10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to         

Commission File No. 1-6571

Merck & Co., Inc.

One Merck Drive

Whitehouse Station, N.J. 08889-0100

(908) 423-1000

Incorporated in New Jersey	I.R.S. Employer
	Identification No. 22-1918501

The number of shares of common stock outstanding as of the close of business on October 31, 2012:    3,040,071,937

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨    No þ

Part I - Financial Information

Item 1. Financial Statements

MERCK & CO., INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF INCOME

(Unaudited, $ in millions except per share amounts)

	Three Months Ended       September 30,				Nine Months Ended       September 30,
	2012		2011		2012		2011
Sales	$	11,488	$	12,022	$	35,530	$	35,753
Costs, Expenses and Other
Materials and production		4,137		4,352		12,286		12,695
Marketing and administrative		3,063		3,340		9,386		10,029
Research and development		1,918		1,954		5,944		6,048
Restructuring costs		110		119		473		773
Equity income from affiliates		(158)		(161)		(410)		(354)
Other (income) expense, net		200		66		446		809
		9,270		9,670		28,125		30,000
Income Before Taxes		2,218		2,352		7,405		5,753
Taxes on Income		455		628		2,055		904
Net Income	$	1,763	$	1,724	$	5,350	$	4,849
Less: Net Income Attributable to Noncontrolling Interests		34		32		89		89
Net Income Attributable to Merck & Co., Inc.	$	1,729	$	1,692	$	5,261	$	4,760
Basic Earnings per Common Share Attributable to Merck & Co., Inc. Common Shareholders	$	0.57	$	0.55	$	1.73	$	1.54
Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders	$	0.56	$	0.55	$	1.71	$	1.53
Dividends Declared per Common Share	$	0.42	$	0.38	$	1.26	$	1.14

The accompanying notes are an integral part of this consolidated financial statement.

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MERCK & CO., INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Unaudited, $ in millions)

	Three Months Ended       September 30,				Nine Months Ended       September 30,
	2012		2011		2012		2011
Net Income Attributable to Merck & Co., Inc.	$	1,729	$	1,692	$	5,261	$	4,760
Other Comprehensive Income Net of Taxes:
Net unrealized (loss) gain on derivatives, net of reclassifications		(143)		60		(99)		(77)
Net unrealized gain (loss) on investments, net of reclassifications		32		(6)		62		(11)
Benefit plan net gain and prior service cost, net of amortization		27		31		45		59
Cumulative translation adjustment		170		(22)		84		532
		86		63		92		503
Comprehensive Income Attributable to Merck & Co., Inc.	$	1,815	$	1,755	$	5,353	$	5,263

The accompanying notes are an integral part of this consolidated financial statement.

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MERCK & CO., INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Unaudited, $ in millions except per share amounts)

	September 30,  2012		December 31,  2011
Assets
Current Assets
Cash and cash equivalents	$	17,360	$	13,531
Short-term investments		757		1,441
Accounts receivable (net of allowance for doubtful accounts of $163 in 2012 and $131 in 2011)		7,952		8,261
Inventories (excludes inventories of $1,446 in 2012 and $1,379 in 2011 classified in Other assets - see Note 6)		6,731		6,254
Deferred income taxes and other current assets		3,429		3,694
Total current assets		36,229		33,181
Investments		5,560		3,458
Property, Plant and Equipment, at cost, net of accumulated depreciation of $17,475 in 2012 and $16,176 in 2011		15,884		16,297
Goodwill		12,168		12,155
Other Intangibles, Net		30,325		34,302
Other Assets		6,135		5,735
	$	106,301	$	105,128
Liabilities and Equity
Current Liabilities
Loans payable and current portion of long-term debt	$	2,029	$	1,990
Trade accounts payable		1,804		2,023
Accrued and other current liabilities		8,923		10,170
Income taxes payable		1,512		781
Dividends payable		1,315		1,281
Total current liabilities		15,583		16,245
Long-Term Debt		17,571		15,525
Deferred Income Taxes and Noncurrent Liabilities		14,935		16,415
Merck & Co., Inc. Stockholders’ Equity
Common stock, $0.50 par value
Authorized - 6,500,000,000 shares
Issued - 3,577,103,522 shares in 2012 and 2011		1,788		1,788
Other paid-in capital		40,471		40,663
Retained earnings		40,390		38,990
Accumulated other comprehensive loss		(3,040)		(3,132)
		79,609		78,309
Less treasury stock, at cost:
532,699,267 shares in 2012 and 536,109,713 shares in 2011		23,862		23,792
Total Merck & Co., Inc. stockholders’ equity		55,747		54,517
Noncontrolling Interests		2,465		2,426
Total equity		58,212		56,943
	$	106,301	$	105,128

The accompanying notes are an integral part of this consolidated financial statement.

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MERCK & CO., INC. AND SUBSIDIARIES

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited, $ in millions)

	Nine Months Ended   September 30,
	2012		2011
Cash Flows from Operating Activities
Net income	$	5,350	$	4,849
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,317		5,566
Intangible asset impairment charges		176		461
Equity income from affiliates		(410)		(354)
Dividends and distributions from equity affiliates		181		186
Deferred income taxes		(283)		(974)
Share-based compensation		257		287
Other		(34)		(207)
Net changes in assets and liabilities		(2,341)		(664)
Net Cash Provided by Operating Activities		8,213		9,150
Cash Flows from Investing Activities
Capital expenditures		(1,176)		(1,120)
Purchases of securities and other investments		(6,891)		(4,686)
Proceeds from sales of securities and other investments		5,607		4,740
Dispositions of businesses, net of cash divested		-		323
Acquisitions of businesses, net of cash acquired		-		(373)
Other		53		(90)
Net Cash Used in Investing Activities		(2,407)		(1,206)
Cash Flows from Financing Activities
Net change in short-term borrowings		(280)		1,356
Proceeds from issuance of debt		2,504		-
Payments on debt		(4)		(1,277)
Purchases of treasury stock		(1,439)		(1,359)
Dividends paid to stockholders		(3,836)		(3,526)
Proceeds from exercise of stock options		1,060		194
Other		(54)		(61)
Net Cash Used in Financing Activities		(2,049)		(4,673)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		72		82
Net Increase in Cash and Cash Equivalents		3,829		3,353
Cash and Cash Equivalents at Beginning of Year		13,531		10,900
Cash and Cash Equivalents at End of Period	$	17,360	$	14,253

The accompanying notes are an integral part of this consolidated financial statement.

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Notes to Consolidated Financial Statements (unaudited)

1. Basis of Presentation

The accompanying unaudited interim consolidated financial statements of Merck & Co., Inc. (“Merck” or the “Company”) have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements are not included herein. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Merck’s Form 10-K filed on February 28, 2012.

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. In the Company’s opinion, all adjustments necessary for a fair presentation of these interim statements have been included and are of a normal and recurring nature.

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Recently Adopted Accounting Standards

In the first quarter of 2012, the Company retrospectively adopted amended guidance issued by the Financial Accounting Standards Board (the “FASB”) on the presentation of comprehensive income in financial statements. As a result of adopting this standard, the Company has presented a separate Statement of Comprehensive Income. The adoption of this new guidance did not impact the Company’s financial position, results of operations or cash flows.

Recently Issued Accounting Standards

In July 2012, the FASB issued amended guidance that simplifies how an entity tests indefinite-lived intangibles for impairment. The amended guidance will allow companies to first assess qualitative factors to determine whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. The updated guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is currently evaluating the impact of adoption on its financial position and results of operations.

2. Restructuring

Merger Restructuring Program

In February 2010, subsequent to the Merck and Schering-Plough Corporation (“Schering-Plough”) merger (the “Merger”), the Company commenced actions under a global restructuring program (the “Merger Restructuring Program”) in conjunction with the integration of the legacy Merck and legacy Schering-Plough businesses. This Merger Restructuring Program is intended to optimize the cost structure of the combined company. In July 2011, the Company announced the latest phase of the Merger Restructuring Program during which the Company expects to reduce its workforce measured at the time of the Merger by an additional 12% to 13% across the Company worldwide. A majority of the workforce reductions in this phase of the Merger Restructuring Program relate to manufacturing (including Animal Health), administrative and headquarters organizations. Previously announced workforce reductions of approximately 17% in earlier phases of the program primarily reflect the elimination of positions in sales, administrative and headquarters organizations, as well as from the sale or closure of certain manufacturing and research and development sites and the consolidation of office facilities. The Company will continue to hire employees in strategic growth areas of the business as necessary. The Company will also continue to pursue productivity efficiencies and evaluate its manufacturing supply chain capabilities on an ongoing basis which may result in future restructuring actions.

The Company recorded total pretax restructuring costs of $150 million and $255 million in the third quarter of 2012 and 2011, respectively, and $718 million and $1.2 billion in the first nine months of 2012 and 2011, respectively, related to this program. Since inception of the Merger Restructuring Program through September 30, 2012, Merck has recorded total pretax accumulated costs of approximately $5.8 billion and eliminated approximately 20,750 positions comprised of employee separations, as well as the elimination of contractors and vacant positions. The restructuring actions under the Merger Restructuring Program are expected to be substantially completed by the end of 2013, with the exception of certain actions, principally manufacturing-related, which are expected to be substantially completed by 2016. The Company now expects the estimated total cumulative pretax costs for this program to be approximately $7.2 billion to $7.5 billion. The increase from original estimates primarily reflects accelerated depreciation related to additional facility closures identified during the Company’s ongoing assessment of worldwide capacity requirements for its manufacturing, research and administrative facilities subsequent to the Merger, including the recently announced move of the Company’s worldwide headquarters to Summit, New Jersey. The Company estimates that approximately two-thirds of the cumulative pretax costs relate to cash outlays, primarily related to employee separation expense. Approximately

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Notes to Consolidated Financial Statements (unaudited) (continued)

one-third of the cumulative pretax costs are non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested.

2008 Global Restructuring Program

In October 2008, Merck announced a global restructuring program (the “2008 Restructuring Program”) to reduce its cost structure, increase efficiency, and enhance competitiveness. As part of the 2008 Restructuring Program, the Company expects to eliminate approximately 7,200 positions — 6,800 active employees and 400 vacancies — across the Company worldwide. Pretax restructuring costs of $13 million and $20 million were recorded in the third quarter of 2012 and 2011, respectively, and $23 million and $25 million were recorded in the first nine months of 2012 and 2011, respectively, related to the 2008 Restructuring Program. Since inception of the 2008 Restructuring Program through September 30, 2012, Merck has recorded total pretax accumulated costs of $1.6 billion and eliminated approximately 6,400 positions comprised of employee separations and the elimination of contractors and vacant positions. The 2008 Restructuring Program was substantially completed in 2011, with the exception of certain manufacturing-related actions, which are expected to be completed by 2015, with the total cumulative pretax costs estimated to be up to $2.0 billion. The Company estimates that two-thirds of the cumulative pretax costs relate to cash outlays, primarily from employee separation expense. Approximately one-third of the cumulative pretax costs are non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested.

For segment reporting, restructuring charges are unallocated expenses.

The following tables summarize the charges related to Merger Restructuring Program and 2008 Restructuring Program activities by type of cost:

	Three Months Ended September 30, 2012										Nine Months Ended September 30, 2012
($ in millions)	Separation Costs			Accelerated Depreciation			Other		Total		Separation Costs			Accelerated Depreciation		Other		Total
Merger Restructuring Program
Materials and production	$	-		$	42		$	13	$	55	$	-		$	75	$	50	$	125
Marketing and administrative		-			16			3		19		-			59		5		64
Research and development		-			(33	) (1)		1		(32)		-			49		5		54
Restructuring costs		59			-			49		108		363			-		112		475
		59			25			66		150		363			183		172		718
2008 Restructuring Program
Materials and production		-			1			4		5		-			4		15		19
Marketing and administrative		-			6			-		6		-			6		-		6
Restructuring costs		(1	)		-			3		2		(12	)		-		10		(2)
		(1	)		7			7		13		(12	)		10		25		23
	$	58		$	32		$	73	$	163	$	351		$	193	$	197	$	741

	Three Months Ended September 30, 2011									Nine Months Ended September 30, 2011
($ in millions)	Separation Costs		Accelerated Depreciation		Other			Total		Separation Costs			Accelerated Depreciation		Other			Total
Merger Restructuring Program
Materials and production	$	-	$	81	$	7		$	88	$	-		$	233	$	12		$	245
Marketing and administrative		-		22		9			31		-			67		10			77
Research and development		-		27		1			28		-			107		(18	)		89
Restructuring costs		63		-		45			108		670			-		95			765
		63		130		62			255		670			407		99			1,176
2008 Restructuring Program
Materials and production		-		10		(1	)		9		-			16		1			17
Restructuring costs		5		-		6			11		(3	)		-		11			8
		5		10		5			20		(3	)		16		12			25
	$	68	$	140	$	67		$	275	$	667		$	423	$	111		$	1,201

⁽¹⁾  In the third quarter of 2012, the Company recorded an adjustment to accelerated depreciation costs included in research and development expenses revising previously recorded amounts for certain facilities.

Separation costs are associated with actual headcount reductions, as well as those headcount reductions which were probable and could be reasonably estimated. In the third quarter of 2012 and 2011, approximately 525 positions and 1,300 positions, respectively, were eliminated under the Merger Restructuring Program and

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Notes to Consolidated Financial Statements (unaudited) (continued)

approximately 10 and 110 positions, respectively, were eliminated under the 2008 Restructuring Program. In the first nine months of 2012 and 2011, approximately 2,325 positions and 2,635 positions, respectively, were eliminated under the Merger Restructuring Program and approximately 150 positions and 290 positions, respectively, were eliminated under the 2008 Restructuring Program. These position eliminations were comprised of actual headcount reductions and the elimination of contractors and vacant positions.

Accelerated depreciation costs primarily relate to manufacturing, research and administrative facilities and equipment to be sold or closed as part of the programs. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the revised useful life of the site, based upon the anticipated date the site will be closed or divested, and depreciation expense as determined utilizing the useful life prior to the restructuring actions. All of the sites have and will continue to operate up through the respective closure dates, and since future cash flows were sufficient to recover the respective book values, Merck was required to accelerate depreciation of the site assets rather than write them off immediately. Anticipated site closure dates, particularly related to manufacturing locations, have been and may continue to be adjusted to reflect changes resulting from regulatory or other factors.

Other activity in 2012 and 2011 includes asset abandonment, shut-down and other related costs. Additionally, other activity includes employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans (see Note 13) and share-based compensation costs.

The following table summarizes the charges and spending relating to Merger Restructuring Program and 2008 Restructuring Program activities for the nine months ended September 30, 2012:

($ in millions)	Separation Costs		Accelerated Depreciation		Other		Total
Merger Restructuring Program
Restructuring reserves January 1, 2012	$	1,144	$	-	$	51	$	1,195
Expense		363		183		172		718
(Payments) receipts, net		(742)		-		(131)		(873)
Non-cash activity		-		(183)		(74)		(257)
Restructuring reserves September 30, 2012 (1)	$	765	$	-	$	18	$	783
2008 Restructuring Program
Restructuring reserves January 1, 2012	$	126	$	-	$	-	$	126
Expense		(12)		10		25		23
(Payments) receipts, net		(19)		-		(8)		(27)
Non-cash activity		-		(10)		(17)		(27)
Restructuring reserves September 30, 2012 (1)	$	95	$	-	$	-	$	95

⁽¹⁾  The cash outlays associated with the Merger Restructuring Program are expected to be substantially completed by the end of 2013 with the exception of certain actions, principally manufacturing-related, which are expected to be substantially completed by 2016. The cash outlays associated with the remaining restructuring reserves for the 2008 Restructuring Program are primarily manufacturing-related and are expected to be completed by the end of 2015.

