Merck Annual Report 2000

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Chairman's Message: Our strategy for growth, and the success of our strategy, have given us a strong platform for continued growth

Raymond V. Gilmartin Chairman, President and Chief Executive Officer

Dear Shareholders:
    As a company, Merck is totally focused on growth. Over the last several years we have made significant investments in areas that can help us achieve our goal to be a top-tier growth company over the long term: cutting-edge science, innovative new products, and Merck-Medco, the nation’s leading provider of pharmacy care.
    Our strategy for growth, and the success of our strategy, have given us a strong platform for continued growth. We are now seeing exceptional evidence of our strength and our future potential:
    • In six of the last eight quarters, revenue growth for our pharmaceutical and vaccine businesses worldwide ranked either number one or two within our industry, and we have experienced high-quality earnings per share growth based on this strong top-line growth.
    • Our breakthrough research strategy has produced 16 new products in the last six years, and we have more new chemical entities moving through early development than ever before in our history.
    • Five of our newer medicines have become key drivers of our growth – Vioxx, Zocor, Cozaar/Hyzaar, Fosamax, and Singulair. Together, these medicines accounted for nearly 60 percent of global human health sales in 2000, up from 46 percent in 1999.
    • Merck-Medco, with the addition of the UnitedHealth Group business and the acquisition of ProVantage Health Services, now provides pharmacy care to more than 65 million people.

Compelling evidence of our momentum
    Merck has said consistently we are confident that our new medicines and our in-line products, combined with the productivity of Merck research, would enable us to offset our patent expirations and to deliver earnings growth that is competitive with the other leading health care companies during this time. Our results in 2000 provide compelling evidence of our momentum. Earnings per share increased 18 percent over 1999, sales rose by 23 percent to $40 billion, and net income was up 16 percent to nearly $7 billion.
    More evidence of our momentum can be found in the Merck Research Laboratories. This is the most productive time ever for Merck research, with eight programs in Phase IIb studies and beyond, important vaccines in clinical trials and new mechanism treatments in early development. We spent $2.3 billion on research in 2000 and we expect to spend about $2.8 billion during 2001.
    Our performance gives us great confidence in the future. Our strategy for growth – expanding our lead in cutting-edge science, maximizing our five key growth drivers, and building on the success of Merck-Medco – will make us even stronger.

Setting the standard for cutting-edge science
    We believe that turning cutting-edge science into breakthrough medicines is the way to drive growth in our industry, and Merck research continues to set the standard. The latest example came in October 2000 when the journal Science published results of our early HIV vaccine research. While it is far too early to determine the ultimate probability of success, this research gives us hope that a vaccine may someday be able to help stem the tide of the HIV/AIDS epidemic.
    To complement Merck’s internal research programs, we are extending our reach beyond our own laboratories. Merck has developed collaborations with more than 40 companies, institutes and universities throughout the world. A strong new focus on external collaborations is giving Merck access to new product candidates and research technologies that will broaden our base for the future.
    Merck has a long-standing track record of strategic alliances that bring value to both parties. The partnerships we announced in 2000 with Schering-Plough in the United States build on that tradition, and give us the potential for important new medicines in the cholesterol and respiratory disease areas.
    These partnerships exemplify Merck’s strategy of seeking innovative collaborations to increase shareholder value. By investing in internal research and complementing our pipeline through external collaborations, we will remain at the forefront of cutting-edge science.

OUR STRATEGY FOR GROWTH

Discover important new medicines through breakthrough research
Demonstrate the value of our medicines to patients, payers and providers

Our overriding financial goal

To be a top-tier growth company by performing over the long term in the top quartile of leading health care companies

Newer products driving growth
Five of our newer medicines have become key drivers of our growth – Vioxx, Zocor, Cozaar/Hyzaar, Fosamax and Singulair. Together, these medicines accounted for 57 percent of global pharmaceutical sales in 2000, up from 46 percent in 1999.

Our five key growth drivers
    Since its extraordinarily successful launch in 1998, Vioxx, Merck’s once-a-day medicine for osteoarthritis and acute pain, has become the world’s fastest growing branded prescription arthritis medicine, and it is already our second largest selling medicine overall. Vioxx is well positioned globally for long-term market leadership.
    Zocor, Merck’s cholesterol-modifying medicine, is demonstrating continued strong growth, backed by excellent science.
    Cozaar and Hyzaar, the first of a new class of well-tolerated high blood pressure medicines called AII antagonists, remain the world’s most widely prescribed drugs in their class.
    Fosamax, the leading nonhormonal product worldwide for the treatment of postmenopausal osteoporosis, has outperformed its recent competition. Further strengthening our competitive edge, in 2000 we launched a unique, convenient once-a-week dosage of Fosamax in the United States and received approval for this new formulation in our first European market, the United Kingdom.
    Singulair, our once-a-day medicine for asthma control, has become one of the top-selling asthma controllers worldwide.

Merck-Medco, the most successful provider of pharmacy care
    The final element driving Merck’s performance is Merck-Medco, which experienced superb growth in 2000. For the year, the volume of prescriptions handled increased 22 percent to more than 450 million.
    In 2000, Merck-Medco launched two important initiatives to help address rising pharmaceutical costs. Generics First is an effort to educate physicians and consumers about the appropriate use of generic medicines. YOURxPLAN, created by Merck-Medco with Reader’s Digest, is a pharmacy-discount program for people without adequate prescription drug insurance coverage. Through these and other programs, Merck-Medco helps to appropriately manage drug costs while creating room in pharmacy budgets for the appropriate use of innovative medicines in the United States.
    Merck-Medco continues to make investments in leading-edge pharmacy and Internet technology. Merck-Medco operates the world’s most advanced pharmacy in Las Vegas and is building another in New Jersey. Merckmedco.com is the world’s leading Internet pharmacy, processing more than 110,000 prescriptions per week via the Internet.

Bringing the best of medicines to people around the world
    Merck has grown because of its expertise in discovering, developing, manufacturing and marketing breakthrough medicines. But our mission to improve global health cannot be fully accomplished unless we have done all we can to make sure that people who need our breakthrough medicines have access to them – from seniors without prescription coverage in the United States to children with HIV in Africa. Several pages in this report chronicle Merck’s efforts to bring the best of medicines to people in need around the world.
    Merck will continue to grow and to provide the best of medicines to people around the world because of its strongest asset – its people. Talented and dedicated Merck employees everywhere, along with our Board of Directors, share our commitment to build our Company while remembering the words George Merck spoke 50 years ago when he reminded us that “medicine is for the people.”

Raymond V. Gilmartin
Chairman, President and
Chief Executive Officer
March 1, 2001

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