U.S. markets closed

Merck & Co Inc. CEO Hosts Annual Shareholder Meeting (Transcript)

Merck & Co Inc. (MRK)

Annual Shareholder Meeting Call

May 28, 2013 10:30 AM ET


Ken Frazier - Chairman, President and CEO

Roger Perlmutter - EVP and President, Merck Research laboratories

Geralyn Ritter - Secretary


Irenej Krayewsky

James Moore

Kenneth Steiner

Gregory Quinlan

Janet Brown

Louise Wuisniewski

Jim White

Justin Danhof

Jessica Reinhart

Gerard Kenslea

Mohindar Puar


Ken Frazier

Good morning ladies and gentlemen and welcome to the 2013 Annual Meeting of Shareholders of Merck. It is now 10:30 am, the official time to start our meeting. I’m Ken Frazier, Chairman of the Board, President and Chief Executive Officer and I now call this meeting to order.

On the stage with me is the Company’s Senior Vice President and Secretary and Assistant General Counsel, Geralyn S. Ritter who will service Secretary of today’s meeting. Ms. Ritter has informed me that we have a quorum.

I direct your attention to today’s agenda which we plan to follow as closely as possible. The audit committee of the Board of Directors has appointed PricewaterhouseCoopers LLP as the independent registered public accounting firm for Merck for 2013, subject to shareholder ratification at this meeting.

Representing PricewaterhouseCoopers today are Mike Bronstein, Jerry Flynn, Joe Harl and Chris (inaudible) welcome and thank you gentlemen for joining us.

Now, I will introduce Merck’s Board of Directors. I ask Board members to rise and remain standing as I read your names. May I ask shareholders to hold your applause until all are introduced?

Leslie A. Brun, Chairman and Chief Executive Officer, Sarr Group, LLC; Dr. Thomas R. Cech, investigator at Howard Hughes Medical Institute and distinguished professor at the University of Colorado; Thomas H. Glocer, retired Chief Executive Officer of Thomson Reuters Corporation; William B. Harrison, Jr., Lead Director of the Merck Board and retired Chairman of the Board of JPMorgan Chase & Co; C. Robert Kidder former Chairman and Chief Executive Officer of 3Stone Advisors LLC; Rochelle B. Lazarus, Chairman Emeritus of Ogilvy & Mather; Carlos E. Represas, retired Chairman of Nestlé Group Mexico; Patricia F. Russo former Chief Executive Officer and Director of Alcatel-Lucent; Dr. Craig B. Thompson, President and Chief Executive Officer of the Memorial Sloan-Kettering Cancer Center; Wendell P. Weeks, President, Chairman, Chief Executive Officer and President of Corning Incorporated and Peter C. Wendell, Managing Director of Sierra Ventures.

This superb Board of Directors represents a depth of experience and business science and medicine and a broad range of global perspectives. Our Company is indeed fortunate to be served by people of such extraordinary passion, commitment and wisdom.

Thank you very much, ladies and gentlemen.

Now, I’d like to introduce the members of our senior leadership team. Please stand as I call your names. Again, I ask that you please hold your applause until all the members have been introduced.

Willie A. Deese, Executive Vice President and President, Merck Manufacturing Division; Richard R. DeLuca Jr., Executive Vice President and President, Merck Animal Health; Cuong Viet Do, Executive Vice President and Chief Strategy Officer; Clark Golestani, Executive Vice President and Chief Information Officer; Mirian M. Graddick-Weir, Executive Vice President, Human Resources; Bridgette P. Heller, Executive Vice President and President, Merck Consumer Care. I know that Bridgette was recently known that 2013 Healthcare Business Woman of the year, an award recognizing exceptional leaders who further the advancement of women in healthcare, congratulations Bridgette.

Michael J. Holston, Executive Vice President and Chief Ethics and Compliance Officer; Peter N. Kellogg, Executive Vice President and Chief Financial Officer; Bruce N. Kuhlik, Executive Vice President and General Counsel; Roger M. Perlmutter, Executive Vice President and President, Merck Research laboratories; Michael Rosenblatt, Executive Vice President and Chief Medical Officer and Adam A. Schechter, Executive Vice President and President, Global Human Health.

Ladies and gentlemen, please join me in recognizing the efforts of our talented management team.

Before my business update, I'd like to share a video that illustrates Merck's long standing commitment to reduce the burden of disease and improve quality of life around the world. Last year, marked the 25th anniversary of a collaboration among Merck and other committed organizations to address a debilitating disease called River Blindness. It is transmitted to the bite of black flies and effects villages in Sub-Saharan in Africa, Latin America and parts of the Middle East.

In these communities, generations of children serve the grim role of physically guiding the blind mothers and fathers. But 25 years ago, Merck and other dedicated partners dared to imagine a different world; a world free from the scurrage of River Blindness. Merck's medicine Mectizan is effective in treating River Blindness and in 1987; our CEO at the time Dr. Roy Vagelos decided to donate as much Mectizan as needed for as long as it was needed to address the disease in the areas affected by it.

Since then, Merck has collaborated with many organizations from the public and private sectors to deliver more than 1 billion treatments of Mectizan to the people who need it. Together we made great progress which is highlighted in this video, so please roll the video.

[Audio and Video Presentation]

Dr. Vagelos’ decision, a quarter century ago, to donate Mectizan for as long as needed is both courageous and visionary and it has made a tremendous difference as you just saw in the quality of life for individuals and communities at risk who are suffering from River Blindness. That decision was very much in keeping with this company’s values and our mission and we are proud to be able to fulfill that promise today.

Merck’s mission is to discover, develop and provide innovative products and services that save and improve lives all around the world. Our company and are people are deeply committed to ensuring we can continue to deliver on that mission for years to come despite a dramatically challenging and changing healthcare environment.

We are transforming Merck, so we can remain focused on cutting-edge science that increases life expectancy, improves the quality of life and meets and anticipates the needs of patients and customers across the globe. At the very same time, honesty, integrity and the highest standards of ethical conduct remain the foundation of our business. We are unwavering in our commitment to those enduring values.

Last year, Merck delivered strong performance across all areas of our company. In addition, we demonstrated that our balanced strategy is creating shareholder value in the near term while enabling us to continue investing for the longer term.