Legacy Schering-Plough Program

Prior to the Merger, Schering-Plough commenced a Productivity Transformation Program which was designed to reduce and avoid costs and increase productivity. The Company recorded accelerated depreciation costs included in Materials and production costs of $2 million for the third quarter of 2011 and $4 million and $18 million for the first nine months of 2012 and 2011, respectively. The remaining reserve associated with this program, which is substantially complete, was $17 million at September 30, 2012.

3. Acquisitions, Divestitures, Research Collaborations and License Agreements

In April 2012, the Company entered into an agreement with Endocyte, Inc. (“Endocyte”) to develop and commercialize Endocyte’s novel investigational therapeutic candidate vintafolide (MK-8109). Vintafolide is currently being evaluated in a Phase III clinical trial for platinum-resistant ovarian cancer (PROCEED) and a Phase II trial for non-small cell lung cancer. Under the agreement, Merck gained worldwide rights to develop and commercialize vintafolide. Endocyte received a $120 million upfront payment, which the Company recorded in Research and development expenses in the second quarter of 2012, and is eligible for milestone payments of up to

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Notes to Consolidated Financial Statements (unaudited) (continued)

$880 million based on the successful achievement of development, regulatory and commercialization goals for vintafolide for a total of six cancer indications. In addition, if vintafolide receives regulatory approval, Endocyte will receive an equal share of the profit in the United States as well as a royalty on sales of the product in the rest of the world. Endocyte has retained the right to co-promote vintafolide with Merck in the United States and Merck has the exclusive right to promote vintafolide in the rest of world. Endocyte will be responsible for the majority of funding and completion of the PROCEED trial. Merck will be responsible for most other development activities, all other costs and will have most decision rights for vintafolide. Merck has the right to terminate the agreement on 90 days notice. Merck and Endocyte both have the right to terminate the agreement due to the material breach or insolvency of the other party. Endocyte has the right to terminate the agreement in the event that Merck challenges an Endocyte patent right relating to vintafolide. Upon termination of the agreement, depending upon the circumstances, the parties have varying rights and obligations with respect to the continued development and commercialization of vintafolide and, in the case of termination for cause by Merck, certain royalty obligations and U.S. profit and loss sharing.

In May 2011, Merck completed the acquisition of Inspire Pharmaceuticals, Inc. (“Inspire”), a specialty pharmaceutical company focused on developing and commercializing ophthalmic products. Under the terms of the merger agreement, Merck acquired all outstanding shares of common stock of Inspire at a price of $5.00 per share in cash for a total of approximately $420 million. The transaction was accounted for as an acquisition of a business; accordingly, the assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date. The determination of fair value requires management to make significant estimates and assumptions. In connection with the acquisition, substantially all of the purchase price was allocated to Inspire’s product and product right intangible assets and related deferred tax liabilities, a deferred tax asset relating to Inspire’s net operating loss carryforwards, and goodwill. This transaction closed on May 16, 2011, and accordingly, the results of operations of the acquired business have been included in the Company’s results of operations since the acquisition date. Pro forma financial information has not been included because Inspire’s historical financial results are not significant when compared with the Company’s financial results.

In March 2011, the Company sold the Merck BioManufacturing Network, a provider of contract manufacturing and development services for the biopharmaceutical industry and wholly owned by Merck, to Fujifilm Corporation (“Fujifilm”). Under the terms of the agreement, Fujifilm purchased all of the equity interests in two Merck subsidiaries which together owned all of the assets of the Merck BioManufacturing Network comprising facilities located in Research Triangle Park, North Carolina and Billingham, United Kingdom. As part of the agreement with Fujifilm, Merck has committed to purchase certain development and manufacturing services at fair value from Fujifilm over a three-year period following the closing of the transaction. The transaction resulted in a gain of $127 million in the first nine months of 2011 reflected in Other (income) expense, net.

4. Collaborative Arrangements

The Company continues its strategy of establishing external alliances to complement its substantial internal research capabilities, including research collaborations, licensing preclinical and clinical compounds and technology platforms to drive both near- and long-term growth. The Company supplements its internal research with a licensing and external alliance strategy focused on the entire spectrum of collaborations from early research to late-stage compounds, as well as new technologies across a broad range of therapeutic areas. These arrangements often include upfront payments and royalty or profit share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development, as well as expense reimbursements or payments to the third party.

Cozaar/Hyzaar

In 1989, Merck and E.I. duPont de Nemours and Company (“DuPont”) agreed to form a long-term research and marketing collaboration to develop a class of therapeutic agents for high blood pressure and heart disease, discovered by DuPont, called angiotensin II receptor antagonists, which include Cozaar and Hyzaar. In return, Merck provided DuPont marketing rights in the United States and Canada to its prescription medicines, Sinemet and Sinemet CR (the Company has since regained global marketing rights to Sinemet and Sinemet CR). Pursuant to a 1994 agreement with DuPont, the Company has an exclusive licensing agreement to market Cozaar and Hyzaar in return for royalties and profit share payments to DuPont. The patents that provided market exclusivity in the United States and in a number of major European markets for Cozaar and Hyzaar expired in 2010.

Remicade/Simponi

In 1998, a subsidiary of Schering-Plough entered into a licensing agreement with Centocor Ortho Biotech Inc. (“Centocor”), a Johnson & Johnson (“J&J”) company, to market Remicade, which is prescribed for the

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Notes to Consolidated Financial Statements (unaudited) (continued)

treatment of inflammatory diseases. In 2005, Schering-Plough’s subsidiary exercised an option under its contract with Centocor for license rights to develop and commercialize Simponi, a fully human monoclonal antibody. The Company had exclusive marketing rights to both products outside the United States, Japan and certain other Asian markets. In December 2007, Schering-Plough and Centocor revised their distribution agreement regarding the development, commercialization and distribution of both Remicade and Simponi, extending the Company’s rights to exclusively market Remicade to match the duration of the Company’s exclusive marketing rights for Simponi. In addition, Schering-Plough and Centocor agreed to share certain development costs relating to Simponi’s auto-injector delivery system. On October 6, 2009, the European Commission approved Simponi as a treatment for rheumatoid arthritis and other immune system disorders in two presentations – a novel auto-injector and a prefilled syringe. As a result, the Company’s marketing rights for both products extend for 15 years from the first commercial sale of Simponi in the European Union (the “EU”) following the receipt of pricing and reimbursement approval within the EU. In April 2011, Merck and J&J reached an agreement to amend the agreement governing the distribution rights to Remicade and Simponi. Under the terms of the amended distribution agreement, Merck relinquished marketing rights for Remicade and Simponi to J&J in territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific effective July 1, 2011. Merck retained exclusive marketing rights throughout Europe, Russia and Turkey (the “Retained Territories”). In addition, beginning July 1, 2011, all profits derived from Merck’s exclusive distribution of the two products in the Retained Territories are being equally divided between Merck and J&J. J&J also received a one-time payment from Merck of $500 million in April 2011, which the Company recorded as a charge to Other (income) expense, net in the first quarter of 2011.

5. Financial Instruments

Derivative Instruments and Hedging Activities

The Company manages the impact of foreign exchange rate movements and interest rate movements on its earnings, cash flows and fair values of assets and liabilities through operational means and through the use of various financial instruments, including derivative instruments.

A significant portion of the Company’s revenues and earnings in foreign affiliates is exposed to changes in foreign exchange rates. The objectives and accounting related to the Company’s foreign currency risk management program, as well as its interest rate risk management activities are discussed below.

Foreign Currency Risk Management

The Company has established revenue hedging, balance sheet risk management and net investment hedging programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange rates.

The objective of the revenue hedging program is to reduce the potential for longer-term unfavorable changes in foreign exchange rates to decrease the U.S. dollar value of future cash flows derived from foreign currency denominated sales, primarily the euro and Japanese yen. To achieve this objective, the Company will hedge a portion of its forecasted foreign currency denominated third-party and intercompany distributor entity sales that are expected to occur over its planning cycle, typically no more than three years into the future. The Company will layer in hedges over time, increasing the portion of third-party and intercompany distributor entity sales hedged as it gets closer to the expected date of the forecasted foreign currency denominated sales, such that it is probable the hedged transaction will occur. The portion of sales hedged is based on assessments of cost-benefit profiles that consider natural offsetting exposures, revenue and exchange rate volatilities and correlations, and the cost of hedging instruments. The hedged anticipated sales are a specified component of a portfolio of similarly denominated foreign currency-based sales transactions, each of which responds to the hedged currency risk in the same manner. The Company manages its anticipated transaction exposure principally with purchased local currency put options, which provide the Company with a right, but not an obligation, to sell foreign currencies in the future at a predetermined price. If the U.S. dollar strengthens relative to the currency of the hedged anticipated sales, total changes in the options’ cash flows offset the decline in the expected future U.S. dollar equivalent cash flows of the hedged foreign currency sales. Conversely, if the U.S. dollar weakens, the options’ value reduces to zero, but the Company benefits from the increase in the U.S. dollar equivalent value of the anticipated foreign currency cash flows.

In connection with the Company’s revenue hedging program, a purchased collar option strategy may be utilized. With a purchased collar option strategy, the Company writes a local currency call option and purchases a local currency put option. As compared to a purchased put option strategy alone, a purchased collar strategy reduces the upfront costs associated with purchasing puts through the collection of premium by writing call options. If the U.S. dollar weakens relative to the currency of the hedged anticipated sales, the purchased put option value of the

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Notes to Consolidated Financial Statements (unaudited) (continued)

collar strategy reduces to zero and the Company benefits from the increase in the U.S. dollar equivalent value of its anticipated foreign currency cash flows, however this benefit would be capped at the strike level of the written call. If the U.S. dollar strengthens relative to the currency of the hedged anticipated sales, the written call option value of the collar strategy reduces to zero and the changes in the purchased put cash flows of the collar strategy would offset the decline in the expected future U.S. dollar equivalent cash flows of the hedged foreign currency sales.

The Company may also utilize forward contracts in its revenue hedging program. If the U.S. dollar strengthens relative to the currency of the hedged anticipated sales, the increase in the fair value of the forward contracts offsets the decrease in the expected future U.S. dollar cash flows of the hedged foreign currency sales. Conversely, if the U.S. dollar weakens, the decrease in the fair value of the forward contracts offsets the increase in the value of the anticipated foreign currency cash flows.

The fair values of these derivative contracts are recorded as either assets (gain positions) or liabilities (loss positions) in the Consolidated Balance Sheet. Changes in the fair value of derivative contracts are recorded each period in either current earnings or Other comprehensive income (“OCI”), depending on whether the derivative is designated as part of a hedge transaction and, if so, the type of hedge transaction. For derivatives that are designated as cash flow hedges, the effective portion of the unrealized gains or losses on these contracts is recorded in Accumulated other comprehensive income (“AOCI”) and reclassified into Sales when the hedged anticipated revenue is recognized. The hedge relationship is highly effective and hedge ineffectiveness has been de minimis. For those derivatives which are not designated as cash flow hedges, unrealized gains or losses are recorded in Sales each period. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows. The Company does not enter into derivatives for trading or speculative purposes.

The primary objective of the balance sheet risk management program is to mitigate the exposure of foreign currency denominated net monetary assets of foreign subsidiaries where the U.S. dollar is the functional currency from the effects of volatility in foreign exchange. In these instances, Merck principally utilizes forward exchange contracts, which enable the Company to buy and sell foreign currencies in the future at fixed exchange rates and economically offset the consequences of changes in foreign exchange from the monetary assets. Merck routinely enters into contracts to offset the effects of exchange on exposures denominated in developed country currencies, primarily the euro and Japanese yen. For exposures in developing country currencies, the Company will enter into forward contracts to partially offset the effects of exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument. The Company will also minimize the effect of exchange on monetary assets and liabilities by managing operating activities and net asset positions at the local level.

Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in Other (income) expense, net. The forward contracts are not designated as hedges and are marked to market through Other (income) expense, net. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. These differences are not significant due to the short-term nature of the contracts, which typically have average maturities at inception of less than one year.

The Company also uses forward exchange contracts to hedge its net investment in foreign operations against movements in exchange rates. The forward contracts are designated as hedges of the net investment in a foreign operation. The Company hedges a portion of the net investment in certain of its foreign operations and measures ineffectiveness based upon changes in spot foreign exchange rates. The effective portion of the unrealized gains or losses on these contracts is recorded in foreign currency translation adjustment within OCI, and remains in AOCI until either the sale or complete or substantially complete liquidation of the subsidiary. The cash flows from these contracts are reported as investing activities in the Consolidated Statement of Cash Flows.

Foreign exchange risk is also managed through the use of foreign currency debt. The Company’s senior unsecured euro-denominated notes have been designated as, and are effective as, economic hedges of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within OCI. Included in the cumulative translation adjustment are pretax gains (losses) of $35 million and $(84) million for the first nine months of 2012 and 2011, respectively, from the euro-denominated notes.

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Notes to Consolidated Financial Statements (unaudited) (continued)

Interest Rate Risk Management

The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal capital at risk.

In the third quarter of 2011, the Company terminated 11 interest rate swap contracts with a total notional amount of $1.6 billion. These swaps effectively converted $1.6 billion of its fixed-rate notes, with maturity dates ranging from June 2015 to January 2016, to floating-rate instruments. As a result of the third quarter swap terminations, the Company received $113 million in cash, which included $7 million in accrued interest. The corresponding $106 million basis adjustment of the debt associated with the terminated swap contracts was deferred and is being amortized as a reduction of interest expense over the respective term of the notes. In the second quarter of 2011, the Company terminated nine interest rate swap contracts with a total notional amount of $3.5 billion. These swaps effectively converted $3.5 billion of its fixed-rate notes, with maturity dates ranging from March 2015 to June 2019, to floating-rate instruments. As a result of the second quarter swap terminations, the Company received $175 million in cash, which included $36 million in accrued interest. The corresponding $139 million basis adjustment of the debt associated with the terminated swap contracts was deferred and is being amortized as a reduction of interest expense over the respective term of the notes. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows.

At September 30, 2011, the Company was a party to two pay-floating, receive-fixed interest rate swap contracts with notional amounts of $250 million in the aggregate designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes. The interest rate swap contracts were designated hedges of the fair value changes in the notes attributable to changes in the benchmark London Interbank Offered Rate (“LIBOR”) swap rate. The fair value changes in the notes attributable to changes in the benchmark interest rate were recorded in interest expense and offset by the fair value changes in the swap contracts. These contracts matured in the fourth quarter of 2011. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows.

