Remarks of Richard T. Clark
Chairman, President and Chief Executive Officer
Merck & Co., Inc.
At the Annual Meeting of Stockholders
North Branch, NJ
April 22, 2008
I am pleased to see so many Merck retirees in the audience today. Your being here reminds us of what this company has accomplished in the past, as we continue to work to ensure its success through the years ahead.
This is a time of great opportunity, but also great challenge and change for Merck. And during times like this, it's important to keep perspective. We remain totally focused on creating true long-term value for our shareholders. And while Merck's current stock price is not where we'd like it to be, our focus on creating shareholder value that is sustainable over the long term remains the key to our success.
We are keenly aware that we are operating in a more difficult environment – one in which we face frequent challenges to our reputation. We draw resolve from the knowledge that Merck continues to have an unwavering commitment to ethics and integrity. We are communicating directly with our stakeholders so that we can rebuild trust, ensure we are listening to their concerns and set the record straight about recent developments involving Merck. We also are working on creating more openness about our business. This process will undoubtedly take time. However, Merck's reputation is our most valuable asset, and we know that we must work to protect and enhance it with the same intensity we put toward delivering financial results.
Meanwhile, I remain confident that our Plan to Win, the strategic roadmap we put in place more than two years ago to return Merck to its leadership position in the industry, is exactly the right strategy for this environment. The results I review today will show you why.
I can report to you – at about the halfway mark in this process – that we are confident we will meet our goals. And although we have had some setbacks and no doubt will face additional challenges, our results so far illustrate that we have the right product portfolio, the right pipeline and the right strategy in place to manage through difficult industry dynamics and unexpected challenges.
Let me take just a moment to review the goals we set for 2010.
- The first is to achieve double-digit compound annual earnings per share growth, excluding certain items, over the period from 2005 to 2010. We are confident we will meet this goal.
- The second is to deliver compound annual revenue growth of 4 to 6 percent by 2010, including half of our joint venture revenue. We are on target to deliver that growth.
- The third is to return Merck's product gross margin beyond 2008 to the level we had before ZOCOR went off patent. We expect to meet this goal a full year ahead of schedule.
- The fourth is to return marketing and administrative expenses to 2006 levels by 2010, and we remain confident we will do just that.
- And the fifth is to continue to fully fund our growing research and development efforts.
The fact is, the financial results we achieved in 2007 clearly demonstrate that our progress is both real and measurable. And that is in part due to the fact that our plan has been in place for more than two years. But our industry's operating environment has become increasingly difficult, and in order to meet new challenges, we are already accelerating key cost-saving and efficiency initiatives. I will tell you more about these efforts in a few minutes.
But first, let's look briefly at our financial results over the last year. We increased our full-year earnings per share in 2007 to $3.20, excluding certain charges. Our reported EPS for the same period was $1.49.
We increased our sales of Merck's products worldwide by 7 percent over 2006 – more than double the sales increase we achieved from 2005 to 2006.
Yesterday we announced our results for the first quarter of this year. Our earnings per share were 89 cents, excluding certain items. Our reported earnings per share were $1.52.
Yesterday we also reaffirmed that we expect our full-year 2008 earnings-per-share to reach between $3.28 and $3.38, excluding certain items. We expect to achieve reported EPS of between $3.84 and $4.00.
As a result of our progress with the Plan to Win, we expect to achieve these results despite the loss in revenue from FOSAMAX, our highly successful product that lost patent exclusivity earlier this year, and despite reaction to a vastly misunderstood clinical trial of our joint-venture cholesterol products VYTORIN and ZETIA.
Supporting our growth are new products and a growing pipeline. We have launched eight new products in a 24-month period.
Two of our newest products include JANUMET, another new Merck treatment option for patients with type 2 diabetes, and ISENTRESS, the first FDA-approved integrase inhibitor for HIV/AIDS. This year, we also plan to ask approval for the use of ISENTRESS for first-line therapy.
During 2008, we will conduct nearly 300 separate launches of new products globally. We started by launching EMEND for Injection in January, giving cancer patients an intravenous option for reducing the nausea that often accompanies chemotherapy.