Merck’s strategy for growth and for creating shareholder value has four pillars. First, execute on our core business including our research and development pipeline. Second, expand in Japan and key emerging markets where there is both great need and great opportunity. Next, extend our complimentary businesses, Merck Animal Health and Merck Consumer Care and explore new opportunities that complement our core business. And lastly, excel at managing cost and redeploying resources to our most promising sources of growth.

Merck is focused on the areas of healthcare where we are best equipped to make a difference. At the same time, our product portfolio remains one of the broadest in the entire industry. We expected 2012 would be a challenging year due to the U.S. patent exploration for Singulair, our largest product in allergy and asthma medication and because of pricing and other austerity measures around the world.

However, we executed well and maintain revenues at the prior year’s level overall on a constant currency basis despite these challenges. Earlier this month, we announced our results for the first quarter of 2013. while we delivered our first quarter earnings per share target on an operating basis we felt short of our top line revenue goals. Our revenue performance was affected by several factors including customer buying patterns and unfavorable foreign exchange as well as the tougher environment for branded pharmaceuticals like Januvia Pharmaceutical.

These factors impacted us at the same time the very same time we were managing through the loss of exclusivity of Singulair and several other products. Consequently we’ve lowered our 2013 earnings per share guidance. To respond to the challenges we encountered in the first quarter, we moved quickly to reduce or defer spending while further prioritizing our investments. In addition to decrease in cost, we continue to focus on increasing productivity to maximize our opportunities for future growth such as making the necessary investments in our core brands and our product launches.

One quarter does not a year make and one year does not a company make. We’re committed to ensuring that we take focused actions to address the short term while managing our business for the long term in a way that provides sustainable shareholder value. To return to our 2012 performance, last year our Global Human Health business grew 5% excluding the Singulair patent expiry. This and all other revenue growth figures I’ll be providing you today exclude the impact of foreign exchange. As one example of strong performance in our Global Human Health business, last year the Januvia family of oral medications for treating Type 2 diabetes with sales of $5.8 billion last year achieved the distinction of being the highest selling product family on annual basis in Merck’s history.

We are confident in the future growth prospects of our diabetes franchise and we believe the first quarter of this year is not indicative of the future potential for these leading products. Diabetes prevalence is growing around the world and we are increasing our investments to support the continued growth of our diabetes products. also in 2012 Merck's vaccine sales reached $5.1 billion in fact considering the sale we make to customers and the contributions from our joint venture with Sanofi Pasteur in Europe we’ve shifted from being a largely U.S. focus business to becoming one of the leading vaccine companies on a global basis.

Both Gardasil a vaccine that helps prevent cervical cancer and other diseases caused by human papillomavirus and Zostavax for the prevention of Herpes zoster commonly known as shingles experienced double digit growth and that strong growth continued into the first quarter of this year. Last year we continue to launch Victrelis a major event for the treatment of chronic hepatitis C in markets around the world. Last year Victrelis was awarded the Prix Galien in the United States, the United Kingdom, Canada, France, and Belgium.

This prestigious honor recognizes the technical scientific and clinical research skills necessary to develop innovative medicines and vaccines. Merck stands tall among winners of the Prix Galien award. Since the medal was created in 1970 we’ve won 38 awarded in 11 countries and internationally for our medicines and vaccines more than any other company in our entire industry. Importantly, we continue to advance our pipeline in 2012 successfully completing four new drug applications including investigational treatments for insomnia, atherosclerosis, platinum-resistant ovarian cancer and for reversal of neuromuscular blockade following surgery. In total, we now have five new products under regulatory review around the world.

In earlier this month, we received FDA approval for Levetirac for the treatment of cardiovascular disease. At the same time, the disappointing outcome of a key late-stage cardiovascular R&D program at the end of last year let us to decide not to file for U.S. approval of our phase III drug Tredaptive and to remove it from markets around the world. We also delayed the filing for Odanacatib our investigational osteoporosis compound which was originally planned for 2012. As I have underscored many times, innovative R&D is the cornerstone of Merck.

Given how essential R&D is to our long term feature, I am pleased to welcome our new President of Merck Research Lab’s Roger Perlmutter. Dr. Perlmutter is a world class physician scientist with an established track record of successfully leading large research organizations and delivering a broad and diverse pipeline of medicines, I am confident that under Roger's leadership Merck will build on its legacy of successfully bringing forward transformative medicines that make a real difference for patients and shareholders alike. Although he has only been back with us now for about six weeks, I'm inviting Dr. Perlmutter to make some remarks this morning. So please Roger come to the stage.

Roger Perlmutter

Thank you very much, Ken. It is a real privilege to have the opportunity to lead the Merck research laboratories and I'm honored to have this opportunity. Some of you may know that I used to work ago. 15 years ago I had responsibility for discovery research and preclinical development at Merck and we did some pretty good work back then. Nancy Thornberry and I started a program on DPP4 antagonists that became JANUVIA and Dario Hazuda and Mile Omini worked on a integrase inhibitor that became ISENTRESS, we're working at the time as well on a human papillomavirus vaccine that became GARDASIL, and we also started a program back then on the cathepsin k inhibitor that became ultimately overtime Odanacatib, now completing Phase 3 studies for osteoporosis. And I mentioned all of those things for two reasons, first of all to emphasize what most of you know which is that it takes a very-very long time to translate research discoveries into major clinical advances. 15 years ago we started these programs with high hopes, of course we started a lot of other ones that didn't do so well. But it's a great honor and privilege for me to come back and have the opportunity to see a number of those of programs that have made it across the finish line that are making real contributions to human health around the world.

So the other thing to note as Ken did is that Merck and MRL have together an unparalleled reputation in bringing forward innovative new medicines to address human concerns. This laboratory has been responsible for more innovative medicines designated by the Prix Galien as Ken mentioned, and in addition over a 60 year period, as was recently reviewed by Matt Herper in Forbes, our laboratory and our company was the most productive company for innovative medicines of any pharmaceutical company in the world. Although it is much-much harder now to develop drugs that make that kind of difference we stand on an extremely significant and important platform and in that sense leading Merck Research Laboratories is a sacred trust for me. It's an enormous honor to have this privilege.

So I look out at the world and I see that we have a cornucopia of new research discoveries which provide even better opportunities for creating new medicines and our responsibility is to have the discipline and rigor to pursue those effectively and efficiently. This week we'll have the opportunity to announce at the American Society for Clinical Oncology recent results from our PD1 antibody MK3475 for which we just received breakthrough designation from the FDA.