Presented in the table below is the fair value of derivatives segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:

		September 30, 2012						December 31, 2011
		Fair Value of Derivative				U.S. Dollar		Fair Value of Derivative				U.S. Dollar
($ in millions)	Balance Sheet Caption	Asset		Liability		Notional		Asset		Liability		Notional
Derivatives Designated as Hedging Instruments
Foreign exchange contracts (current)	Deferred income taxes and other current assets	$	163	$	-	$	4,450	$	196	$	-	$	3,727
Foreign exchange contracts (non-current)	Other assets		350		-		5,637		420		-		4,956
Foreign exchange contracts (current)	Accrued and other current liabilities		-		48		1,668		-		53		1,718
Foreign exchange contracts (non-current)	Deferred income taxes and noncurrent liabilities		-		7		426		-		1		104
		$	513	$	55	$	12,181	$	616	$	54	$	10,505
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts (current)	Deferred income taxes and other current assets	$	55	$	-	$	4,256	$	139	$	-	$	5,306
Foreign exchange contracts (non-current)	Other assets		18		-		290		-		-		-
Foreign exchange contracts (current)	Accrued and other current liabilities		-		125		6,129		-		54		5,013
		$	73	$	125	$	10,675	$	139	$	54	$	10,319
		$	586	$	180	$	22,856	$	755	$	108	$	20,824

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Notes to Consolidated Financial Statements (unaudited) (continued)

The table below provides information on the location and pretax gain or loss amounts for derivatives that are: (i) designated in a fair value hedging relationship, (ii) designated in a cash flow hedging relationship, (iii) designated in a foreign currency net investment hedging relationship and (iv) not designated in a hedging relationship:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2012		2011		2012		2011
Derivatives designated in fair value hedging relationships
Interest rate swap contracts
Amount of gain recognized in Other (income) expense, net on derivatives	$	-	$	(40)	$	-	$	(203)
Amount of loss recognized in Other (income) expense, net on hedged item		-		40		-		203
Derivatives designated in foreign currency cash flow hedging relationships
Foreign exchange contracts
Amount of (gain) loss reclassified from AOCI to Sales		(4)		30		49		57
Amount of loss (gain) recognized in OCI on derivatives		236		(70)		202		183
Derivatives designated in foreign currency net investment hedging relationships
Foreign exchange contracts
Amount of gain recognized in Other (income) expense, net on derivatives (1)		(5)		(1)		(15)		(9)
Amount of loss (gain) recognized in OCI on derivatives		54		124		(2)		158
Derivatives not designated in a hedging relationship
Foreign exchange contracts
Amount of loss (gain) recognized in Other (income) expense, net on derivatives (2)		157		(351)		131		(31)
Amounts of loss recognized in Sales on hedged item		17		-		17		-

⁽¹⁾  There was no ineffectiveness on the hedge. Represents the amount excluded from hedge effectiveness testing.

⁽²⁾  These derivative contracts mitigate changes in the value of remeasured foreign currency denominated monetary assets and liabilities attributable to changes in foreign currency exchange rates.

At September 30, 2012, the Company estimates $103 million of pretax net unrealized losses on derivatives maturing within the next 12 months that hedge foreign currency denominated sales over that same period will be reclassified from AOCI to Sales. The amount ultimately reclassified to Sales may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual exchange rates at maturity.

Investments in Debt and Equity Securities

Information on available-for-sale investments is as follows:

	September 30, 2012								December 31, 2011
	Fair		Amortized		Gross Unrealized				Fair		Amortized		Gross Unrealized
($ in millions)	Value		Cost		Gains		Losses		Value		Cost		Gains		Losses
Corporate notes and bonds	$	3,705	$	3,650	$	56	$	(1)	$	2,032	$	2,024	$	16	$	(8)
U.S. government and agency securities		1,156		1,154		2		-		1,021		1,018		3		-
Asset-backed securities		648		644		4		-		292		292		1		(1)
Mortgage-backed securities		334		334		2		(2)		223		223		1		(1)
Commercial paper		168		168		-		-		1,029		1,029		-		-
Foreign government bonds		72		71		1		-		72		72		-		-
Other debt securities		-		-		-		-		3		1		2		-
Equity securities		420		384		36		-		397		383		14		-
	$	6,503	$	6,405	$	101	$	(3)	$	5,069	$	5,042	$	37	$	(10)

Available-for-sale debt securities included in Short-term investments totaled $757 million at September 30, 2012. Of the remaining debt securities, $4.7 billion mature within five years. At September 30, 2012, there were no debt securities pledged as collateral.

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Notes to Consolidated Financial Statements (unaudited) (continued)

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity. Level 3 assets are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company had no Level 3 assets at September 30, 2012 or December 31, 2011.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices In Active Markets for  Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices In Active Markets for  Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
($ in millions)	September 30, 2012								December 31, 2011
Assets
Investments
Corporate notes and bonds	$	-	$	3,705	$	-	$	3,705	$	-	$	2,032	$	-	$	2,032
U.S. government and agency securities		-		1,156		-		1,156		-		1,021		-		1,021
Asset-backed securities (1)		-		648		-		648		-		292		-		292
Mortgage-backed securities (1)		-		334		-		334		-		223		-		223
Commercial paper		-		168		-		168		-		1,029		-		1,029
Foreign government bonds		-		72		-		72		-		72		-		72
Equity securities		209		25		-		234		205		22		-		227
Other debt securities		-		-		-		-		-		3		-		3
		209		6,108		-		6,317		205		4,694		-		4,899
Other assets
Securities held for employee compensation		186		-		-		186		170		-		-		170
Derivative assets (2)
Purchased currency options		-		541		-		541		-		613		-		613
Forward exchange contracts		-		45		-		45		-		142		-		142
		-		586		-		586		-		755		-		755
Total assets	$	395	$	6,694	$	-	$	7,089	$	375	$	5,449	$	-	$	5,824
Liabilities
Derivative liabilities (2)
Forward exchange contracts	$	-	$	176	$	-	$	176	$	-	$	107	$	-	$	107
Written currency options		-		4		-		4		-		1		-		1
Total liabilities	$	-	$	180	$	-	$	180	$	-	$	108	$	-	$	108

⁽¹⁾  Primarily all of the asset-backed securities are highly-rated (Standard & Poor’s rating of AAA and Moody’s Investors Service rating of Aaa), secured primarily by credit card, auto loan, and home equity receivables, with weighted-average lives of primarily 5 years or less. Mortgage-backed securities represent AAA-rated securities issued or unconditionally guaranteed as to payment of principal and interest by U.S. government agencies.

⁽²⁾  The fair value determination of derivatives includes the impact of the credit risk of counterparties to the derivatives and the Company’s own credit risk, the effects of which were not significant.

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Notes to Consolidated Financial Statements (unaudited) (continued)

There were no transfers between Level 1 and Level 2 during the first nine months of 2012. As of September 30, 2012, Cash and cash equivalents of $17.4 billion included $16.6 billion of cash equivalents (which would be considered Level 2 in the fair value hierarchy).

Other Fair Value Measurements

Some of the Company’s financial instruments, such as cash and cash equivalents, receivables and payables, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.

The estimated fair value of loans payable and long-term debt (including current portion) at September 30, 2012 was $22.1 billion compared with a carrying value of $19.6 billion and at December 31, 2011 was $19.5 billion compared with a carrying value of $17.5 billion. Fair value was estimated using recent observable market prices and would be considered Level 2 in the fair value hierarchy.

Concentrations of Credit Risk

On an ongoing basis, the Company monitors concentrations of credit risk associated with corporate and government issuers of securities and financial institutions with which it conducts business. Credit exposure limits are established to limit a concentration with any single issuer or institution. Cash and investments are placed in instruments that meet high credit quality standards, as specified in the Company’s investment policy guidelines. Approximately 50% of the Company’s cash and cash equivalents are invested in five highly rated money market funds.

The majority of the Company’s accounts receivable arise from product sales in the United States and Europe and are primarily due from drug wholesalers and retailers, hospitals, government agencies, managed health care providers and pharmacy benefit managers. The Company monitors the financial performance and credit worthiness of its customers so that it can properly assess and respond to changes in their credit profile. The Company also continues to monitor economic conditions, including the volatility associated with international sovereign economies, and associated impacts on the financial markets and its business, taking into consideration the global economic downturn and the sovereign debt issues in certain European countries. The Company continues to monitor the credit and economic conditions within Greece, Spain, Italy and Portugal, among other members of the EU. These economic conditions, as well as inherent variability of timing of cash receipts, have resulted in, and may continue to result in, an increase in the average length of time that it takes to collect accounts receivable outstanding. As such, time value of money discounts have been recorded for those customers for which collection of accounts receivable is expected to be in excess of one year. The Company does not expect to have write-offs or adjustments to accounts receivable which would have a material adverse effect on its financial position, liquidity or results of operations.

At September 30, 2012, the Company’s accounts receivable in Greece, Italy, Spain and Portugal totaled approximately $1.0 billion. Of this amount, hospital and public sector receivables were approximately $700 million in the aggregate, of which approximately 19%, 41%, 30% and 10% related to Greece, Italy, Spain and Portugal, respectively. As of September 30, 2012, the Company’s total accounts receivable outstanding for more than one year were approximately $300 million, of which approximately 60% related to accounts receivable in Greece, Italy, Spain and Portugal, mostly comprised of hospital and public sector receivables.

During the third quarter of 2012, the Company collected approximately $60 million of accounts receivable from the government of Portugal, which pertained to accounts receivable outstanding from 2011 and prior. During the second quarter of 2012, the Company collected approximately $500 million of accounts receivable in connection with the Spanish government’s debt stabilization/stimulus plan. In addition, in the second and first quarters of 2012, the Company completed non-recourse factorings of approximately $120 million and $110 million, respectively, of hospital and public sector accounts receivable in Italy.

As previously disclosed, the Company received zero coupon bonds from the Greek government in settlement of 2007-2009 receivables related to certain government sponsored institutions. The Company had recorded impairment charges to reduce the bonds to fair value. During 2011, the Company sold a portion of these bonds and the remainder was sold during the first quarter of 2012.

Derivative financial instruments are executed under International Swaps and Derivatives Association master agreements. The master agreements with several of the Company’s financial institution counterparties also include credit support annexes. These annexes contain provisions that require collateral to be exchanged depending on the value of the derivative assets and liabilities, the Company’s credit rating, and the credit rating of the counterparty. As of September 30, 2012 and December 31, 2011, the Company had received cash collateral of $313

- 15 -

Notes to Consolidated Financial Statements (unaudited) (continued)

million and $327 million, respectively, from various counterparties and the obligation to return such collateral is recorded in Accrued  and other current liabilities. The Company had not advanced any cash collateral to counterparties as of September 30, 2012 or December 31, 2011.

6. Inventories

Inventories consisted of:

($ in millions)	September 30,   2012			December 31,     2011
Finished goods	$	1,952		$	1,983
Raw materials and work in process		5,971			5,396
Supplies		264			297
Total (approximates current cost)		8,187			7,676
Reduction to LIFO costs		(10	)		(43)
	$	8,177		$	7,633
Recognized as:
Inventories	$	6,731		$	6,254
Other assets		1,446			1,379

Amounts recognized as Other assets are comprised almost entirely of raw materials and work in process inventories. At both September 30, 2012 and December 31, 2011, these amounts included $1.3 billion of inventories not expected to be sold within one year. In addition, these amounts included $191 million and $127 million at September 30, 2012 and December 31, 2011, respectively, of inventories produced in preparation for product launches.

7. Other Intangibles

In connection with mergers and acquisitions, the Company measures the fair value of marketed products and research and development pipeline programs and capitalizes these amounts. During the third quarter of 2012 and 2011, the Company recorded $40 million and $22 million, respectively, and during the first nine months of 2012 and 2011, recorded $176 million and $343 million, respectively, of in-process research and development (“IPR&D”) impairment charges within Research and development expenses primarily for pipeline programs that had previously been deprioritized and were subsequently deemed to have no alternative use in the period. Certain of the charges in 2011 were also attributable to compounds that were out-licensed to a third party for consideration that was less than the related asset’s carrying value. Also, during the first nine months of 2011, the Company recorded an intangible asset impairment charge of $118 million within Materials and production costs related to a marketed product. The Company may recognize additional non-cash impairment charges in the future related to other pipeline programs or marketed products and such charges could be material.

8. Joint Ventures and Other Equity Method Affiliates

Equity income from affiliates reflects the performance of the Company’s joint ventures and other equity method affiliates and was comprised of the following:

	Three Months Ended     September 30,				Nine Months Ended     September 30,
($ in millions)	2012		2011		2012		2011
AstraZeneca LP	$	134	$	141	$	387	$	318
Other (1)		24		20		23		36
	$	158	$	161	$	410	$	354

⁽¹⁾  Includes results from Sanofi Pasteur MSD.

 AstraZeneca LP

In 1998, Merck and Astra completed the restructuring of the ownership and operations of their existing joint venture whereby Merck acquired Astra’s interest in KBI Inc. (“KBI”) and contributed KBI’s operating assets to a new U.S. limited partnership, Astra Pharmaceuticals L.P. (the “Partnership”), in exchange for a 1% limited partner

- 16 -

Notes to Consolidated Financial Statements (unaudited) (continued)

interest. Astra contributed the net assets of its wholly owned subsidiary, Astra USA, Inc., to the Partnership in exchange for a 99% general partner interest. The Partnership, renamed AstraZeneca LP (“AZLP”) upon Astra’s 1999 merger with Zeneca Group Plc, became the exclusive distributor of the products for which KBI retained rights.

In June 2012, Merck and AstraZeneca amended the 1998 option agreement which gave AstraZeneca the option to buy Merck’s common stock interest in KBI and, through it, Merck’s interest in Nexium and Prilosec as well as AZLP. The updated agreement eliminates AstraZeneca’s option to acquire Merck’s interest in KBI in 2012 and provides AstraZeneca a new option to acquire Merck’s interest in KBI in June 2014. As a result of the amended agreement, Merck will continue to record supply sales and equity income from the partnership for the remainder of 2012 and 2013. In 2014, AstraZeneca has the option to purchase Merck’s interest in KBI based in part on the value of Merck’s interest in Nexium and Prilosec. AstraZeneca’s option is exercisable between March 1, 2014 and April 30, 2014. If AstraZeneca chooses to exercise this option, the closing date is expected to be June 30, 2014. Under the amended agreement, AstraZeneca will make a payment to Merck upon closing of $327 million, reflecting an estimate of the fair value of Merck’s interest in Nexium and Prilosec. This portion of the exercise price is subject to a true-up in 2018 based on actual sales from closing in 2014 to June 2018. The exercise price will also include an additional amount equal to a multiple of ten times Merck’s average 1% annual profit allocation in the partnership for the three years prior to exercise. The Company believes that it is likely that AstraZeneca will exercise its option in 2014.

Summarized financial information for AZLP is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2012		2011		2012		2011
Sales	$	1,232	$	1,124	$	3,424	$	3,460
Materials and production costs		561		464		1,520		1,524
Other expense, net		204		357		936		1,004
Income before taxes (1)	$	467	$	303	$	968	$	932

⁽¹⁾  Merck’s partnership returns from AZLP are generally contractually determined and are not based on a percentage of income from AZLP, other than with respect to Merck’s 1% limited partnership interest.