And recently, we received good news about GARDASIL, our cervical cancer vaccine. The FDA is giving priority review to our application to expand its use to adult women up to age 45. We also intend to file an application for use in boys later this year.
CORDAPTIVE, a Merck compound that we developed to provide patients with a new option for managing cholesterol, is currently under FDA review. Before the end of the year we expect to file a New Drug Application for MK-0364, taranabant, an investigational medicine that is expected to help in the treatment of obesity.
Our Phase III pipeline also contains products targeting important conditions such as atherosclerosis, cancer, migraine, osteoporosis and hepatitis B. Dr. Peter Kim will cover our research and development news in greater detail in just a few minutes.
The new products we have launched have played an important part in producing our success to date. But they would not have been enough if we had not already been aggressively changing the way we work.
As I mentioned earlier, we are accelerating our cost-saving and efficiency initiatives. For example, we continue to make our supply chain more efficient. We have accelerated our creation of lower-cost manufacturing partnerships as part of our ongoing efforts to be the most highly valued and competitive supplier in our industry. We have already completed the closure or sale of five plants in our internal manufacturing network. And we have accelerated the closing or sale of four additional sites outside of the United States.
These actions are not about short-term cost-cutting. They are about having the right capacity, capability and technology in place to meet Merck's future manufacturing needs. While these decisions are always difficult, they are necessary to meet our business goals, and the people affected are being treated with the respect they deserve as Merck employees.
Meanwhile, we continue to speed up our discovery process – a key component to our overall success. The faster we can move investigational compounds through our pipeline, the faster we can get them to the patients who need them, and the faster they can contribute to our sales.
This pipeline acceleration reflects our success in using the latest technology to reduce clinical development cycle times. It also reflects our ongoing success in developing strategic external partnerships that complement our own internal R&D efforts.
Last year we developed 55 significant new partnerships, bringing our total to nearly 250 in the last five years. By creating a "virtual lab" of partners around the globe, we are tapping into the best emerging technologies, scientific developments and promising products from outside Merck.
While we have changed a great deal of the way we do business, one thing hasn't changed – Merck's long-standing commitment to corporate responsibility. We work as hard as we do to discover, develop and market our products, not just for the sake of the company and our shareholders, but also to reduce human suffering.
That is why during the 50 years since it began, The Merck Company Foundation has contributed more than $480 million to innovative programs that enhance the health and well-being of people around the world. Yesterday we announced that Merck is reinforcing that commitment by providing the foundation with an additional $300 million in funding.
It's why last month, we licensed our novel anti-HIV microbicide, without any royalty payments, to the International Partnership for Microbicides.
It's why, when we celebrated the 20th anniversary of our MECTIZAN Donation Program, we reaffirmed our commitment to donate as much MECTIZAN as is needed – for as long as it's needed – to help eliminate river blindness throughout the world.
It's why for more than 50 years, we have provided our medicines at no cost to millions of Americans, and now provide our vaccines as well. So while much has changed at Merck, our commitment to the people who count on us has remained constant.
We know that our shareholders also count on us. I hope you will leave this meeting with a renewed sense of confidence in this company and in its future. Merck is uniquely positioned for success, and as our record shows, we know how to manage through challenges, and will do so again. I am confident we have the right team executing the right plan, delivering an impressive pipeline of products.
Our goal is clear: to continue to produce the results and honor the values that reflect our commitment to stockholders and to patients, so that the Merck of 2010, 2015 and beyond is the leader we know it can be.
Thank you.
And now, it's my pleasure to introduce Dr. Peter Kim, president of Merck Research Labs.
These remarks contain "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and involve risks and uncertainties, which 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 or 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 statement, whether as a result of new information, future events, or otherwise. Forward-looking statements in these remarks should be evaluated together with the many uncertainties that affect Merck's business, particularly those mentioned in the risk factors and cautionary statements in Item 1A of Merck's Form 10-K for the year ended Dec. 31, 2007, and in any risk factors or cautionary statements contained in the Company's periodic reports on Form 10-Q or current reports on Form 8-K, which the Company incorporates by reference.
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