The results that we've obtained early on now in studying patients with melanoma and non-small cell lung cancer are really quite remarkable and offer the premise of much improved care for patients suffering from these especially grievous illnesses. That after all is our mission. our goal, is to create breakthrough medicines that improve the lives of patients around the world, our friends, our families, our communities, ourselves and I intend to do that better than anyone has ever done it before using the power of our organization, so after six weeks on the job it is a bit too early for me to give you a complete blueprint for how we will transform the Merck Research Laboratories but I can describe some of the outlines.

First, we have the opportunity to apply really significant resources to these important breakthrough programs like the PD1 antibody, and there a number of other programs that I've identified that are already benefiting from this refocusing of our interests. In addition I've concentrated quite a bit on evaluating processes and people as well as programs. my goal is to improve the productivity of the laboratories dramatically and hence to put paid to our mission to the communities that we serve, it will not be easy it never is but by focusing our attention on key programs that have unambiguous promotable advantages that Adam Schechter and his colleges can bring to the marketplace we can actually transform the lives of patients around the world much as the Mectizan program has transformed the world for patients at risk from river blindness. that’s our goal, that’s our intent, that’s what we’ll do and I look forward to discussing that with you in the months and years to come. Thank you very much.

Ken Frazier

Thank you, Roger. In addition to the recognition our scientists have received by the (inaudible) committee as mentioned previous. We are also pleased that the Pharmaceutical Research and Manufacturers’ Association also saw fit to honor our scientists.

Last year the Merck team working on our base inhibitor a potentially transformational approach to the treatment of Alzheimer’s disease was awarded the Research and hope award for biopharmaceutical research. In a world of scarce resources we know that discovering and developing products that have a significant impact is what matters most to patients and to payers. Merck’s leadership takes very seriously our mission to tackle some of healthcare's most daunting challenges like Alzheimer’s disease and to make our medicines, vaccines and products more available accessible and affordable in both developed and developing markets.

To get a sense of the magnitude of Alzheimer’s disease I’d like to share this brief video featuring a panel discussion with patients and care givers and hosted by our own Dr. Mike Rosenblatt our Chief Medical Officer so please role the Alzheimer’s video.

[Audio and Video Presentation]

The Alzheimer’s association estimates that the economic impact of this dreadful disease in the United States will reach $1 trillion by the year 2050 as this video shows however it’s more than an economic burden this insidious disease affects not only the patient but the care giver and their families. This is why we at Merck are dedicated to bring our skills and resources to the search for new treatment options. Alzheimer’s disease is truly a global challenge. To help address this and other healthcare needs around the world Merck continues to grow its business globally. We remain the fastest growing in the emerging markets as compared to our peer group. Excluding the impact of the 2011 Remicade arbitration settlement, in 2012, revenues in key emerging markets grew 13% over the prior year. Sales in China grew 22% exceeding more than $1 billion for the first time driven by many products across multiple therapeutic areas.

For the first quarter of 2013, revenues in China grew 21%. China is a growing market for Merck and last month we announced the opening of the new pharmaceutical manufacturing facility in Hangzhou, China. It will package Merck medicines for China in the Asia Pacific region and will become a critical part of Merck’s global supply chain.

We expect to see continued growth in key emerging markets in Japan from both the expansion of our own product portfolio as well as future contributions from joint ventures such as Supera Farma in Brazil which we announced last year and Simcere in China announced earlier.

As another example of our focus on partnering outside of the U.S. in February of this year we announced an agreement with Samsung not to do Smartphone’s but to develop and commercialize biosimilar candidates. This collaboration positions us both companies well to increase access to biosimilars to improve human health.

We see animal health and consumer care as important complements to our core business. We believe both are supported by very strong global trends as people around the world growing affluence protein consumption increases. In addition, as people move into the middle class around the world there is growth in the companion animal segment. We are well positioned with respect to both our production animal and companion animal segments.

Last year Merck’s animal health business grew 9% globally. That growth was supported by key product launches including ACTIVYL for fleas and ticks. In terms of consumer care, we know that there is an increasing emphasis on wellness around the world and individuals are increasingly taking charge of their own health and wellbeing. Thus our consumer care business which includes CLARITIN, COPPERTONE and the DR. SCHOLL'S for foot care line is also well positioned to capitalize in global trends and it grew revenues at 7% last year.

Both the animal health and consumer care businesses continued their growth in the first quarter of 2013 as you know we have seen in our earnings report. Our reducing costs driving growth in our broad product portfolio in key geographies and emerging markets in 2012, we were able to absorb the impacts of the challenging year, reinvest for future growth and increase shareholder value.

Despite the short term challenges facing our industry and our business, we understand the importance of returning cash to you, our shareholders and we are committed to doing so in a competitive manner. In 2012, we increased the amount of cash return to shareholders by 17% and in connection with our first quarter 2013 earnings announcement, earlier this month we announced the $15 billion expansion of our share repurchase program.

In 2012, we also achieved our merger synergy target of $3.5 billion in annual savings benefiting from those synergies while making investments designed to generate higher revenues and increase our profitability over the longer term.

Our commitment to innovating throughout our business and improving access to healthcare is woven into all we do at Merck. We also see corporate responsibility essential to the way we do business around the world. By operating this way, we provide more value to both society and shareholders by increasing our understanding of patients and customers' needs and stimulating new and boarder thinking around the company.

In addition, we remain committed to innovative and impactful philanthropic programs and to collaborating with other skilled partners who share our dedication to improving quality of life and speeding progress.

For example, last year Merck announced that we would work with the Bill & Melinda Gates Foundation to expand access to family planning, a critical step in improving the health and the independent of women around the world.

As part of Merck for mothers, our 10 year initiative to help reduce maternal mortality around the world, we pledged up to 25 million over 8 years to this effort, an amount that the Gates Foundation will match.

And last year, 13 Merck employees gained new and rewarding hands on experiences through the Richard T. Clark fellowship for World Health. Name for our previous CEO and Chairman, Dick Clark the program enables employees to share their talents, to help humanitarian organizations address the health needs of the underserved.