Johnson & Johnson°Merck Consumer Pharmaceuticals Company

In September 2011, Merck sold its 50% interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company (“JJMCP”) joint venture to J&J. The venture between Merck and J&J was formed in 1989 to develop, manufacture, market and distribute certain over-the-counter consumer products in the United States and Canada. Merck received a one-time payment of $175 million and recognized a pretax gain of $136 million in the third quarter of 2011 reflected in Other (income) expense, net. The partnership assets also included a manufacturing facility.

9. Long-Term Debt

In September 2012, the Company closed an underwritten public offering of $2.5 billion senior unsecured notes consisting of $1.0 billion aggregate principle amount of 1.1% notes due 2018, $1.0 billion aggregate principle amount of 2.4% notes due 2022 and $500 million aggregate principle amount of 3.6% notes due 2042. Interest on the notes is payable semi-annually. The notes of each series are redeemable in whole or in part at any time at the Company’s option at varying redemption prices. Proceeds from the notes will be used for general corporate purposes, including making contributions to the Company’s pension plans and the repayment of outstanding commercial paper and upcoming debt maturities.

In May 2012, the Company terminated its existing credit facilities and entered into a new $4.0 billion, five-year credit facility maturing in May 2017. The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes. The Company has not drawn funding from this facility.

10. Contingencies and Environmental Liabilities

The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including product liability, intellectual property, and commercial litigation, as well as additional matters such as antitrust actions and environmental matters. Except for the Vioxx Litigation and the ENHANCE Litigation

- 17 -

Notes to Consolidated Financial Statements (unaudited) (continued)

(each as defined below) for which separate assessments are provided in this Note, in the opinion of the Company, it is unlikely that the resolution of these matters will be material to the Company’s financial position, results of operations or cash flows.

Given the preliminary nature of the litigation discussed below, including the Vioxx Litigation and the ENHANCE Litigation, and the complexities involved in these matters, the Company is unable to reasonably estimate a possible loss or range of possible loss for such matters until the Company knows, among other factors, (i) what claims, if any, will survive dispositive motion practice, (ii) the extent of the claims, including the size of any potential class, particularly when damages are not specified or are indeterminate, (iii) how the discovery process will affect the litigation, (iv) the settlement posture of the other parties to the litigation and (v) any other factors that may have a material effect on the litigation.

The Company records accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. For product liability claims, a portion of the overall accrual is actuarially determined and considers such factors as past experience, number of claims reported and estimates of claims incurred but not yet reported. Individually significant contingent losses are accrued when probable and reasonably estimable. Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.

The Company’s decision to obtain insurance coverage is dependent on market conditions, including cost and availability, existing at the time such decisions are made. The Company has evaluated its risks and has determined that the cost of obtaining product liability insurance outweighs the likely benefits of the coverage that is available and as such, has no insurance for certain product liabilities effective August 1, 2004.

Vioxx Litigation

Product Liability Lawsuits

As previously disclosed, Merck is a defendant in approximately 100 federal and state lawsuits (the “Vioxx Product Liability Lawsuits”) alleging personal injury or economic loss as a result of the purchase or use of Vioxx. Most of the remaining cases are coordinated in a multidistrict litigation in the U.S. District Court for the Eastern District of Louisiana (the “Vioxx MDL”) before Judge Eldon E. Fallon.

There are no U.S. Vioxx Product Liability Lawsuits currently scheduled for trial in 2012, and none scheduled for 2013. Merck has previously disclosed the outcomes of several Vioxx Product Liability Lawsuits that were tried prior to 2012. All post-trial appeals have been resolved.

There are pending in various U.S. courts putative class actions purportedly brought on behalf of individual purchasers or users of Vioxx seeking reimbursement for alleged economic loss. In the Vioxx MDL proceeding, approximately 30 such class actions remain. In June 2010, Merck moved to strike the class claims or for judgment on the pleadings regarding the master complaint, which includes the above-referenced cases, and briefing on that motion was completed in September 2010. The Vioxx MDL court heard oral argument on Merck’s motion in October 2010 and took it under advisement.

In 2008, a Missouri state court certified a class of Missouri plaintiffs seeking reimbursement for out-of-pocket costs relating to Vioxx. On October 15, 2012, the parties executed a settlement agreement to resolve the litigation. The Company established a reserve of $39 million in the third quarter of 2012 in connection with that settlement agreement, which is the minimum amount that the Company is required to pay under the agreement. The agreement is subject to court approval and certain other conditions.

In Indiana, plaintiffs filed a motion to certify a class of Indiana Vioxx purchasers in a case pending before the Circuit Court of Marion County, Indiana. That case has been dormant for several years. In April 2010, a Kentucky state court denied Merck’s motion for summary judgment and certified a class of Kentucky plaintiffs seeking reimbursement for out-of-pocket costs relating to Vioxx. The trial court subsequently entered an amended class certification order in January 2011. Merck appealed that order to the Kentucky Court of Appeals and, on February 10, 2012, the Kentucky Court of Appeals reversed the trial court’s amended class certification order and denied certification. The plaintiff has petitioned the Kentucky Supreme Court to review the Court of Appeals’ order. Merck opposed the petition, and the Kentucky Supreme Court has not yet ruled.

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Notes to Consolidated Financial Statements (unaudited) (continued)

Merck has also been named as a defendant in several lawsuits brought by state Attorneys General. All of these actions except for an action brought by the Kentucky Attorney General are in the Vioxx MDL proceeding. These actions allege that Merck misrepresented the safety of Vioxx. These suits seek recovery for expenditures on Vioxx by government-funded health care programs, such as Medicaid, and/or penalties for alleged Consumer Fraud Act violations. Judge Fallon remanded the Kentucky case to state court on January 3, 2012. Merck’s petition to appeal that decision to the U.S. Court of Appeals for the Fifth Circuit was denied.

Shareholder Lawsuits

As previously disclosed, in addition to the Vioxx Product Liability Lawsuits, various putative class actions and individual lawsuits under federal securities laws and state laws have been filed against Merck and various current and former officers and directors (the “Vioxx Securities Lawsuits”). The Vioxx Securities Lawsuits are coordinated in a multidistrict litigation in the U.S. District Court for the District of New Jersey before Judge Stanley R. Chesler, and have been consolidated for all purposes. In August 2011, Judge Chesler granted in part and denied in part Merck’s motion to dismiss the Fifth Amended Class Action Complaint in the consolidated securities action. Among other things, the claims based on statements made on or after the voluntary withdrawal of Vioxx on September 30, 2004 have been dismissed. In October 2011, defendants answered the Fifth Amended Class Action Complaint. On April 10, 2012, plaintiffs filed a motion for class certification. Briefing is ongoing. Discovery is currently proceeding in accordance with the court’s scheduling order.

As previously disclosed, several individual securities lawsuits filed by foreign institutional investors also are consolidated with the Vioxx Securities Lawsuits. In October 2011, plaintiffs filed amended complaints in each of the pending individual securities lawsuits. Also in October 2011, a new individual securities lawsuit (the “KBC Lawsuit”) was filed in the District of New Jersey by several foreign institutional investors; that case is also consolidated with the Vioxx Securities Lawsuits. On January 20, 2012, defendants filed motions to dismiss in one of the individual lawsuits (the “ABP Lawsuit”). Briefing on the motions to dismiss was completed on March 26, 2012. On August 1, 2012, Judge Chesler granted in part and denied in part the motions to dismiss the ABP Lawsuit. Among other things, certain alleged misstatements and omissions were dismissed as inactionable and all state law claims were dismissed in full. On September 15, 2012, defendants answered the complaints in all individual actions other than the KBC Lawsuit; on the same day, defendants moved to dismiss the complaint in the KBC Lawsuit on statute of limitations grounds. The motion to dismiss in the KBC Lawsuit is fully briefed and pending before the court. Discovery is currently proceeding in the individual securities lawsuits together with discovery in the class action.

Insurance

The Company has Directors and Officers insurance coverage applicable to the Vioxx Securities Lawsuits with remaining stated upper limits of approximately $175 million. As a result of the previously disclosed insurance arbitration, additional insurance coverage for these claims should also be available, if needed, under upper-level excess policies that provide coverage for a variety of risks. There are disputes with the insurers about the availability of some or all of the Company’s insurance coverage for these claims and there are likely to be additional disputes. The amounts actually recovered under the policies discussed in this paragraph may be less than the stated upper limits.

International Lawsuits

As previously disclosed, in addition to the lawsuits discussed above, Merck has been named as a defendant in litigation relating to Vioxx in Australia, Brazil, Canada, Europe and Israel (collectively, the “Vioxx Foreign Lawsuits”). As previously disclosed, the Company has entered into an agreement to resolve all claims related to Vioxx in Canada. The agreement is pending approval by courts in Canada’s provinces.

Investigations

As previously disclosed, Merck received subpoenas from the Department of Justice (the “DOJ”) requesting information related to Merck’s research, marketing and selling activities with respect to Vioxx in a federal health care investigation under criminal statutes and in March 2009, Merck received a letter from the U.S. Attorney’s Office for the District of Massachusetts identifying it as a target of the grand jury investigation regarding Vioxx. In 2010, the Company established a $950 million reserve (the “Vioxx Liability Reserve”) in connection with the anticipated resolution of the DOJ’s investigation.

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Notes to Consolidated Financial Statements (unaudited) (continued)

In November 2011, the Company announced that it had reached a resolution with federal and state authorities regarding this matter, pending court approval. On April 19, 2012, the U.S. District Court for the District of Massachusetts accepted the resolution and thereafter the Company made the payments noted above.

Reserves

The Company believes that it has meritorious defenses to the remaining Vioxx Product Liability Lawsuits, Vioxx Securities Lawsuits and Vioxx Foreign Lawsuits (collectively, the “Vioxx Lawsuits”) and will vigorously defend against them. In view of the inherent difficulty of predicting the outcome of litigation, particularly where there are many claimants and the claimants seek indeterminate damages, the Company is unable to predict the outcome of these matters and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to the remaining Vioxx Lawsuits. The Company has established a reserve with respect to the Canada Settlement Agreement and with respect to certain other Vioxx Product Liability Lawsuits, including the Missouri matter discussed above. The Company also has an immaterial remaining reserve relating to the Vioxx investigation discussed above for the non-participating states with which litigation is continuing. The Company has established no other liability reserves with respect to the Vioxx Litigation. Unfavorable outcomes in the Vioxx Litigation could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Other Product Liability Litigation

Fosamax

As previously disclosed, Merck is a defendant in product liability lawsuits in the United States involving Fosamax (the “Fosamax Litigation”). As of September 30, 2012, approximately 4,005 cases, which include approximately 4,580 plaintiff groups, had been filed and were pending against Merck in either federal or state court, including one case which seeks class action certification, as well as damages and/or medical monitoring. In approximately 1,215 of these actions, plaintiffs allege, among other things, that they have suffered osteonecrosis of the jaw (“ONJ”), generally subsequent to invasive dental procedures, such as tooth extraction or dental implants and/or delayed healing, in association with the use of Fosamax. In addition, plaintiffs in approximately 2,785 of these actions generally allege that they sustained femur fractures and/or other bone injuries (“Femur Fractures”) in association with the use of Fosamax.

Cases Alleging ONJ and/or Other Jaw Related Injuries

In August 2006, the Judicial Panel on Multidistrict Litigation (the “JPML”) ordered that certain Fosamax product liability cases pending in federal courts nationwide should be transferred and consolidated into one multidistrict litigation (the “Fosamax ONJ MDL”) for coordinated pre-trial proceedings. The Fosamax ONJ MDL has been transferred to Judge John Keenan in the U.S. District Court for the Southern District of New York. As a result of the JPML order, approximately 955 of the cases are before Judge Keenan. In the first Fosamax ONJ MDL trial, Boles v. Merck, the Fosamax ONJ MDL court declared a mistrial because the eight person jury could not reach a unanimous verdict. The Boles case was retried in June 2010 and resulted in a verdict in favor of the plaintiff in the amount of $8 million. Merck filed post-trial motions seeking judgment as a matter of law or, in the alternative, a new trial. In October 2010, the court denied Merck’s post-trial motions but sua sponte ordered a remittitur reducing the verdict to $1.5 million. Plaintiff rejected the remittitur ordered by the court and requested a new trial on damages. Plaintiff and Merck subsequently entered into a confidential stipulation as to the amount of plaintiff’s damages that enabled Merck to appeal the underlying judgment, and Merck filed its appeal in the Boles case on October 18, 2012. Three other cases have been tried to verdict in the Fosamax ONJ MDL. Defense verdicts in favor of Merck were returned in each of those three cases. Plaintiffs have filed an appeal in two of the cases – Graves v. Merck and Secrest v. Merck.

In February 2011, Judge Keenan ordered that there will be two further bellwether trials conducted in the Fosamax ONJ MDL. Spano v. Merck and Jellema v. Merck were selected by the court to be tried in 2012, but each case was dismissed by the plaintiffs. On March 28, 2012, the court selected Scheinberg v. Merck as the next case to be tried and set the trial date for January 14, 2013.

Outside the Fosamax ONJ MDL, in Florida, Carballo v. Merck was set for trial on October 15, 2012, but plaintiff dismissed the case and refiled it in the Fosamax ONJ MDL. Anderson v. Merck has been set for trial on January 14, 2013.

In addition, in July 2008, an application was made by the Atlantic County Superior Court of New Jersey requesting that all of the Fosamax cases pending in New Jersey be considered for mass tort designation and centralized management before one judge in New Jersey. In October 2008, the New Jersey Supreme Court ordered that all pending and future actions filed in New Jersey arising out of the use of Fosamax and seeking damages for

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Notes to Consolidated Financial Statements (unaudited) (continued)

existing dental and jaw-related injuries, including ONJ, but not solely seeking medical monitoring, be designated as a mass tort for centralized management purposes before Judge Carol E. Higbee in Atlantic County Superior Court. As of September 30, 2012, approximately 255 ONJ cases were pending against Merck in Atlantic County, New Jersey. In July 2009, Judge Higbee entered a Case Management Order (and various amendments thereto) setting forth a schedule that contemplates completing fact and expert discovery in an initial group of cases to be reviewed for trial. In February 2011, the jury in Rosenberg v. Merck, the first trial in the New Jersey coordinated proceeding, returned a verdict in Merck’s favor. In April 2012, the jury in Sessner v. Merck, the second case tried in New Jersey, also returned a verdict in Merck’s favor. Plaintiffs have filed an appeal in both cases.

In California, the parties are reviewing the claims of two plaintiffs in the Carrie Smith, et al. v. Merck case and the claims in Pedrojetti v. Merck. The cases of one or more of these plaintiffs are expected to be tried in 2013.

Discovery is ongoing in the Fosamax ONJ MDL litigation, the New Jersey coordinated proceeding, and the remaining jurisdictions where Fosamax cases are pending. The Company intends to defend against these lawsuits.

