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Merck Announces Global Initiative to Sharpen Commercial and R&D Focus



  Merck Announces Global Initiative to Sharpen Commercial and R&D Focus

             Company Redesigns Operating Model; Reduces Cost Base

  * Initiative targets net reduction in annual operating expenses of
    approximately $2.5 billion by the end of 2015
  * Plan includes new workforce reductions of approximately 8,500 positions,
    in addition to pending, previously announced reductions
  * Company reaffirmed 2013 full-year non-GAAP EPS target of $3.45 to $3.55;
    revised GAAP EPS range to $1.58 to $1.82

Business Wire

WHITEHOUSE STATION, N.J. -- October 1, 2013

Merck (NYSE:MRK), known as MSD outside the United States and Canada, today
announced a global initiative to sharpen its commercial and research and
development (R&D) focus. The multi-year initiative will enable Merck to better
target its resources behind those opportunities that have the potential to
deliver the greatest return on investment, including bolstering its pipeline
and implementing a more agile operating model, with a significantly reduced,
more flexible cost structure.

“These actions will make Merck a more competitive company, better positioned
to drive innovation and to more effectively commercialize medicines and
vaccines for the people who need them,” said Kenneth C. Frazier, chairman and
chief executive officer, Merck. “Today’s announcement further underscores that
we are committed to improving our performance in the short term while also
investing for the long term to create value for patients, customers and
shareholders.”

The company expects to realize approximately $2.5 billion in annual net cost
savings by the end of 2015 and estimates that $1.0 billion, or 40 percent, of
the savings will be realized by the end of 2014. The company anticipates that
the substantial majority of savings will come from marketing and
administrative expenses and R&D. These savings are off of the company’s
full-year 2012 expense levels. By the end of 2015, the workforce reductions
announced today, combined with pending, previously announced reductions of
approximately 7,500, will result in a decrease of about 20 percent in Merck’s
total global workforce of 81,000 employees. Total pre-tax costs for the new
restructuring program are estimated to range between $2.5 billion and $3.0
billion. The company estimates that approximately two-thirds of these costs
will result in cash outlays, primarily related to separation expense, and
approximately one-third are non-cash, primarily related to accelerated
depreciation of facilities to be closed or divested.

“While these actions are essential to ensure that Merck can continue to
fulfill its mission into the future, they are nevertheless difficult decisions
because they affect our dedicated and talented colleagues. We appreciate the
contributions of all our employees, and we will support them during this time
of transformation,” said Frazier.

Overall, this global initiative will focus on three key areas:

Redesigned Operating Model and Reduced Cost Base

  * The company evaluated all aspects of how it operates as a business and is
    adopting a significantly streamlined and more flexible cost structure and
    operating model in response to business challenges and the rapidly
    changing external environment.
  * Through new cost efficiencies, the company will:

       * Better allocate resources across the enterprise to those areas that
         present the highest-potential growth opportunities, such as its
         anti-PD-1 immunotherapy program for oncology;
       * Invest in new licensing and business development activities to
         acquire external innovation and commercial opportunities to
         strengthen the pipeline; and
       * Maintain a high level of cash returned to shareholders through both
         the dividend and the company’s stock repurchase program.

  * The company will also reduce its global real estate footprint,
    particularly in New Jersey where it is headquartered. It will also
    continue to move forward with ongoing plans to improve the efficiency of
    its manufacturing and supply network.

Sharpened Commercial Focus

  * Within the core human pharmaceutical and vaccine business, Merck will
    continue to support its in-line portfolio and prepare for promising
    launches in the pipeline.
  * The company will increase its focus on the key therapeutic areas that meet
    unmet medical needs, provide the best opportunities for the business and
    deliver the greatest value for customers – diabetes, acute hospital care,
    vaccines and oncology.
  * Merck is creating a new, integrated unit to ensure that the company is
    prepared to successfully bring MK-3475, its investigational anti-PD-1
    immunotherapy, to patients throughout the world.
  * Geographically, the company will increase its focus in ten prioritized
    markets, which account for the majority of revenue in its pharmaceutical
    and vaccine business. These markets are the United States, Japan, France,
    Germany, Canada, United Kingdom, China, Brazil, Russia and Korea.

Refocused and Prioritized Research and Development

  * Merck has prioritized its R&D efforts to focus on candidates capable of
    providing unambiguous, promotable advantages to patients and payers.
  * This focus will include programs such as the company’s anti-PD-1
    immunotherapy program in oncology, BACE for Alzheimer’s disease (MK-8931),
    its next generation HCV program and V503, the company’s 9-valent HPV
    vaccine.
  * Merck will pursue emerging product opportunities independent of
    therapeutic area or modality and build its biologics capabilities.
  * The company will out-license or discontinue selected late-stage clinical
    development assets and reduce its focus on platform technologies.
  * The company will make externally sourced programs a greater component of
    its pipeline strategy.