Our fellows benefitted from three months assignments working closely with charitable organizations in India, Bangladesh and the United States. Above all, ours is a business that requires a long term focus and Merck people have an unwavering commitment to our mission to save and improve lives around the world.

We steadfastly believe that innovative research and development is the most sustainable way to create true and enduring value for customers, patients and shareholders alike. By investing productively in the discovery and development of medicines and vaccines, we believe Merck can have a profound impact on individuals and society for years to come.

Today, Merck colleagues across the globe are honoring our legacy while energetically building our future through inventive and effective approaches to both science and business. Each year more and more lives depend on our success, in turn we know that the greater our impact on lives around the world, the more success we bring to you, our shareholders. That's a responsibility that we take very seriously. The people of Merck and I thank you for your continuing support.

Continuing now with the meeting, I note for the record that Bruce Kuhlik and Geralyn Ritter and I are members of the Proxy committee. And now I ask Ms. Ritter a Secretary to report on our quorum and other matters.

Geralyn Ritter

Chairman, proxies have been received; totaling 2,054,626,000 votes or 84.38% of the total votes entitled to be cast. This substantially exceeds the majority required for a quorum. This meeting is held pursuant to the notice of annual meeting that we began mailing on April 15th, 2013 to all shareholders of record as of April 1st, 2015.

Ken Frazier

Thank you. In accordance with the resolution of the Board dated March 26th 2013, Michael J. Barbara and William Marsh of IVS Associates Inc. are appointed as Inspectors for this meeting and have executed an oath of office to conduct the voting and canvas and receive the ballots.

In the interest of time, we will dispense with reading the minutes of our previous meeting but the minutes were available to anyone who wishes to see them. The proposals will be presented in the ordered outline in the proxy statement. There will be an opportunity for questions limited to each proposal to give everyone a chance to participate again we ask to any questions pertaining to the proposals be no longer than three minutes and at this time, please limit your questions to the specific proposal on the floor.

There will time for general questions later in the meeting. If you have a question, please raise your hand and wait to be recognized. When it is your turn, the microphone in front of you will be on and ready for use. Please speak into the microphone, identify yourself and spell your name before asking your question. If you have already mailed in your proxy or voted by telephone, or through the internet, you do not need to vote in person unless you wish to change your vote.

Please raise your hand so that ballots may be distributed to you. If your shares are held in street name and you have a legal proxy from your broker to vote your shares, you will need to take a ballot. We ask you to mark the appropriate part of your ballot after each item is presented. The inspectors will collect the ballots and legal proxies when all voting is completed. I declare the polls officially open.

The Boards nominees are Leslie A. Baun, Thomas R. Cech, Kenneth C. Frazier, Thomas H. Glocer, William B. Harrison, Jr., C. Robert Kidder, Rochelle B. Lazarus, Carlos E. Represas, Patricia F. Russo, Craig P. Thompson, Wendell P. Weeks and Peter C. Wendell for terms expiring in 2014.

I note for the record that no nomination for Director has been properly made in advance of this meeting by any shareholder of the company. Are there any questions about the election of Directors? There is a question.

Irenej Krayewsky

Good morning Mr. President. My name Irenej Krayewsky. I am the acting professor in economics and mathematic in Union County College. I also did at Essex County and Kent University. My basic question is now we are voting for the directors, I would like to note are there any of the directors on the board of other pharmaceutical company, what we call interlocking director according to antitrust law that no director shall serve on a board of other drug company which creates conflict of interest and a violation of an antitrust law. Thank you.

Ken Frazier

There are no directors of Merck & Co. Inc. who serve on the boards of other pharmaceutical directors and they are all independent within the meaning of the relevant provisions of both the SEC rules as well as the NYSE rules and other rules. So thank you very much for your question. Those shareholders voting in person should now mark their ballots for directors.

We turn now to a proposal to ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for 2013 as set forth in the proxy statement. The Board of Directors recommends a vote for this proposal. Are there any questions on this proposal? There is a question back there.

Unidentified Analyst

I know lots of people don’t like me repeating but I am glad to, the biggest question is with the Pricewaterhouse how long they have provided services for the Merck, how much they have charged the fee for the 2012? If the fee is going to be increased over the year 2013? Thank you.

Ken Frazier

I can’t tell you the exact number of years that Pricewaterhouse has served the company but it has been a significant amount of time now. We can get you that answer precisely at the end of the meeting and as for the fees they are disclosed in our proxy statement. If you are voting in person, please mark you ballots with respect to this proposal.

The next item of business is a proposal to approve by non-binding advisory vote, the compensation of our named executive officers. The board of directors recommends a vote for this proposal. Are there any questions on this proposal?

We now come to the shareholder proposal. The first shareholder proposal is from Mr. William Steiner and concerns shareholders’ right to act by written consent. Is William Steiner or an authorized representative here to introduce this proposal?

James Moore

Hello, my name is James Moore. The proposal is resolved. Shareholder’s request that our board of directors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that will be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting. This written consent includes all issues that shareholders may propose. This written consent is to be consistent with giving shareholders the fullest power to act by written consent in accordance with applicable law. The shareholders of Wet Seal successful use written consents to elect better qualified directors in October 2012. This proposal topic also won majority shareholder support at 13 major companies in a single year. This included 67% both Allstate and Sprint. Hundreds of major companies enable shareholder action by written consent.

Ken Frazier

Thank you. The Restated Certificate of Incorporation of the Company specifically prohibits shareholder action by written consent. This is to ensure that all shareholders have a voice in critical matters affecting the Company and a meaningful opportunity to exchange views with the Board before shareholder action.

Without these procedural safeguards, action by written consent may be used to accomplish wholesale amendments to the Company’s Bylaws' or other corporate actions without a meeting of shareholders. The Bylaws' of the Company require the Board to call a special shareholder meeting at the request of holders of 25% or more of the Company’s stock.

In addition, under New Jersey Corporate Law, holders of 10% or more of the Company’s stock may submit to the New Jersey Superior Court a request for a special shareholder meeting, which the court may order upon a showing of good cause.

The existing ability for shareholders to call a special meeting protects the overall interests of the Company in a balanced and fair manner, further reducing the need to allow for action by written consent in lieu of a meeting.

Finally, giving shareholders the right to act by written consent in lieu of a meeting can expose the Company to numerous consent solicitations, which would force the Company to incur significant expense and costs disruption to its operations. The Board of Directors recommends a vote against this proposal. Are there any questions on this proposal? If you’re voting in person, please mark your ballots with respect to this shareholder proposal.