Cases Alleging Femur Fractures

In March 2011, Merck submitted a Motion to Transfer to the JPML seeking to have all federal cases alleging Femur Fractures consolidated into one multidistrict litigation for coordinated pre-trial proceedings. The Motion to Transfer was granted in May 2011, and all federal cases involving allegations of Femur Fracture have been or will be transferred to a multidistrict litigation in the District of New Jersey (the “Fosamax Femur Fracture MDL”). As a result of the JPML order, approximately 640 cases were pending in the Fosamax Femur Fracture MDL as of September 30, 2012. A Case Management Order has been entered that requires the parties to review 40 cases (later reduced to 33 cases). Judge Joel Pisano has selected four cases from that group to be tried as the initial bellwether cases in the Fosamax Femur Fracture MDL and has set an April 8, 2013 trial date for the first bellwether case, which will be Glynn v. Merck.

As of September 30, 2012, approximately 1,740 cases alleging Femur Fractures have been filed in New Jersey state court and are pending before Judge Higbee in Atlantic County Superior Court. The parties have selected an initial group of 30 cases to be reviewed through fact discovery. Judge Higbee has set March 4, 2013 as the date for the first trial of the New Jersey state Femur Fracture cases. On September 27, 2012, Judge Higbee selected the Unanski v. Merck and Su v. Merck cases to be tried jointly beginning on the March 4, 2013 trial date.

As of September 30, 2012, approximately 380 cases alleging Femur Fractures have been filed in California state court. A petition was filed seeking to coordinate all Femur Fracture cases filed in California state court before a single judge in Orange County, California. The petition was granted and Judge Steven Perk is now presiding over the coordinated proceedings. No scheduling order has yet been entered.

Additionally, there are nine Femur Fracture cases pending in other state courts. A trial date has been set for August 12, 2013 for the Barnes case pending in Alabama state court.

Discovery is ongoing in the Fosamax Femur Fracture MDL and in state courts where Femur Fracture cases are pending and the Company intends to defend against these lawsuits.

NuvaRing

As previously disclosed, beginning in May 2007, a number of complaints were filed in various jurisdictions asserting claims against the Company’s subsidiaries Organon USA, Inc., Organon Pharmaceuticals USA, Inc., Organon International (collectively, “Organon”), and the Company arising from Organon’s marketing and sale of NuvaRing, a combined hormonal contraceptive vaginal ring. The plaintiffs contend that Organon and Schering-Plough, among other things, failed to adequately design and manufacture NuvaRing and failed to adequately warn of the alleged increased risk of venous thromboembolism (“VTE”) posed by NuvaRing, and/or downplayed the risk of VTE. The plaintiffs seek damages for injuries allegedly sustained from their product use, including some alleged deaths, heart attacks and strokes. The majority of the cases are currently pending in a federal multidistrict litigation (the “NuvaRing MDL”) venued in Missouri and in a coordinated proceeding in New Jersey state court.

As of September 30, 2012, there were approximately 1,220 NuvaRing cases. Of these cases, approximately 1,030 are or will be pending in the NuvaRing MDL in the U.S. District Court for the Eastern District of Missouri before Judge Rodney Sippel, and approximately 185 are pending in coordinated discovery proceedings in the Bergen County Superior Court of New Jersey before Judge Brian R. Martinotti. Five additional cases are pending in various other state courts.

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Notes to Consolidated Financial Statements (unaudited) (continued)

Pursuant to orders of Judge Sippel in the NuvaRing MDL, the parties originally selected a pool of more than 20 cases to prepare for trial and that pool has since been narrowed to eight cases from which the first trials in the NuvaRing MDL will be selected. Pursuant to Judge Martinotti’s order in the New Jersey proceeding, the parties selected 20 trial pool cases to be prepared for trial and the first trial is expected to commence in February 2013. The parties have completed fact discovery in the originally selected trial pool cases in each jurisdiction and expert discovery has been completed in those first trial pool cases. Certain replacement trial pool cases remain in fact discovery.

The Company has filed motions related to the admissibility of expert testimony and motions for summary judgment. Following the completion of briefing, the Company expects substantive hearings on those motions to take place in late 2012 or early 2013. The Company anticipates that status conferences will be held in each coordinated proceeding following rulings on the substantive evidentiary motions to determine a methodology for selecting the first cases to be tried. The Company intends to defend against these lawsuits.

Propecia/Proscar

As previously disclosed, Merck is a defendant in product liability lawsuits in the United States involving Propecia and/or Proscar. As of September 30, 2012, approximately 265 lawsuits involving a total of approximately 415 plaintiffs (in a few instances spouses are joined in the suits) who allege that they have experienced persistent sexual side effects following cessation of treatment with Propecia and/or Proscar have been filed against Merck. The lawsuits, which are in their early stages, are pending in various federal courts and in state court in New Jersey. The federal lawsuits have been consolidated for pretrial purposes in a federal MDL before Judge John Gleeson of the Eastern District of New York. The matters pending in state court in New Jersey have been consolidated before Judge Jessica Mayer in Middlesex County. The Company intends to defend against these lawsuits.

Vytorin/Zetia Litigation

As previously disclosed, in April 2008, a Merck shareholder filed a putative class action lawsuit in federal court which has been consolidated in the District of New Jersey with another federal securities lawsuit under the caption In re Merck & Co., Inc. Vytorin Securities Litigation. An amended consolidated complaint was filed in October 2008 and named as defendants Merck; Merck/Schering-Plough Pharmaceuticals, LLC; and certain of the Company’s current and former officers and directors. The complaint alleges that Merck delayed releasing unfavorable results of the ENHANCE clinical trial regarding the efficacy of Vytorin and that Merck made false and misleading statements about expected earnings, knowing that once the results of the ENHANCE study were released, sales of Vytorin would decline and Merck’s earnings would suffer. In December 2008, Merck and the other defendants moved to dismiss this lawsuit on the grounds that the plaintiffs failed to state a claim for which relief can be granted. In September 2009, the court denied defendants’ motion to dismiss. In June 2011, lead plaintiffs filed a motion for leave to further amend the consolidated complaint, which was granted on February 7, 2012. On February 9, 2012, plaintiffs filed a second amended consolidated complaint, which defendants answered on February 23, 2012. In February 2012, the parties completed briefing on lead plaintiffs’ motion for class certification, as amended. On March 1, 2012, defendants filed a motion for summary judgment. On September 25, 2012, the court granted lead plaintiffs’ amended motion for class certification and denied defendants’ motion for summary judgment. On October 9, 2012, Merck filed a petition for leave to appeal the class certification decision to the Third Circuit Court of Appeals, which lead plaintiffs opposed on October 19, 2012. The petition for interlocutory review is pending before the Third Circuit. A trial date has been set by the district court for March 4, 2013.

There is a similar consolidated, putative class action securities lawsuit pending in the District of New Jersey, filed by a Schering-Plough shareholder against Schering-Plough and its former Chairman, President and Chief Executive Officer, Fred Hassan, under the caption In re Schering-Plough Corporation/ENHANCE Securities Litigation. The amended consolidated complaint was filed in September 2008 and names as defendants Schering-Plough; Merck/Schering-Plough Pharmaceuticals; certain of the Company’s current and former officers and directors; and underwriters who participated in an August 2007 public offering of Schering-Plough’s common and preferred stock. In December 2008, Schering-Plough and the other defendants filed motions to dismiss this lawsuit on the grounds that the plaintiffs failed to state a claim for which relief can be granted. In September 2009, the court denied defendants’ motions to dismiss. In February 2012, the parties completed briefing on lead plaintiffs’ motion for class certification, as amended. On March 1, 2012, the Schering-Plough defendants filed a motion for partial summary judgment and the underwriter defendants filed a motion for summary judgment. On September 25, 2012, the court granted lead plaintiffs’ amended motion for class certification and denied defendants’ motions for summary judgment. On October 9, 2012, Schering-Plough and the underwriter defendants filed separate petitions for leave to appeal the class certification decision to the Third Circuit Court of Appeals, which lead plaintiffs opposed on October 19, 2012. The petitions for interlocutory review are pending before the Third Circuit. A trial date has been set by the district court for March 4, 2013.

As previously disclosed, in April 2008, a member of a Merck ERISA plan filed a putative class action lawsuit against Merck and certain of the Company’s current and former officers and directors alleging they breached their fiduciary duties under ERISA. Since that time, there have been other similar ERISA lawsuits filed against

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Notes to Consolidated Financial Statements (unaudited) (continued)

Merck in the District of New Jersey, and all of those lawsuits were consolidated under the caption In re Merck & Co., Inc. Vytorin ERISA Litigation. A consolidated amended complaint was filed in February 2009, and named as defendants Merck and various current and former members of the Company’s Board of Directors. The plaintiffs alleged that the ERISA plans’ investment in Merck stock was imprudent because Merck’s earnings were dependent on the commercial success of its cholesterol drug Vytorin, and defendants knew or should have known that the results of a scientific study would cause the medical community to turn to less expensive drugs for cholesterol management. On May 24, 2012, the plaintiffs filed an unopposed motion for preliminary approval of settlement, conditional certification of a settlement class, approval of the class notice, and scheduling of a final fairness hearing. The court granted that motion on June 22, 2012 and scheduled a fairness hearing on final approval of the settlement for September 25, 2012. Following the fairness hearing, the court granted plaintiffs’ motion for final approval of the settlement agreement on September 28, 2012. On October 26, 2012, the court entered an order and final judgment which, among other things, provides broad releases with prejudice. Merck’s insurers have paid $10.4 million into a settlement fund which (after enumerated costs, fees, and awards are withdrawn) will be allocated to members of the settlement class according to the plan of allocation approved by the court.

Discovery in the lawsuits referred to in this section (collectively, the “ENHANCE Litigation”) has concluded. The Company believes that it has meritorious defenses to the ENHANCE Litigation and intends to vigorously defend against these lawsuits. The Company is unable to predict the outcome of these matters and at this time cannot reasonably estimate the possible loss or range of loss with respect to the ENHANCE Litigation. Unfavorable outcomes resulting from the ENHANCE Litigation could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Insurance

The Company has Directors and Officers insurance coverage applicable to the Vytorin shareholder lawsuits brought by legacy Schering-Plough shareholders with stated upper limits of approximately $250 million, which is currently being used to partially fund the Company’s legal fees. There are disputes with the insurers about the availability of some or all of the Company’s insurance coverage for these claims and there are likely to be additional disputes. The amounts actually recovered under the policies discussed in this paragraph may be less than the stated limits.

Commercial Litigation

AWP Litigation

As previously disclosed, the Company and/or certain of its subsidiaries remain defendants in cases brought by various states alleging manipulation by pharmaceutical manufacturers of Average Wholesale Prices (“AWP”), which are sometimes used by public and private payors in calculating provider reimbursement levels. The outcome of these lawsuits could include substantial damages, the imposition of substantial fines and penalties and injunctive or administrative remedies.

Since the start of 2012, the Company has settled certain AWP cases brought by the states of Alabama, Alaska, Kansas, Kentucky, Louisiana, Oklahoma, and Mississippi. The Company and/or certain of its subsidiaries continue to be defendants in cases brought by six states.

The Company is also appealing the recommendation of a court-appointed Special Master that Merck be reinstated as a defendant in a putative class action in New Jersey State court which alleges on behalf of third-party payers and individuals that manufacturers inflated drug prices by manipulation of AWPs and other means. This case was dismissed against the Company without prejudice in 2007.

K-DUR Antitrust Litigation

As previously disclosed, in June 1997 and January 1998, Schering-Plough settled patent litigation with Upsher-Smith, Inc. (“Upsher-Smith”) and ESI Lederle, Inc. (“Lederle”), respectively, relating to generic versions of K-DUR, Schering-Plough’s long-acting potassium chloride product supplement used by cardiac patients, for which Lederle and Upsher-Smith had filed Abbreviated New Drug Applications (“ANDAs”). Following the commencement of an administrative proceeding by the U.S. Federal Trade Commission (the “FTC”) in 2001 alleging anti-competitive effects from those settlements (which has been resolved in Schering-Plough’s favor), putative class and non-class action suits were filed on behalf of direct and indirect purchasers of K-DUR against Schering-Plough, Upsher-Smith and Lederle and were consolidated in a multi-district litigation in the U.S. District Court for the District of New Jersey. These suits claimed violations of federal and state antitrust laws, as well as other state statutory and common law causes of action, and sought unspecified damages. In April 2008, the indirect

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Notes to Consolidated Financial Statements (unaudited) (continued)

purchasers voluntarily dismissed their case. In March 2010, the District Court granted summary judgment to the defendants on the remaining lawsuits and dismissed the matter in its entirety. However, in July 2012, the Third Circuit Court of Appeals reversed the District Court’s judgment and remanded the case for further proceedings. At the same time, the Third Circuit upheld a December 2008 decision by the District Court to certify certain direct purchaser plaintiffs’ claims as a class action. The Company has filed a petition for certiorari with the U.S. Supreme Court seeking review of the Third Circuit’s reversal of summary judgment.

Nexium Anti-Trust Litigation

In September 2012, the Company and certain of its subsidiaries were among the defendants named in a putative class action lawsuit brought on behalf of direct purchasers of Nexium in federal court in New Jersey. The lawsuit alleges violations of federal antitrust law arising from settlements reached by and among the defendants to resolve certain patent litigation relating to the entry of generic esomeprazole on the U.S. market. Specifically, the plaintiffs contend that these settlements had the effect of impermissibly delaying the entry of generic esomeprazole in the United States and extending the monopoly power of Nexium, leading to higher average market prices. The Company denies any wrongdoing and intends to defend the lawsuit, which bears the caption Value Drug Company and Burlington Drug Co. Inc., et al. v. AstraZeneca PLC, et al.

Patent Litigation

From time to time, generic manufacturers of pharmaceutical products file ANDAs with the FDA seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned by the Company. To protect its patent rights, the Company may file patent infringement lawsuits against such generic companies. Certain products of the Company (or marketed via agreements with other companies) currently involved in such patent infringement litigation in the United States include: AzaSite, Emend for Injection, Nasonex, Nexium, Vytorin and Zetia. Similar lawsuits defending the Company’s patent rights may exist in other countries. The Company intends to vigorously defend its patents, which it believes are valid, against infringement by generic companies attempting to market products prior to the expiration of such patents. As with any litigation, there can be no assurance of the outcomes, which, if adverse, could result in significantly shortened periods of exclusivity for these products and, with respect to products acquired through mergers and acquisitions, potentially significant intangible asset impairment charges.

AzaSite — In May 2011, a patent infringement suit was filed in the United States against Sandoz Inc. (“Sandoz”) in respect of Sandoz’s application to the FDA seeking pre-patent expiry approval to market a generic version of AzaSite. The lawsuit automatically stays FDA approval of Sandoz’s ANDA until October 2013 or until an adverse court decision, if any, whichever may occur earlier.

Emend for Injection — In May 2012, a patent infringement lawsuit was filed in the United States against Sandoz in respect of Sandoz’s application to the FDA seeking pre-patent expiry approval to market a generic version of Emend for Injection. The lawsuit automatically stays FDA approval of Sandoz’s ANDA until July 2015 or until an adverse court decision, if any, whichever may occur earlier. In June 2012, a patent infringement lawsuit was filed in the United States against Accord Healthcare, Inc. US, Accord Healthcare, Inc. and Intas Pharmaceuticals Ltd (collectively, “Intas”) in respect of Intas’ application to the FDA seeking pre-patent expiry approval to market a generic version of Emend for Injection. The lawsuit automatically stays FDA approval of Intas’ ANDA until July 2015 or until an adverse court decision, if any, whichever may occur earlier.