Financial Targets

Merck reiterated its full-year 2013 non-GAAP^1 (generally accepted accounting
principles) earnings per share (EPS) target range of $3.45 to $3.55 and
revised its GAAP range to be between $1.58 and $1.82. The company expects to
record charges relating to the new restructuring program of approximately $900
million to $1.1 billion in 2013, a majority of which will be recorded in the
third quarter. The 2013 non-GAAP EPS target range excludes acquisition-related
costs, costs related to restructuring programs and certain other items. A
reconciliation of anticipated 2013 EPS, as reported in accordance with GAAP to
non-GAAP EPS that excludes certain items, is provided in the table below.

                                                    
$ in millions, except EPS amounts                  Full Year 2013
GAAP EPS                                           $1.58 to $1.82
Difference^2                                       1.87 to 1.73
Non-GAAP EPS that excludes items listed below      $3.45 to $3.55
                                                    
                                                    
Acquisition-related costs^3                        $5,400 to $5,200
Restructuring costs                                1,900 to 1,600
Net decrease (increase) in income before taxes     7,300 to 6,800
Income tax (benefit) expense^4                     (1,700) to (1,600)
Decrease (increase) in net income                  $5,600 to $5,200
                                                    

Analyst Conference Call

Investors, journalists and the general public may access a live audio webcast
of the call today at 8:30 a.m. EDT on Merck’s website at
http://www.merck.com/investors/events-and-presentations/home.html. Software
needed to listen to the webcast is available on Merck’s website and should be
downloaded prior to the beginning of the webcast. A replay of the webcast will
be available at approximately 11:00 a.m. EDT on Oct. 1 and will remain on the
website for 12 months.

Institutional investors and analysts can participate in the call by dialing
(706) 758-9927 or (877) 381-5782 and using ID code number 72330994.

Members of the media are invited to monitor the call by dialing (706) 758-9928
or (800) 399-7917 and using ID code number 72330994. Journalists who wish to
ask questions are requested to contact a member of Merck's Media Relations
team at the conclusion of the call.

About Merck

Today's Merck is a global healthcare leader working to help the world be well.
Merck is known as MSD outside the United States and Canada. Through our
prescription medicines, vaccines, biologic therapies, and consumer care and
animal health products, we work with customers and operate in more than 140
countries to deliver innovative health solutions. We also demonstrate our
commitment to increasing access to healthcare through far-reaching policies,
programs and partnerships. For more information, visit www.merck.com and
connect with us on Twitter, Facebook and YouTube.

Forward-Looking Statement

This news release includes “forward-looking statements” within the meaning of
the safe harbor provisions of the United States Private Securities Litigation
Reform Act of 1995. These statements are based upon the current beliefs and
expectations of Merck’s management and are subject to significant risks and
uncertainties. There can be no guarantees with respect to pipeline products
that the products will receive the necessary regulatory approvals or that they
will prove to be commercially successful. If underlying assumptions prove
inaccurate or risks or uncertainties materialize, actual results may differ
materially from those set forth in the forward-looking statements.

Risks and uncertainties include but are not limited to, general industry
conditions and competition; general economic factors, including interest rate
and currency exchange rate fluctuations; the impact of pharmaceutical industry
regulation and health care legislation in the United States and
internationally; global trends toward health care cost containment;
technological advances, new products and patents attained by competitors;
challenges inherent in new product development, including obtaining regulatory
approval; Merck’s ability to accurately predict future market conditions;
manufacturing difficulties or delays; financial instability of international
economies and sovereign risk; dependence on the effectiveness of Merck’s
patents and other protections for innovative products; and the exposure to
litigation, including patent litigation, and/or regulatory actions.

Merck undertakes no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or otherwise.
Additional factors that could cause results to differ materially from those
described in the forward-looking statements can be found in Merck’s 2012
Annual Report on Form 10-K and the company’s other filings with the Securities
and Exchange Commission (SEC) available at the SEC’s Internet site
(www.sec.gov).

^1 Merck is providing certain non-GAAP information that excludes certain items
because of the nature of these items and the impact they have on the analysis
of underlying business performance and trends. Management believes that
providing this information enhances investors’ understanding of the company’s
performance. This information should be considered in addition to, but not in
lieu of, information prepared in accordance with GAAP.

^2 Represents the difference between calculated GAAP EPS and calculated
non-GAAP EPS, which may be different than the amount calculated by dividing
the impact of the excluded items by the weighted-average shares for the
period.

^3 Includes expenses for the amortization of intangible assets recognized as a
result of mergers and acquisitions, as well as intangible asset impairment
charges. Also includes integration and other costs associated with mergers and
acquisitions.

^4 Includes the estimated tax impact on the reconciling items, as well as a
net favorable impact related to the settlements of certain federal income tax
issues.

Contact:

Merck
Media Contacts:
Kelley Dougherty, 908-423-4291
Steven Cragle, 908-423-3461
or
Investor Contacts:
Carol Ferguson, 908-423-4465
Joe Romanelli, 908-423-5185
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