The next item is a shareholder proposal for Mr. Kenneth Steiner concerning special shareowner meetings. Is Mr. Kenneth Steiner or an authorized representative here to introduce this proposal?

Kenneth Steiner

Resolved, shareowners ask our board to take the steps necessary unilaterally to the fullest extent permitted by law to amend our Bylaws' and each of appropriate governing document to give holders of 10% of our outstanding common stock or the lowest percentage permitted by law above 10%, the power to call a special shareowner meeting. This includes such bylaw and/or charter text will not have any exclusionary or prohibitive language in regard to calling a special meeting that applies only to shareowners but not to management and/or the Board to the fullest extent permitted by law. This proposal does not impact our Board’s current power to call special meeting.

Special meetings allow shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. Shareowner input on the timing of shareowner meetings is especially important when events unfold quickly and issues may become moot by the next Annual Meeting. This proposal topic won more than 60% support at CVS, Sprint and Safeway.

Ken Frazier

Again thank you for your comments. As I have mentioned earlier, the Bylaws' of the company require the board to call a special meeting of shareholder at the request of the holders of 25% or more of the company staff.

In addition, under New Jersey corporate law, holders of 10% or more of the Company’s stock may submit to the New Jersey Superior Court a request for a special shareholders meeting, which the Court may order upon a showing of good cause.

The good cause requirement protects the interests of all shareholders by allowing the holders of 10% or more of the Company’s stock to request a special meeting for legitimate purposes, including important matters that arise between annual meetings, while shielding shareholders and the Company from abuse of this right.

Absent the good cause requirement, disgruntled or special interest minority shareholders could call special meetings for frivolous or self-serving purposes at significant expense and disruption to the operations of the Company.

Additionally, New Jersey law protects the right of shareholders to be heard on critical matters by requiring shareholder approval for significant corporate actions, such as a merger or sale of substantially all of the assets of the Company. The Company’s Certificate of Incorporation also requires shareholder approval of such actions.

The Board believes that by maintaining the current approach to special meetings of the shareholders provided by New Jersey Corporate Law and by the Company’s Bylaws', the overall interests of the Company and its shareholders are protected in a balanced and fair manner. The Board of Directors recommends a vote against this proposal. Are there any questions on this specific proposal?

Unidentified Analyst

It’s not a question just a comment. I agree we deal with the concept (ph) (inaudible) because some people had some called personal gain in order to disrupt all the shareholders. We have the equal share of interest of the company and one (inaudible) ask for personal gain and add to what to special election or special meaning. Always the situation should be done if a company actually in valuation of some practice special could be a person CEO, Director could be exposed from it.

Ken Frazier

Thank you for your comments. The next item of business shareholder proposal from Dr. Donald J. Parrella concerning a report on charitable and political contributions. Is Dr. Parrella, or an authorized representative here to this proposal?

Gregory Quinlan

Good morning, I am Gregory Quinlan representing Dr. Donald Parrella of Naples, Florida. I am the President of PFOX, Parents and Friends of Ex-Gay and Gays which I am an ex-gay, and I’m the Executive Director of Equality and Justice for All. It is a nonprofit civil rights organization conceived a counter of the sexual anarchy and destruction of civil rights by certain so called civil rights organizations.

As shareholder proposal 6 states, this company has given charitable contributions to seemingly noncontroversial groups like Meals On Wheels, Save the Children, and the Boy Scouts of America which may now become a controversial organization.

Merck has also given money to plan to Planned Parenthood, the largest abortion performing organization in the country, gay and lesbian organizations trying to de-define marriage in our country, and was a sponsor of the American Society of Reproductive Medicine, which supports among other things human embryo destruction. These later recipients are involved in clearly more controversial matters, some of which are also major political issues of our day.

Planned Parenthood is the largest abortion provider in America. 78% of their clinics are in minority communities. This is not a coincidence. Blacks make up 12% of the population but 35% of all the abortions in America.

Merck by supporting Planned Parenthood is targeting Black America. Isn't that genocide? Blacks are the only minority in the country that is on the decline in population. If the current trend continues, by 2038 the black vote will be insignificant. The founder of Planned Parenthood Margaret Sanger was a devout racist who created the Negro Project designed to sterilize unknowing black women and others who she deems undesirables of society.

The founder of Planned Parenthood said colored people are like human weeds and are to be exterminated. You can find her racist remarks at blackgenocide.org. Proposal 6 also states whereas as a number of other charitable contributions went to organizations who were clearly involved in political matters. For example Merck gave money to the Center for Political Accountability for a meeting regarding the creation of a handbook on corporate political activity. In addition Merck gave money to Congressional Black Caucus Foundation, and Women's Policy Inc. which educates elected officials, whereas under the Supreme Court decision Citizen United, Merck will be giving greater latitude in supporting political candidates, resolved.

The shareholders request that independent members of the board of directors institute a comprehensive review of Merck's charitable contributions and political contributions and issue a report addressing the interrelation of both and how they will serve the overall corporate policy. To sum up Merck's charitable contributions, money that belongs to the shareholders have become acts of hate, racist hate.

It is unfathomable that a company that seeks to fight disease and serve mankind would work so diligently to kill its customer base. It is in the best interest of Merck to cease and desist much of its political motivated contributions that are also racist and inhumane.

Ken Frazier

Thank you. The company has robust corporate governance and oversight processes related to our philanthropic giving and corporate political contributions. The Board's governance, public policy and Corporate Responsibility Committee, regularly reviews the company's charitable giving priorities and programs. The same committee provides oversight of all company political contributions and public policy and advocacy activity.

The Company's corporate policy governing its political contributions and the Merck principles governing corporate and political action committee spending also provide strong guidance and both are available online on Merck's website. The company publically discloses and regularly updates information regarding its charitable contributions as well as its political spending. This information can be found through links on Merck's website.

The company has been ranked number one for two consecutive years on the CPA Zicklin index of corporate political accountability and disclosure released by the Center for Political Accountability in conjunction with the Carol and Lawrence Zicklin Center for Business Ethics research at the Wharton School of the University of Pennsylvania.

There is no relationship, none, between the Company's charitable grant making and its political contributions. They serve two entirely different purposes and are governed by separate corporate policies describing independent sets of criteria and processes.

