merck Research Laboratories.

Thank you.

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This speech contains "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. No forward-looking statement can be guaranteed, and actual results may differ materially from those projected. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. Forward-looking statements in this document should be evaluated together with the many uncertainties that affect our businesses, particularly those mentioned in the cautionary statements in Item 1 of our Form 10-K for the year ended Dec. 31, 2001, and in our periodic reports on Form 10-Q and Form 8-K (if any) which we incorporate by reference.