Integrilin — In February 2009, a patent infringement lawsuit was filed (jointly with Millennium Pharmaceuticals, Inc.) in the United States against Teva Parenteral Medicines, Inc. (“TPM”) in respect of TPM’s application to the FDA seeking approval to sell a generic version of Integrilin prior to the expiry of the last to expire listed patent. In October 2011, the parties entered a settlement agreement allowing TPM to sell a generic version of Integrilin beginning June 2, 2015.

Nasonex — In December 2009, a patent infringement suit was filed in the United States against Apotex Corp. (“Apotex”) in respect of Apotex’s application to the FDA seeking pre-patent expiry approval to market a generic version of Nasonex. A trial in this matter was held in April 2012. A decision was issued on June 15, 2012, holding that the Merck patent covering mometasone furoate monohydrate was valid, but that it was not infringed by Apotex’s proposed product. The finding of non-infringement is under appeal.

Nexium — Patent infringement lawsuits were brought (jointly with AstraZeneca) in the United States against the following generic companies: Ranbaxy Laboratories Ltd., IVAX Pharmaceuticals, Inc. (later acquired by Teva Pharmaceuticals, Inc. (“Teva”)), Dr. Reddy’s Laboratories, Sandoz, Lupin Ltd., Hetero Drugs Limited Unit III (“Hetero”) and Torrent Pharmaceuticals Ltd. in response to each generic company’s application seeking pre-patent

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Notes to Consolidated Financial Statements (unaudited) (continued)

expiry approval to sell a generic version of Nexium. Settlements have been reached in each of these lawsuits, the terms of which provide that the respective generic company may bring a generic version of esomeprazole product to market on May 27, 2014. In addition, a patent infringement lawsuit was also filed (jointly with AstraZeneca) in February 2010 in the United States against Sun Pharma Global Fze (“Sun Pharma”) in respect of its application to the FDA seeking pre-patent expiry approval to sell a generic version of Nexium IV, which lawsuit was settled with an agreement which provides that Sun Pharma will be entitled to bring its generic esomeprazole IV product to market in the United States on January 1, 2014. Finally, additional patent infringement lawsuits have been filed (jointly with AstraZeneca) in the United States against Hamni USA, Inc. (“Hamni”) and Mylan Laboratories Limited (“Mylan Labs”) related to their applications to the FDA seeking pre-patent expiry approval to sell generic versions of Nexium. The Hamni and Mylan Labs applications to the FDA remain stayed until May 2013 and August 2014, respectively, or until earlier adverse court decisions, if any, whichever may occur earlier.

Vytorin — In December 2009, a patent infringement lawsuit was filed in the United States against Mylan Pharmaceuticals, Inc. (“Mylan”) in respect of Mylan’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Vytorin. A trial against Mylan jointly in respect of Zetia and Vytorin was conducted in December 2011. In April 2012, the court issued a decision finding the patent valid and enforceable. Accordingly, Mylan’s ANDA will not be approvable until April 25, 2017. Mylan has appealed that decision. In February 2010, a patent infringement lawsuit was filed in the United States against Teva in respect of Teva’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Vytorin. In July 2011, the patent infringement lawsuit was dismissed and Teva agreed not to sell generic versions of Zetia or Vytorin until the Company’s exclusivity rights expire on April 25, 2017, except in certain circumstances. In August 2010, a patent infringement lawsuit was filed in the United States against Impax Laboratories Inc. (“Impax”) in respect of Impax’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Vytorin. An agreement was reached with Impax to stay the lawsuit pending the outcome of the lawsuit with Mylan. In October 2011, a patent infringement lawsuit was filed in the United States against Actavis Inc. (“Actavis”) in respect to Actavis’ application to the FDA seeking pre-patent expiry approval to sell a generic version of Vytorin. An agreement was reached with Actavis to stay the lawsuit pending the outcome of the lawsuit with Mylan.

Zetia — In March 2007, a patent infringement lawsuit was filed in the United States against Glenmark Pharmaceuticals Inc., USA and its parent corporation (collectively, “Glenmark”) in respect of Glenmark’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Zetia. In May 2010, Glenmark agreed to a settlement by virtue of which Glenmark will be permitted to launch its generic product in the United States on December 12, 2016, subject to receiving final FDA approval. In June 2010, a patent infringement lawsuit was filed in the United States against Mylan in respect of Mylan’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Zetia. A trial against Mylan jointly in respect of Zetia and Vytorin was conducted in December 2011. In April 2012, the court issued a decision finding the patent valid and enforceable. Accordingly, Mylan’s ANDA will not be approvable until April 25, 2017. Mylan has appealed that decision. In September 2010, a patent infringement lawsuit was filed in the United States against Teva in respect of Teva’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Zetia. In July 2011, the patent infringement lawsuit was dismissed without any rights granted to Teva. In September 2012, a patent infringement suit was filed in the United States against Sandoz in respect of Sandoz’s application to the FDA seeking pre-patent expiry approval to market a generic version of Zetia. The lawsuit automatically stays FDA approval of Sandoz’s ANDA until February 2015 or until an adverse court decision, if any, whichever may occur earlier.

Other Litigation

There are various other pending legal proceedings involving the Company, principally product liability and intellectual property lawsuits. While it is not feasible to predict the outcome of such proceedings, in the opinion of the Company, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to the Company’s financial position, results of operations or cash flows either individually or in the aggregate.

Legal Defense Reserves

Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. Some of the significant factors considered in the review of these legal defense reserves are as follows: the actual costs incurred by the Company; the development of the Company’s legal defense strategy and structure in light of the scope of its litigation; the number of cases being brought against the Company; the costs and outcomes of completed trials and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the associated litigation. The amount of legal defense reserves as of September 30, 2012 and December 31, 2011 of approximately $240 million represents the

- 25 -

Notes to Consolidated Financial Statements (unaudited) (continued)

Company’s best estimate of the minimum amount of defense costs to be incurred in connection with its outstanding litigation; however, events such as additional trials and other events that could arise in the course of its litigation could affect the ultimate amount of legal defense costs to be incurred by the Company. The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase the reserves at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.

Environmental Matters

The Company and its subsidiaries are parties to a number of proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, and other federal and state equivalents. These proceedings seek to require the operators of hazardous waste disposal facilities, transporters of waste to the sites and generators of hazardous waste disposed of at the sites to clean up the sites or to reimburse the government for cleanup costs. The Company has been made a party to these proceedings as an alleged generator of waste disposed of at the sites. In each case, the government alleges that the defendants are jointly and severally liable for the cleanup costs. Although joint and several liability is alleged, these proceedings are frequently resolved so that the allocation of cleanup costs among the parties more nearly reflects the relative contributions of the parties to the site situation. The Company’s potential liability varies greatly from site to site. For some sites the potential liability is de minimis and for others the final costs of cleanup have not yet been determined. While it is not feasible to predict the outcome of many of these proceedings brought by federal or state agencies or private litigants, in the opinion of the Company, such proceedings should not ultimately result in any liability which would have a material adverse effect on the financial position, results of operations, liquidity or capital resources of the Company. The Company has taken an active role in identifying and providing for these costs and such amounts do not include any reduction for anticipated recoveries of cleanup costs from former site owners or operators or other recalcitrant potentially responsible parties.

11. Equity

											Accumulated
					Other						Other								Non-
	Common Stock				Paid-In			Retained			Comprehensive			Treasury Stock					Controlling
($ and shares in millions)	Shares		Par Value		Capital			Earnings			Loss			Shares			Cost		Interests			Total
Balance January 1, 2011		3,577	$	1,788	$	40,701		$	37,536		$	(3,216	)		495		$	(22,433)	$	2,429		$	56,805
Net income attributable to Merck & Co., Inc.		-		-		-			4,760			-			-			-		-			4,760
Cash dividends declared on common stock		-		-		-			(3,533	)		-			-			-		-			(3,533)
Treasury stock shares purchased		-		-		-			-			-			41			(1,359)		-			(1,359)
Share-based compensation plans and other		-		-		16			-			-			(11	)		377		-			393
Other comprehensive income		-		-		-			-			503			-			-		-			503
Net income attributable to noncontrolling interests		-		-		-			-			-			-			-		89			89
Distributions attributable to noncontrolling interests		-		-		-			-			-			-			-		(62	)		(62)
Balance September 30, 2011		3,577	$	1,788	$	40,717		$	38,763		$	(2,713	)		525		$	(23,415)	$	2,456		$	57,596
Balance January 1, 2012		3,577	$	1,788	$	40,663		$	38,990		$	(3,132	)		536		$	(23,792)	$	2,426		$	56,943
Net income attributable to Merck & Co., Inc.		-		-		-			5,261			-			-			-		-			5,261
Cash dividends declared on common stock		-		-		-			(3,861	)		-			-			-		-			(3,861)
Treasury stock shares purchased		-		-		-			-			-			36			(1,439)		-			(1,439)
Share-based compensation plans and other		-		-		(192	)		-			-			(39	)		1,369		-			1,177
Other comprehensive income		-		-		-			-			92			-			-		-			92
Net income attributable to noncontrolling interests		-		-		-			-			-			-			-		89			89
Distributions attributable to noncontrolling interests		-		-		-			-			-			-			-		(50	)		(50)
Balance September 30, 2012		3,577	$	1,788	$	40,471		$	40,390		$	(3,040	)		533		$	(23,862)	$	2,465		$	58,212

- 26 -

Notes to Consolidated Financial Statements (unaudited) (continued)

In connection with the 1998 restructuring of Astra Merck Inc., the Company assumed $2.4 billion par value preferred stock with a dividend rate of 5% per annum, which is carried by KBI and included in Noncontrolling interests on the Consolidated Balance Sheet. If AstraZeneca exercises its option to acquire Merck’s interest in AZLP (see Note 8), this preferred stock obligation will be retired.

The accumulated balances related to each component of other comprehensive income (loss), net of taxes, were as follows:

($ in millions)	Derivatives		Investments		Employee Benefit Plans		Cumulative Translation    Adjustment		Accumulated  Other  Comprehensive  Loss
Balance January 1, 2011	$	41	$	31	$	(2,043)	$	(1,245)	$	(3,216)
Other comprehensive (loss) income		(77)		(11)		59		532		503
Balance at September 30, 2011	$	(36)	$	20	$	(1,984)	$	(713)	$	(2,713)
Balance January 1, 2012	$	4	$	21	$	(2,346)	$	(811)	$	(3,132)
Other comprehensive (loss) income		(99)		62		45		84		92
Balance at September 30, 2012	$	(95)	$	83	$	(2,301)	$	(727)	$	(3,040)

Included in cumulative translation adjustment are pretax gains of approximately $393 million for the first nine months of 2011 relating to translation impacts of intangible assets recorded in conjunction with the Merger.

12. Share-Based Compensation Plans

The Company has share-based compensation plans under which employees and non-employee directors may be granted restricted stock units (“RSUs”). In addition, the Company grants options to purchase shares of Company common stock at the fair market value at the time of grant and performance share units (“PSUs”) to certain management-level employees. The Company recognizes the fair value of share-based compensation in net income on a straight-line basis over the requisite service period.

The following table provides amounts of share-based compensation cost recorded in the Consolidated Statement of Income:

	Three Months Ended     September 30,				Nine Months Ended     September 30,
($ in millions)	2012		2011		2012		2011
Pretax share-based compensation expense	$	88	$	86	$	257	$	287
Income tax benefit		(28)		(30)		(81)		(99)
Total share-based compensation expense, net of taxes	$	60	$	56	$	176	$	188

During the first nine months of 2012 and 2011, the Company granted 7 million RSUs with a weighted-average grant date fair value of $39.38 per RSU and 8 million RSUs with a weighted-average grant date fair value of $36.44 per RSU, respectively.

During the first nine months of 2012 and 2011, the Company granted 7 million options with a weighted-average exercise price of $39.39 per option and 8 million options with a weighted-average exercise price of $36.55 per option, respectively. The weighted-average fair value of options granted for the first nine months of 2012 and 2011 was $5.47 and $5.37 per option, respectively, and was determined using the following assumptions:

	Nine Months Ended     September 30,
	2012		2011
Expected dividend yield		4.4%		4.3%
Risk-free interest rate		1.3%		2.6%
Expected volatility		25.3%		23.2%
Expected life (years)		7.0		7.0

- 27 -

Notes to Consolidated Financial Statements (unaudited) (continued)

At September 30, 2012, there was $449 million of total pretax unrecognized compensation expense related to nonvested stock options, RSU and PSU awards which will be recognized over a weighted-average period of 1.8 years. For segment reporting, share-based compensation costs are unallocated expenses.

13. Pension and Other Postretirement Benefit Plans

The Company has defined benefit pension plans covering eligible employees in the United States and in certain of its international subsidiaries. The net cost of such plans consisted of the following components:

	Three Months Ended       September 30,				Nine Months Ended       September 30,
($ in millions)	2012		2011		2012		2011
Service cost	$	133	$	158	$	416	$	461
Interest cost		162		182		494		541
Expected return on plan assets		(239)		(243)		(727)		(728)
Net amortization		48		58		144		149
Termination benefits		4		15		13		32
Curtailments		(4)		(6)		(5)		(16)
Settlements		-		-		-		(1)
	$	104	$	164	$	335	$	438

The Company provides medical, dental and life insurance benefits, principally to its eligible U.S. retirees and similar benefits to their dependents, through its other postretirement benefit plans. The net cost of such plans consisted of the following components:

	Three Months Ended       September 30,				Nine Months Ended       September 30,
($ in millions)	2012		2011		2012		2011
Service cost	$	22	$	27	$	64	$	83
Interest cost		31		35		93		106
Expected return on plan assets		(34)		(35)		(102)		(106)
Net amortization		(9)		(4)		(25)		(13)
Termination benefits		5		5		10		11
Curtailments		(2)		(1)		(6)		-
	$	13	$	27	$	34	$	81

In connection with restructuring actions (see Note 2), termination charges for the three and nine months ended September 30, 2012 and 2011 were recorded on pension and other postretirement benefit plans related to expanded eligibility for certain employees exiting Merck. Also, in connection with these restructuring actions, curtailments were recorded on pension and other postretirement benefit plans and settlements were recorded on pension plans as reflected in the tables above.

The Company expects to contribute approximately $1.75 billion to its defined benefit pension plans during 2012.

- 28 -

Notes to Consolidated Financial Statements (unaudited) (continued)

14. Other (Income) Expense, Net

Other (income) expense, net, consisted of:

	Three Months Ended     September 30,				Nine Months Ended     September 30,
($ in millions)	2012		2011		2012		2011
Interest income	$	(47)	$	(32)	$	(177)	$	(102)
Interest expense		178		176		524		522
Exchange losses		50		59		130		102
Other, net		19		(137)		(31)		287
	$	200	$	66	$	446	$	809

As a result of significant collections of accounts receivable in Spain (see Note 5), the Company recognized incremental interest income of approximately $35 million in the first nine months of 2012 for accelerated accretion of time value of money discounts related to these receivables. Other, net (as presented in the table above) for the third quarter and first nine months of 2011 includes a $136 million gain on the disposition of the Company’s interest in the JJMCP joint venture. In addition, Other, net for the first nine months of 2011 reflects a $500 million charge related to the resolution of the arbitration proceeding involving the Company’s rights to market Remicade and Simponi (see Note 4), as well as a $127 million gain on the sale of certain manufacturing facilities and related assets. Interest paid for the nine months ended September 30, 2012 and 2011 was $583 million and $261 million, respectively, which excludes commitment fees. Interest paid for the nine months ended September 30, 2011 is net of $288 million received by the Company from the termination of certain interest rate swap contracts during the period (see Note 5).