Moreover as required under its charter the governance, public policy and Corporate Responsibility Committee of the board already monitors and evaluates contributions to charitable and political organizations. The report that the proponent requests is therefore unnecessary. The Board of Directors recommends a vote against this proposal. Are there any questions on this proposal?

Janet Brown

Janet Brown, former Merck retiree and a research chemist. I can't have him talk about Merck being against African Americans. I know the Merck foundation gave 1000 of my books, African American Women Chemists to students nationwide. They support the United Negro College funds. They have many Merck employees who are researchers and chemists and they help people all over. These people are involved and I was involved with a committee to go and find African American scientists and whatever. I cannot have him say we're trying to kill African Americans. No way is Merck doing this. Sorry about that.

Ken Frazier

Thank you for your comments. There's another question over here.

Louise Wuisniewski

Yes, my name is Louise Wuisniewski. I am not questioning the transparency of Merck and its release of it gives charitably. I question the very strong controversial gift giving; for instance Planned Parenthood and as had been stated the highest abortion providing group in this country. It kind of seems against providing medicines to help humanity and destroy humanity regardless of any other reasons or groups that it takes care of. Primarily I feel the abortion end of Planned Parenthood is much too strong for Merck to support.

Ken Frazier

Thank you. I appreciate your views. I should point out that matching gifts programs essentially respect our employee’s views on this issue. If you are voting in person please mark your ballots with respect to this proposal, oh I am sorry did I miss a question? I am sorry. I apologize.

Jim White

Good morning Mr. Chairman my name is Jim White, shareholder long time at Merck and I agree with Dr. Parrella whose statistics, it’s sad but true and I would just suggest we evaluate what we give to and understand that they are consistent with our views of preserving and protecting life. Thank you very much.

Ken Frazier

Thank you. If you are voting in person please mark your ballots with respect to this proposal. The last item of business is a shareholder proposal for the national center for public policy research concerning a report on lobbying activities. Is an authorized representative of the national center for public policy research here to introduce this proposal?

Justin Danhof

My name is Justin Danhof and I represent the National Center for Public Policy Research. We are asking for a simple Annual Report on the Company's cost priorities outcome and effects of its lobbying activities. As shareholders of Merck we support transparency and accountability regarding the Company’s public policy activities. The company is a member of the Pharmaceutical Researchers and Manufacturers Association which we highlighted an award that they gave us this year.

Pharma dedicated however $150 million to conduct advertising campaign that contributed in large part to the passage of the Patient Protection and Affordable Care Act, commonly known as Obamacare. Obamacare increases the federal government’s involvement in the sale of healthcare services and products including company products. The company played a major role in the passage of Obamacare. The Wall Street Journal has described Pharma’s active participation in that legislation as a story of crony capitalism and adds that it is clear that Obamacare might never have passed without the drug companies. They also note that Pharma’s $150 million ad campaign was coordinated with the White House political shop.

Obamacare will affect Merck. The law includes a $2.3 million annual tax on the industry that will be assessed on the companies based on its share of sales. Obamacare continues to be controversial. A majority of Americans in a recent poll said they would like to go back to pre-Obamacare American Healthcare System.

A public opinion poll of another prominent Pharma member that was conducted by my organization Freedom Works found that that Company’s public policy advocacy harmed the Company’s reputation specifically at support of Obamacare. The Company’s favorability among conservatives fell from 69% to 19% and 60% to 8% among tea party activists after they were informed that the Company's lobbying for progressive legislation including Obamacare.

Merck’s current lobbying disclosures are simply inadequate and even misleading on this point. The Company’s website states that healthcare reform should rely on market-based competition to improve quality, control costs and continue to encourage the innovation that has made the U.S. system so remarkable. However Obamacare increases the federal government’s role in the healthcare system and stifles competitions. The Company’s lobbying position in favor of Obamacare directly conflicts with this clear statement on the Company’s website.

Merck allocates significant resources to public policy advocacy and shareholders have a right to know that the policy that dictates the Company’s public policy positions and legislative and regulatory outcomes of its lobbying activities. Thank you.

Ken Frazier

Thank you. The Board is dedicated to the highest standard of legal compliance, ethical behavior and transparency to the public. Government proposals to regulate the healthcare system may directly affect the Company's business and incentives for pharmaceutical innovation. Government policy initiatives can also have a significant effect on patient access to medicines, vaccines and healthcare insurance coverage.

The company is committed to participating constructively and responsibly in a policy making process and to providing clarifying analysis and information on issues that affect our business and patient care. As described on our website, our participation in the public policy debate is focused on two key objectives of encouraging innovation and improving patient access to healthcare. The Company’s policy positions are determined by senior management with active oversight by the Board’s governance, public policy and corporate responsibility committee.

The Company’s political contributions are made in accordance with the Company’s policies and procedures also overseen by senior management. The Board’s governance, public policy and Corporate Responsibility Committee also monitors and evaluates all such contributions. The company publicly discloses and regularly updates information regarding its public policy positions and advocacy expenditures. This information can be found through links on Merck’s websites.

As I mentioned earlier, the Company has been ranked number one for two consecutive years on the CPA-Zicklin Index of Corporate Political Accountability and Disclosure. In addition, the Company strictly complies with the disclosure obligations imposed by the numerous federal state and local laws that regulate the Company’s political contributions and expenditures at all levels.

The Board believes that the company already substantially complies with the demands of the shareholder proposal through a combination of voluntary disclosure on the Company’s website and the company’s legally mandated public disclosure.

Therefore, the Board believes that producing the report requested by this proposal would be an unnecessary and unproductive use of the Company’s resources which would not be in the best interest of the company or shareholders.

The Board of Directors recommends a vote against this proposals. Are there any questions on this proposal? If you are voting in person, please mark you ballots with respect to this proposal. Since this completes the voting, the inspectors may now collect the ballots and legal proxies and tabulate the votes. I declare the polls officially closed.

Now, I will be pleased to answer any questions you may have this morning. Please raise your hand and wait to be recognized. I will try to answer as many questions as possible, but in order to do so, I must remind you that we will limit each question to a maximum of three minutes. When you are recognized, please speak into the microphone and identify yourself before asking your question.

