Merck

Merck - Drug Woes Negatively Affect 3Q05 Results

The following is a summary of our full-length report on this topic, dated
October 25, 2005.

* Near Term Sales Pressure from Key Patent Expirations:
   Sales of Zocor, an anti-cholesterol drug whose patent expires in mid-2006,
   declined 15% to $3.3 billion. Fosamax, a main contributor to 3Q05 sales,
   faces patent expiration in 2008.

* 3Q05 Sales and Earnings Declined:
   3Q05 sales declined 2.2% to $5.4 billion; excluding the impact of Vioxx,
   sales increased 1%. Operating earnings declined 0.5% to $1.5 billion and    was 27.6% of sales, a 50 bps improvement from 3Q04. Declining Zocor sales are likely to result in flat to negative 4Q05 sales, while higher SG&A
   will pressure earnings.

* We Maintain Our Underperform Opinion:
   MRK spreads have widened, but given uncertainty of Vioxx litigation,
   we do not view MRK bonds as cheap. We maintain our Underperform opinion.

Source: UBS