15. Taxes on Income

The effective tax rates of 20.5% and 27.8% for the third quarter and first nine months of 2012 and 26.7% and 15.7% for the third quarter and first nine months of 2011 reflect the impacts of acquisition-related costs and restructuring costs, partially offset by the beneficial impact of foreign earnings. In addition, the effective tax rates for the third quarter and first nine months of 2012 also reflect the favorable impacts of a tax settlement with the Canada Revenue Agency (the “CRA”) as discussed below and the realization of foreign tax credits. The effective tax rate for the first nine months of 2011 also reflects the net favorable impact relating to the settlement of Merck’s 2002-2005 federal income tax audit as discussed below, the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting, as well as the unfavorable impact of the $500 million charge related to the resolution of the arbitration proceeding with J&J.

As previously disclosed, the Canada Revenue Agency (the “CRA”) had proposed adjustments for 1999 and 2000 relating to intercompany pricing matters and, in July 2011, the CRA issued assessments for other miscellaneous audit issues for tax years 2001-2004. In the third quarter of 2012, Merck and the CRA reached a settlement that calls for Merck to pay additional Canadian tax of approximately $65 million. The Company’s unrecognized tax benefits related to these matters exceeded the settlement amount and therefore the Company recorded a net $112 million tax provision benefit in the third quarter of 2012. A portion of the taxes paid is expected to be creditable for U.S. tax purposes. The Company had previously established reserves for these matters. The resolution of these matters did not have a material effect on the Company’s results of operations, financial position or liquidity.

In April 2011, the Internal Revenue Service (the “IRS”) concluded its examination of Merck’s 2002-2005 federal income tax returns and as a result the Company was required to make net payments of approximately $465 million. The Company’s unrecognized tax benefits for the years under examination exceeded the adjustments related to this examination period and therefore the Company recorded a net $700 million tax provision benefit in the second quarter of 2011. This net benefit reflects the decrease of unrecognized tax benefits for the years under examination partially offset by increases to the unrecognized tax benefits for years subsequent to the examination period as a result of this settlement. The Company disagrees with the IRS treatment of one issue raised during this examination and is appealing the matter through the IRS administrative process.

- 29 -

Notes to Consolidated Financial Statements (unaudited) (continued)

16. Earnings Per Share

The Company calculates earnings per share pursuant to the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. RSUs and certain PSUs granted before December 31, 2009 to certain management level employees participate in dividends on the same basis as common shares and such dividends are nonforfeitable by the holder. As a result, these RSUs and PSUs meet the definition of a participating security. For RSUs and PSUs issued on or after January 1, 2010, dividends declared during the vesting period are payable to the employees only upon vesting and therefore such RSUs and PSUs do not meet the definition of a participating security.

The calculations of earnings per share under the two-class method are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ and shares in millions except per share amounts)	2012		2011		2012		2011
Basic Earnings per Common Share
Net income attributable to Merck & Co., Inc.	$	1,729	$	1,692	$	5,261	$	4,760
Less: Income allocated to participating securities		-		3		4		12
Net income allocated to common shareholders	$	1,729	$	1,689	$	5,257	$	4,748
Average common shares outstanding		3,045		3,070		3,043		3,079
	$	0.57	$	0.55	$	1.73	$	1.54
Earnings per Common Share Assuming Dilution
Net income attributable to Merck & Co., Inc.	$	1,729	$	1,692	$	5,261	$	4,760
Less: Income allocated to participating securities		-		3		4		12
Net income allocated to common shareholders	$	1,729	$	1,689	$	5,257	$	4,748
Average common shares outstanding		3,045		3,070		3,043		3,079
Common shares issuable (1)		34		21		34		23
Average common shares outstanding assuming dilution		3,079		3,091		3,077		3,102
	$	0.56	$	0.55	$	1.71	$	1.53

⁽¹⁾  Issuable primarily under share-based compensation plans.

For the three months ended September 30, 2012 and 2011, 97 million and 170 million, respectively, and for the first nine months of 2012 and 2011, 111 million and 170 million, respectively, of common shares issuable under share-based compensation plans were excluded from the computation of earnings per common share assuming dilution because the effect would have been antidilutive.

17. Segment Reporting

The Company’s operations are principally managed on a products basis and are comprised of four operating segments – Pharmaceutical, Animal Health, Consumer Care and Alliances (which includes revenue and equity income from the Company’s relationship with AZLP). The Animal Health, Consumer Care and Alliances segments are not material for separate reporting. The Pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly by the Company or through joint ventures. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices. The Company sells these human health vaccines primarily to physicians, wholesalers, physician distributors and government entities. A large component of pediatric and adolescent vaccines is sold to the U.S. Centers for Disease Control and Prevention Vaccines for Children program, which is funded by the U.S. government. Additionally, the Company sells vaccines to the Federal government for placement into vaccine stockpiles. The Company also has animal health operations that discover, develop, manufacture and market animal health products, including vaccines, which the Company sells to veterinarians, distributors and animal producers. Additionally, the Company has consumer care operations that develop, manufacture and market over-the-counter, foot care and sun care products, which are sold through wholesale and retail drug, food chain and mass merchandiser outlets.

- 30 -

Notes to Consolidated Financial Statements (unaudited) (continued)

Sales of the Company’s products were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in millions)	2012		2011		2012		2011
Primary Care and Women’s Health
Cardiovascular
Zetia	$	645	$	614	$	1,891	$	1,788
Vytorin		423		469		1,312		1,407
Diabetes and Obesity
Januvia		975		846		2,952		2,364
Janumet		405		350		1,207		977
Respiratory
Singulair		602		1,336		3,373		4,018
Nasonex		292		266		960		962
Clarinex		64		128		337		492
Asmanex		42		42		141		149
Dulera		52		22		140		59
Women’s Health and Endocrine
Fosamax		152		215		522		644
NuvaRing		156		159		459		455
Follistim AQ		111		129		352		404
Implanon		93		80		254		220
Cerazette		64		74		202		199
Other
Maxalt		166		156		476		460
Arcoxia		109		108		338		321
Avelox		30		59		146		227
Hospital and Specialty
Immunology
Remicade		490		561		1,527		2,156
Simponi		86		74		236		203
Infectious Disease
Isentress		399		343		1,133		972
PegIntron		165		163		510		482
Cancidas		163		150		474		476
Victrelis		149		31		387		53
Invanz		118		107		329		296
Primaxin		109		124		301		397
Noxafil		66		61		191		171
Oncology
Temodar		227		223		688		704
Emend		111		98		358		305
Other
Cosopt/Trusopt		102		124		331		360
Bridion		68		52		186		141
Integrilin		48		53		160		172
Diversified Brands
Cozaar/Hyzaar		295		404		969		1,236
Propecia		104		112		312		330
Zocor		86		110		285		345
Claritin Rx		47		55		181		240
Remeron		52		65		175		181
Proscar		55		58		160		171
Vasotec/Vaseretic		42		57		144		173
Vaccines (1)
Gardasil		581		445		1,189		935
ProQuad/M-M-R II/Varivax		396		391		967		927
RotaTeq		150		184		433		457
Zostavax		202		108		426		254
Pneumovax		160		133		372		276
Other pharmaceutical (2)		1,023		1,015		3,031		2,975
Total Pharmaceutical segment sales		9,875		10,354		30,517		30,534
Other segment sales (3)		1,556		1,586		4,830		4,908
Total segment sales		11,431		11,940		35,347		35,442
Other (4)		57		82		183		311
	$	11,488	$	12,022	$	35,530	$	35,753

⁽¹⁾  These amounts do not reflect sales of vaccines sold in most major European markets through the Company’s joint venture, Sanofi Pasteur MSD, the results of which are reflected in Equity income from affiliates. These amounts do, however, reflect supply sales to Sanofi Pasteur MSD.

⁽²⁾  Other pharmaceutical primarily includes sales of other human health pharmaceutical products not listed separately.

⁽³⁾ Reflects other non-reportable segments, including Animal Health and Consumer Care, and revenue from the Company’s relationship with AZLP primarily relating to sales of Nexium. Revenue from AZLP was $255 million and $299 million for the third quarter of 2012 and 2011, respectively, and $664 million and $928 million for the first nine months of 2012 and 2011, respectively.

⁽⁴⁾ Other revenues are primarily comprised of miscellaneous corporate revenues, third-party manufacturing sales, sales related to divested products or businesses and supply sales not included in segment results. The declines in other revenues in the third quarter and first nine months of 2012 as compared with the same periods of 2011 reflect lower third-party manufacturing sales, which for the year-to-date period were attributable in part to the divestiture of certain manufacturing facilities in the first quarter of 2011.

- 31 -

Notes to Consolidated Financial Statements (unaudited) (continued)

A reconciliation of segment profits to Income before taxes is as follows:

	Three Months Ended            September 30,				Nine Months Ended            September 30,
($ in millions)	2012		2011		2012		2011
Segment profits:
Pharmaceutical segment	$	6,265	$	6,355	$	19,767	$	19,014
Other segments		819		783		2,397		2,300
Total segment profits		7,084		7,138		22,164		21,314
Other (losses) profits		(4)		5		(32)		(9)
Unallocated:
Interest income		47		32		177		102
Interest expense		(178)		(176)		(524)		(522)
Equity income from affiliates		(5)		(1)		(14)		(82)
Depreciation and amortization		(486)		(619)		(1,620)		(1,814)
Research and development		(1,689)		(1,712)		(5,263)		(5,330)
Amortization of purchase accounting adjustments		(1,232)		(1,284)		(3,687)		(3,788)
Restructuring costs		(110)		(119)		(473)		(773)
Arbitration settlement charge		-		-		-		(500)
Other unallocated, net		(1,209)		(912)		(3,323)		(2,845)
	$	2,218	$	2,352	$	7,405	$	5,753

Segment profits are comprised of segment sales less standard costs and certain operating expenses directly incurred by the segments. For internal management reporting presented to the chief operating decision maker, Merck does not allocate materials and production costs, other than standard costs, the majority of research and development expenses or general and administrative expenses, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. In addition, costs related to restructuring activities, as well as the amortization of purchase accounting adjustments are not allocated to segments.

Other (losses) profits are primarily comprised of miscellaneous corporate profits (losses), as well as operating profits (losses) related to third-party manufacturing sales, divested products or businesses and other supply sales.

Other unallocated, net includes expenses from corporate and manufacturing cost centers, product intangible asset impairment charges, gains or losses on sales of businesses and assets and other miscellaneous income or expense items.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Singulair Patent Expiries

The patent that provided U.S. market exclusivity for Singulair (montelukast sodium) expired in August 2012 and the Company is experiencing a significant and rapid decline in U.S. Singulair sales and the Company expects the decline to continue. In addition, the patent that provides market exclusivity for Singulair will expire in a number of major European markets in February 2013. The Company expects a significant and rapid reduction in sales thereafter in those markets. The patent that provides market exclusivity for Singulair in Japan will expire in 2016. For the full year of 2011, sales of Singulair were $3.5 billion in the United States, $724 million in Europe and $641 million in Japan.

U.S. Health Care Reform Legislation

In 2010, the United States enacted major health care reform legislation. Various market reforms advanced in 2011 and will continue through full implementation in 2014.

Effective in 2011, the law requires pharmaceutical manufacturers to pay a 50% discount to Medicare Part D beneficiaries when they are in the Medicare Part D coverage gap (i.e., the so-called “donut hole”). Approximately $37 million and $39 million was recorded as a reduction to revenue in the third quarter of 2012 and 2011, respectively, and $113 million and $109 million for the first nine months of 2012 and 2011, respectively, related to the estimated impact of this provision of health care reform.

Also, beginning in 2011, pharmaceutical manufacturers are required to pay an annual health care reform fee. The total annual industry fee, which was $2.5 billion in 2011 and will be $2.8 billion in 2012, is assessed on each company in proportion to its share of sales to certain government programs, such as Medicare and Medicaid. The Company’s portion of the annual fee is payable no later than September 30 of the applicable calendar year and is not tax deductible. Each year, the liability related to the annual fee is estimated by the Company and recorded in full during the first quarter with a corresponding offset to a deferred asset. The deferred asset is amortized to Marketing and administrative expenses on a straight-line basis (net of any revisions) during the year. The liability related to the annual fee recognized in 2012 was $190 million and for 2011 was $162 million. The Company recognized expenses of $48 million and $37 million for the third quarter of 2012 and 2011, respectively, and $143 million and $122 million for the first nine months of 2012 and 2011, respectively, related to this fee.

Arbitration Settlement

In April 2011, Merck and Johnson & Johnson (“J&J”) reached an agreement to amend the agreement governing the distribution rights to Remicade (infliximab) and Simponi (golimumab). This agreement concluded the arbitration proceeding J&J initiated in May 2009. Under the terms of the amended distribution agreement, Merck relinquished marketing rights for Remicade and Simponi to J&J in territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific effective July 1, 2011. Merck retained exclusive marketing rights throughout Europe, Russia and Turkey (the “Retained Territories”). In addition, beginning July 1, 2011, all profits derived from Merck’s exclusive distribution of the two products in the Retained Territories are being equally divided between Merck and J&J. J&J also received a one-time payment from Merck of $500 million in April 2011.

Operating Results

Sales

Worldwide sales were $11.5 billion for the third quarter of 2012, a decline of 4% compared with the third quarter of 2011. The revenue decline in the third quarter was driven primarily by lower sales of Singulair. As noted above, the patent that provided U.S. market exclusivity for Singulair expired in August 2012 and the Company is experiencing a significant and rapid decline in U.S. Singulair sales. Foreign exchange unfavorably affected global sales performance by 4% for the third quarter of 2012. The revenue decline in the third quarter also reflects lower sales of Cozaar (losartan potassium), Hyzaar (losartan potassium hydrochlorothiazide), Remicade, Clarinex (desloratadine), Fosamax (alendronate sodium) and Vytorin (ezetimibe/simvastatin). These declines were partially offset by growth in Gardasil [human papillomavirus quadrivalent (types 6, 11, 16 and 18) vaccine, recombinant], Januvia (sitagliptin), Victrelis (boceprevir), Zostavax [Zoster Vaccine Live], Isentress (raltegravir) and Janumet (sitagliptin/metformin HCI).