Question-and-Answer Session

Irenej Krayewsky

This is Professor Krayewsky again. Are there any future pipeline that not presented in your video that actually for 2014 or the following yea, actual price on the table? No doubt information will be available next year.

Ken Frazier

On our pipeline? So our most recent disclosure on our pipeline is available in our 10-Q and I think we have no more updates beyond that. We’ve talked about some of our filings here, we’ve talked about when Roger was here, some of the products that we’re very excited about for example odanacatib for osteoporosis, anti-PD-1 antibody for cancer. We’ve talked about Base, our potentially revolutionary approach to Alzheimer's. These are important programs and these are the kinds of important programs that are going to be important to our future. As you know under review now, we already have a drug like our sleep compound, Suvorexant.

So we have a number of molecules under regulatory review and shortly hopefully to be submitted for regulatory review which obviously is the important future growth driver for this company. Thank you.

Jessica Reinhart

Hello, my name is Jessica Reinhart, I’m Merck shareholder. I’m with the AIDS Healthcare Foundation and my question is in regards to the HIV drug ISENTRESS. Merck has previously lowered the price for ISENTRESS for AIDS drug assistance programs known as ADAPs. In December 2011, AIDS healthcare foundation, we sent a press release congratulating the company on your leadership in offering the price reduction. This price reduction expires at the end of this year December 2013 and that same price that was offered to ADAPs is now offered to other government from that programs like Medicare and Medicaid.

My question is do you plan on extending the price freeze and making that applicable to all government tax payer funded programs such as Medicare and Medicaid? With the role of the Affordable Care Act Merck will gain thousands of new patients and patients will be transitioning from ADAP programs to Medicaid. So, it’s important that Merck lower the prices for these programs.

Ken Frazier

Thank you for your question. As you noted we price all of our products including our HIV AIDS medications fairly and responsibly. We are committed to providing patients living with HIV AIDS, a horrible disease with access to our antiretroviral medicines. The challenge of course is vast and strategies for affectively and sustainably addressing this problem require the combined efforts of all kinds of stakeholders including and in particular country governments, national, state and local governments and I’m pleased to say that in 2010 the Obama administration looked to refocus efforts in the U.S. through the HIV-ADIS national strategy.

Turning to the ADAPs, in the U.S. the AIDS Drug Assistant Programs or ADAPs, we recognize the struggle to meet growing needs. Over the last two decades we’ve lowered or frozen the price of our antiretrovirals four times.

Since 2010 Merck’s has worked with (inaudible) to offer immediate access to no cost HIV medicines to patients in an ADAP waiting list. We also continue to offer support for eligible patients through Merck’s comprehensive patient assistance program and co-pay assistance program.

What I can assure you is that our commitment to patients' access to our products will continue. We’ll continent to try to find new and innovative ways of getting our medications to those patients but in a sustainable way because I often remind people when I speak here and also overseas where often the pandemic has its hardest impact that we have to continue to do our part also as an innovator.

So you will hear that we will continue to invest significant money in the search for a new and better HIV medications and so we are trying to optimize that access as well as the amount that we can invest in research in a sustainable way. S thank you for your question.

Gerard Kenslea

My name is Gerard Kenslea. I am a shareholder. I also am with the AIDS Healthcare Foundation and first I actually want to compliment you on a couple of things. 35 years ago as a college student when most of my peers were working as waiters and waitresses or bartenders, I actually worked for part Planned Parenthood. I had a part time job and I would like to point out that Planned Parenthood is one of the largest mechanisms that women can get birth control, which is an important mechanism of preventing the need for abortion. So I appreciate your contributions to Planned Parenthood. Also your work on River Blindness and Merck for Mothers that like the Planned Parenthood has the potential to be a complicated decision. So kudos for that.

I am actually here to speak this morning really about your new Hepatitis C drug MK-5172 that you are working on in collaboration with BMS. I know that you've had good successes reported clinically a few weeks ago about that drug but I am concerned about the possible pricing of that drug and just so you know, I am an equal opportunity offender. I was three weeks ago at the Gilead AGM taking a shot as well at them but it seems that the price for this drug is approaching or could be approaching a $100,000 per patient per year.

We are at a point where as you had mentioned, the changing landscape of healthcare with the Affordable Care Act, the U.S. government purchases almost 70% of drugs in this country for programs like Medicare, Medicaid, the VA et cetera.

Following up on Ms. Reinhart 's question on that, with regard to possibly extending the price cuts for the ISENTRESS drug what's going to happen with the roll out of the Affordable Care Act is ADAP will be going away and those patients will be getting their drugs through Medicaid there as well.

So a lower of price for ADAP is not going to do a good thing on that regard and so my major question is really the pricing on the HCV drug which the retail that we have been having is close to a $100,000 for the different companies and then expanding access across the Board to the other government programs and I'd like to not hear about patient assistance programs because we see through ADAP, how many people fall through the safety net because of the in efficiencies of the patient assistance programs. Thank you very much.

Ken Frazier

Thank you for your question and it's an important concern that you are raising. So let me start by saying we have high hopes for 5172, that it will work, will come to the market, it will make a huge difference to Hepatitis C patients the way that Victrelis has. I can't say what the pricing will be for that drug. We haven't even begun to think about that but I can assure you that we take your concern seriously.

I think anyone who understands the history of this company knows that we were the first company to step out and decide that we were going to have differential pricing for HIV medications. No one else in the industry had done that before Merck. So, we have and intend to continue our tradition of acting both responsibly with respect to access and sustainably with respect to innovation going forward.

So, that's all I can say. We try not to maximize profit but to optimize the ability to continue to invest in the next generation of medicines which is not easy. As you know we spend over $8 billion a year in R&D and most of that R&D as Roger was saying, unfortunately a lot of that is the cause to failure. The cost of success and experimentation requires a significant amount of failure. So we have to optimize the excess, while at the same time, providing ourselves a sustainable way to do the innovation that we need to bring the next generation of important medicines for Hepatitis C, HIV, Alzheimer's, Cancer and a whole host of horrible diseases to the world.

So thank you very much for your question, I want you to know that we take that very seriously.

Gerard Kenslea

To clarify proposal six, I wanted to make clear that we were talking about the contributions to Planned Parenthood directly. Obviously it's very impressive what Merck has done for the African American community or obviously Mr. Frazier wouldn’t be here, appreciate that. But the issue is, it's not those who have actually reaped the benefit, African Americans at Merck but those who have been prevented from ever seeing life to read those benefits. By the way, I'd love a copy of your book. I'd like to how I could get one. All right good.

Ken Frazier

Thank you, we've had a breakthrough.

Unidentified Analyst

As a chemist, I had participated in a webinar on Super Bugs antibiotic research, having worked on the team that worked on Primaxin which I think is still on the market. Are you working on antibiotic research? This is kind of personal for me because as a survivor of chronic lymphocytic leukemia, my immune system may be jeopardized and if I should get a disease I want to make a sure there is a plenty of Merck antibiotics that will help me survive and write the next book.

Ken Frazier

So thank you for your comment. I think it actually illustrates the point I was making about sustainability a minute ago. One of the challenges around the pricing of pharmaceuticals is that they have to be priced at a level that sustains future research and I think one of concerns about commoditization of antibiotic prices around the world is that a lot of people have decided that that’s not an area of research that’s worth taking the risk and high burden of expense associated with it because people want to commoditize the drugs as soon as they come to the market.

I can assure you that drugs happen to do with antibiotics, antifungals, other areas that require acute hospital care remain a primary focus of this company. It's been a big part of our history scientifically and we will continue to explore all the promising leads that we have in that area. So thank you very much for your question.

Justin Danhof

My name is Justin Danhof. I still represent the National Center for Public Policy Research. Mr. Frazier, for the first time in three years I am not going to ask you about Obamacare. So you are welcome. Back on May 7th, I spoke with Eli Lilly CEO Dr. John Lechleiter about an Obama administration proposal that could dramatically affect the pharmaceutical industry and I just want to get your take-on the proposal today.

President Obama has repeatedly proposed, including in his State of the Union address this year, a plan to force drug companies to give the rebates that they give to Medicaid beneficiaries to low income Medicare recipients. This is called dual eligibles. The White House has claimed that this cut cost to the government but at what cost to innovation that we have talked about a bunch today in the public?

According to Dr. Lechleiter, if enacted, the President’s plan would have catastrophic consequences on the industry. He estimated to me that it would cost the pharmaceutical industry between $100 billion and $135 billion and the industry would likely spend on an average 50 billion less on drug innovation, what he called an unacceptable cut. So my question is simply do you agree with Dr. Lechleiter about President Obama’s dual eligibles plan and if not, where do you differ and what you see as the impact this proposal would have on the industry?

Ken Frazier

So that’s an answer I can answer succinctly. Absolutely I agree with Dr. Lechleiter’s question. It's a big concern for us. When we supported the Part D Program, going back to the time when President Bush was in the office, that’s where we have said it was important for us to have a market base mechanism and if we allow people on Medicare to become inevitably patients on Medicaid, we have again removed a lot of the financial incentive for the work that we do the important work we do in our labs

I won’t comment on the specific numbers but I will say that John’s position and John just stepped down as the chairman of Pharma, we 100% endorse and we make that point clear every time we are on the hill. So, I just want to say to you and everyone else, the positions that we take are not because we don’t see both side of issues with respect to the Affordable Care Act or the Part D Benefit. We think it’s very important for us to maintain the incentives in the system that will allow the company like Merck to go after things like Alzheimer’s and cancers and to take these risks.

It takes 15 years on average from discovery to a drug getting to the FDA and as you know in order for us to be able to attract the capital from people like the people in this audience, we need to show that there will not only a scientific opportunity, but we also want to make sure that there is a functioning market and I would say at the end, we are very pleased with the success of the Medicare Part D program. So thank you very much. I’ll take one more question.

Mohindar Puar

This is Mohindar Puar. I am a former employee of Sherry. Of course now of Merck, retiree and I have worked in pharmaceutical industry as a researcher for 35 years. I appreciate the efforts of research industry bringing pharmaceutically important compounds to the marketplace so that the life can be improved as far as the public is concerned throughout the world. And I am not having heard quite a few number of statements from very distinguished people, I like to bring the question to local area. Closing the Raritan facility will have a very serious impact on the economy of Raritan Township. Are we considering something so that they are not left empty handed when you close out the facility please? Thank you very much.

Ken Frazier

Thank you for your question. So the decision that we have made to move our corporate headquarters to Summit, New Jersey was a difficult decision. It’s one that we intend to work with the community on, but our decision to move to a site that we have in Summit was made because frankly we didn’t need as much space because the building would require significant amount of capital to stay open and importantly as a global company it was really important for us to locate our headquarters close to global transportation hub like Newark Airport. So those were reasons and again I underscore that we realize that that’s a difficult decision and we continue to try to work with the community to mitigate the impact.

So, I want to proceed with the rest of the meeting and thank you for your questions. The final report of the Inspectors of Election will not be available today. We do however have a Preliminary Report which I now ask Ms. Ritter to present.

Geralyn Ritter

Thank you, Mr. Frazier. The Inspectors of Election have presented their Preliminary Report. They have determined that each of the 12 directors nominated by the Board has been elected by a majority of the votes cast and the Audit Committee’s request for ratification of PricewaterhouseCoopers LLP as the independent registered public accounting firm has been approved.

Shareholders approved by a nonbinding advisory vote the 2012 compensation of our named executive officers. The proposal received an affirmative vote of 88.7% of the total votes cast. A majority of votes cast was required for this proposal to be approved.

The inspectors have determined that the shareholder proposal concerning shareholders right to act by written consent has received an affirmative vote of 41.2% of the total votes cast.

The shareholder proposal concerning special shareholder meetings has received an affirmative vote of 33.9% of the total votes cast.

The shareholder proposal concerning a report on charitable and political contributions has received an affirmative vote of 3.4% of the total votes cast.

And finally, the shareholder proposal concerning a report on lobbying activities has received an affirmative vote of 3.8% of the total votes cast.

Now, the final results will be available Friday on the Company’s toll free telephone number 1-800-225-5675 and also on the Company’s website www.merck.com under Investors along with an achieved webcast of this meeting. We also intend to disclose the final voting results on Form 8-K within four business days of the meeting. Thank you.

Ken Frazier

Thank you, Ms. Ritter. The business of this meeting has now been completed. The final matter before you is to conclude the meeting. So all those in favor say yes, oppose no. I declare that this meeting has concluded. Thank you and travel safely.