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Global sales for the first nine months of 2012 were $35.5 billion, a decrease of 1% compared with the same period in 2011. Foreign exchange unfavorably affected global sales performance by 3% for the first nine months of 2012. The sales decline in the year-to-date period was driven primarily by lower sales of Singulair, Remicade, Cozaar, Hyzaar, Clarinex, Fosamax, Primaxin (imipenem and cilastatin sodium), and Vytorin, as well as by lower revenue from the Company’s relationship with AstraZeneca LP (“AZLP”). These declines were largely offset by higher sales of Januvia, Victrelis, Gardasil, Janumet, Zostavax, Isentress, Zetia (ezetimibe), Pneumovax [pneumococcal vaccine polyvalent], and higher sales of the Company’s animal health products.

While several of the Company’s brands experienced positive volume growth trends in the European Union (the “EU”) in the first nine months of 2012, the environment in the EU continues to be challenging. Many countries have announced austerity measures, which include the implementation of pricing actions to reduce prices of generic and patented drugs and mandatory switches to generic drugs. While the Company is taking steps to mitigate the impact in the EU, the austerity measures continued to negatively affect the Company’s revenue performance in the first nine months of 2012 and the Company anticipates mid-single digit pricing pressures for the full year of 2012 across Europe as well as from the biennial price reductions in Japan.

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Sales of the Company’s products were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2012		2011		2012		2011
Primary Care and Women’s Health
Cardiovascular
Zetia	$	645	$	614	$	1,891	$	1,788
Vytorin		423		469		1,312		1,407
Diabetes and Obesity
Januvia		975		846		2,952		2,364
Janumet		405		350		1,207		977
Respiratory
Singulair		602		1,336		3,373		4,018
Nasonex		292		266		960		962
Clarinex		64		128		337		492
Asmanex		42		42		141		149
Dulera		52		22		140		59
Women’s Health and Endocrine
Fosamax		152		215		522		644
NuvaRing		156		159		459		455
Follistim AQ		111		129		352		404
Implanon		93		80		254		220
Cerazette		64		74		202		199
Other
Maxalt		166		156		476		460
Arcoxia		109		108		338		321
Avelox		30		59		146		227
Hospital and Specialty
Immunology
Remicade		490		561		1,527		2,156
Simponi		86		74		236		203
Infectious Disease
Isentress		399		343		1,133		972
PegIntron		165		163		510		482
Cancidas		163		150		474		476
Victrelis		149		31		387		53
Invanz		118		107		329		296
Primaxin		109		124		301		397
Noxafil		66		61		191		171
Oncology
Temodar		227		223		688		704
Emend		111		98		358		305
Other
Cosopt/Trusopt		102		124		331		360
Bridion		68		52		186		141
Integrilin		48		53		160		172
Diversified Brands
Cozaar/Hyzaar		295		404		969		1,236
Propecia		104		112		312		330
Zocor		86		110		285		345
Claritin Rx		47		55		181		240
Remeron		52		65		175		181
Proscar		55		58		160		171
Vasotec/Vaseretic		42		57		144		173
Vaccines (1)
Gardasil		581		445		1,189		935
ProQuad/M-M-R II/Varivax		396		391		967		927
RotaTeq		150		184		433		457
Zostavax		202		108		426		254
Pneumovax		160		133		372		276
Other pharmaceutical (2)		1,023		1,015		3,031		2,975
Total Pharmaceutical segment sales		9,875		10,354		30,517		30,534
Other segment sales (3)		1,556		1,586		4,830		4,908
Total segment sales		11,431		11,940		35,347		35,442
Other (4)		57		82		183		311
	$	11,488	$	12,022	$	35,530	$	35,753

⁽¹⁾  These amounts do not reflect sales of vaccines sold in most major European markets through the Company’s joint venture, Sanofi Pasteur MSD, the results of which are reflected in Equity income from affiliates. These amounts do, however, reflect supply sales to Sanofi Pasteur MSD.

⁽²⁾  Other pharmaceutical primarily includes sales of other human health pharmaceutical products not listed separately.

⁽³⁾  Reflects other non-reportable segments, including Animal Health and Consumer Care, and revenue from the Company’s relationship with AZLP primarily relating to sales of Nexium. Revenue from AZLP was $255 million and $299 million for the third quarter of 2012 and 2011, respectively, and $664 million and $928 million for the first nine months of 2012 and 2011, respectively.

⁽⁴⁾  Other revenues are primarily comprised of miscellaneous corporate revenues, third-party manufacturing sales, sales related to divested products or businesses and supply sales not included in segment results. The declines in other revenues in the third quarter and first nine months of 2012 as compared with the same periods of 2011 reflect lower third-party manufacturing sales, which for the year-to-date period were attributable in part to the divestiture of certain manufacturing facilities in the first quarter of 2011.

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The provision for discounts includes indirect customer discounts that occur when a contracted customer purchases directly through an intermediary wholesale purchaser, known as chargebacks, as well as indirectly in the form of rebates owed based upon definitive contractual agreements or legal requirements with private sector and public sector (Medicaid and Medicare Part D) benefit providers, after the final dispensing of the product by a pharmacy to a benefit plan participant. These discounts, in the aggregate, reduced revenues by $1.3 billion and $1.5 billion for the three months ended September 30, 2012 and 2011, respectively, and $4.3 billion and $4.0 billion for the nine months ended September 30, 2012 and 2011, respectively. Inventory levels at key U.S. wholesalers for each of the Company’s major pharmaceutical products are generally less than one month.

Pharmaceutical Segment

Primary Care and Women’s Health

Cardiovascular

Sales of Zetia (also marketed as Ezetrol outside the United States), a cholesterol-absorption inhibitor, were $645 million in the third quarter of 2012, an increase of 5% compared with the third quarter of 2011, and were $1.9 billion for the first nine months of 2012, an increase of 6% compared with the same period in 2011. Foreign exchange unfavorably affected global sales performance by 4% and 2% in the third quarter and first nine months of 2012, respectively. The sales increases reflect positive performance in the United States due to pricing, as well as volume growth in Japan, partially offset by volume declines in the United States and Europe. Sales of Vytorin (marketed outside the United States as Inegy), a combination product containing the active ingredients of both Zetia and Zocor (simvastatin), were $423 million and $1.3 billion in the third quarter and first nine months of 2012, respectively, representing declines of 10% and 7%, respectively, compared with the same periods in 2011. Foreign exchange unfavorably affected global sales performance by 6% and 4% in the third quarter and first nine months of 2012, respectively. The sales declines reflect volume declines in the United States, partially offset by pricing in the United States and volume growth in certain international markets.

In March 2012, the Data Safety Monitoring Board (the “DSMB”) of the IMPROVE-IT trial, a large cardiovascular outcomes study evaluating ezetimibe/simvastatin against simvastatin alone in patients presenting with acute coronary syndrome, completed the second pre-specified interim efficacy analysis of the study. The DSMB conducted the planned interim efficacy analysis after the trial had reached approximately 75% of the targeted 5,250 clinical endpoints called for in the study design. The DSMB recommended that the study continue without change in design and stated it planned to review the data again in approximately nine months. That review has been scheduled for March 2013, at which point nine months of additional data will have been adjudicated. Merck remains blinded to IMPROVE-IT safety and efficacy data. IMPROVE-IT is an 18,000 patient event-driven trial and, based on the current rate at which events are being reported, the Company now anticipates the targeted 5,250 clinical endpoints for study completion will be reached in 2014.

Diabetes and Obesity

Global sales of Januvia, Merck’s dipeptidyl peptidase-4 (“DPP-4”) inhibitor for the treatment of type 2 diabetes, were $975 million in the third quarter of 2012, an increase of 15% compared with the third quarter of 2011, due primarily to volume growth in the United States and Japan. Worldwide sales of Januvia were $3.0 billion for the first nine months of 2012, representing an increase of 25% compared with the same period of 2011, reflecting volume growth both in international markets, as well as in the United States.

Worldwide sales of Janumet, Merck’s oral antihyperglycemic agent that combines sitagliptin (Januvia) with metformin in a single tablet to target all three key defects of type 2 diabetes, were $405 million for the third quarter of 2012 and $1.2 billion for the first nine months of 2012, representing increases of 16% and 24%, respectively, compared with the same periods of 2011, reflecting volume growth in the United States, the emerging markets and Europe.

In February 2012, the U.S. Food and Drug Administration (the “FDA”) approved Janumet XR, a treatment for type 2 diabetes that combines sitagliptin with extended-release metformin. Janumet XR provides a convenient once-daily treatment option for health care providers and patients who need help to control their blood sugar.

As previously disclosed, on February 17, 2012, the FDA sent a Warning Letter to the Company relating to Januvia and Janumet stating that the Company did not fulfill a post-marketing requirement for a 3-month pancreatic safety study in a diabetic rodent model treated with sitagliptin. Merck has been in communication with the FDA

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regarding this study and Merck’s efforts to complete it in a timely and satisfactory manner. Under the terms of the Warning Letter, within 30 days from the date of the letter, the Company must submit to the FDA a final study protocol for a new 3-month rodent study that will satisfy the FDA’s requirements and a proposed revised timetable for completion of the study. Within 6 months from the date of the letter, the FDA expects that the Company will have obtained agreement with the FDA on an adequate study protocol and will have initiated the study. The letter states that failure to correct the violation may result in regulatory actions by the FDA, including, but not limited to, civil money penalties. The Company has reached an agreement with the FDA on a study protocol and is proceeding with the study. Merck remains fully committed to fulfilling the FDA’s requirements.

Respiratory

Worldwide sales for Singulair, a once-a-day oral medicine for the chronic treatment of asthma and for the relief of symptoms of allergic rhinitis, were $602 million for the third quarter of 2012 and $3.4 billion for the first nine months of 2012, declines of 55% and 16%, respectively, compared with the same periods of 2011, driven primarily by lower sales in United States. Revenue declines in Europe, Canada and the emerging markets also contributed to Singulair sales declines during the quarter and year-to-date period. The patent that provided U.S. market exclusivity for Singulair expired on August 3, 2012. Accordingly, the Company is experiencing a significant and rapid decline in U.S. Singulair sales and the Company expects the decline to continue. U.S. sales of Singulair declined 72% to $249 million in the third quarter of 2012 compared with the third quarter of 2011. In addition, the patent that provides market exclusivity for Singulair will expire in a number of major European markets in February 2013. The Company expects a significant and rapid reduction in sales thereafter in those markets. The patent that provides market exclusivity for Singulair in Japan will expire in 2016. For the full year of 2011, sales of Singulair were $3.5 billion in the United States, $724 million in Europe and $641 million in Japan.

Global sales of Nasonex (mometasone furoate monohydrate), an inhaled nasal corticosteroid for the treatment of nasal allergy symptoms, were $292 million for the third quarter of 2012, an increase of 10% compared with the third quarter of 2011, reflecting increases in the United States and volume growth in Japan. Worldwide sales of Nasonex were $960 million for the first nine months of 2012, comparable to the same period of 2011, driven largely by price in the United States, offset by price declines in Europe and lower volumes in Japan. Foreign exchange unfavorably affected global sales performance by 4% and 2% for the third quarter and first nine months of 2012, respectively. In June 2012, the U.S. District Court for the District of New Jersey ruled against the Company in a patent infringement suit against Apotex Inc. and Apotex Corp. (collectively “Apotex”) holding that Apotex’s generic version of Nasonex does not infringe on the Company’s patent (see Note 10 to the interim consolidated financial statements). Apotex is seeking FDA approval to sell its generic version of Nasonex. If generic versions become available, significant losses of Nasonex sales in the U.S. market are anticipated and could result in a material non-cash impairment charge related to the Nasonex intangible asset. U.S. sales of Nasonex were $604 million for the full year of 2011. As a result of the unfavorable U.S. District Court decision, the Company evaluated the Nasonex intangible asset for impairment and concluded that it was not impaired. The Company has appealed the U.S. District Court decision.

Global sales of Clarinex (marketed as Aerius in many countries outside the United States), a non-sedating antihistamine, were $64 million for the third quarter of 2012 and $337 million for the first nine months of 2012, declines of 50% and 32%, respectively, compared with the same periods of 2011, reflecting lower volumes in Europe and the United States as a result of generic competition. As previously disclosed, by virtue of litigation settlements, certain generic manufacturers were given the right to enter the U.S. market in 2012. The U.S. patent and exclusivity periods otherwise expire in 2020. In July 2012, a generic manufacturer launched a generic version of Clarinex in the United States. The Company anticipates that U.S. sales of Clarinex will continue to be negatively impacted in the fourth quarter of 2012 and beyond. U.S. sales of Clarinex were $197 million for the full year of 2011.

Women’s Health and Endocrine

Worldwide sales for Fosamax and Fosamax Plus D (alendronate sodium/cholecalciferol) (marketed as Fosavance throughout the EU and as Fosamac in Japan) for the treatment and, in the case of Fosamax, prevention of osteoporosis were $152 million for the third quarter of 2012 and $522 million for the first nine months of 2012, representing declines of 29% and 19%, respectively, over the comparable periods of 2011. These medicines have lost market exclusivity in the United States and have also lost market exclusivity in most major European markets. Accordingly, the Company is experiencing sales declines within the Fosamax product franchise and the Company expects the declines to continue.

Worldwide sales of NuvaRing (etonogestrel/ethinyl estradiol vaginal ring), a vaginal contraceptive product, were $156 million for the third quarter of 2012, a decline of 2% compared with the third quarter of 2011, and $459 million for the first nine months of 2012, an increase of 1% compared with the same period of 2011. Foreign

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exchange negatively affected sales performance by 6% and 4% for the third quarter and first nine months of 2012, respectively. Sales performance in both periods reflects volume growth in the emerging markets.

Global sales of Follistim AQ (follitropin beta injection) (marketed in most countries outside the United States as Puregon), a biological fertility treatment, were $111 million for the third quarter of 2012 and $352 million for the first nine months of 2012, declines of 14% and 13%, respectively, compared with the same periods of 2011, driven largely by volume declines in Europe. Puregon lost market exclusivity in the EU in August 2009. Foreign exchange unfavorably affected global sales performance by 6% and 3% for the third quarter and first nine months of 2012, respectively.

The Company is currently experiencing difficulty manufacturing certain women’s health products. The Company is working to resolve these issues.

In August 2011, Zoely (nomegestrol acetate 2.5 mg/17ß-estradiol 1.5 mg), an oral contraceptive, was granted marketing authorization by the European Commission (the “EC”) for use by women to prevent pregnancy. Zoely is a combined oral contraceptive tablet containing a unique monophasic combination of two hormones: nomegestrol acetate, a highly selective progesterone-derived progestin, and 17-beta estradiol, an estrogen that is similar to the one naturally present in a woman’s body. In November 2011, Merck received a Complete Response Letter from the FDA for NOMAC/E2 (MK-8175A), which is being marketed as Zoely in the EU. The Company is conducting an additional clinical study requested by the FDA and plans to update the application in the future.

Other

Global sales of Maxalt (rizatriptan benzoate), a product for the acute treatment of migraine, were $166 million for the third quarter of 2012, an increase of 7% compared with the third quarter of 2011, and were $476 million for the first nine months of 2012, an increase of 3% compared with the first nine months of 2011, reflecting favorable pricing in the United States, partially offset by volume declines in the United States and declines in Europe and Canada. The patent that provides U.S. market exclusivity for Maxalt will expire in December 2012. U.S. sales of Maxalt were $451 million for the full year of 2011. In addition, the patent that provides market exclusivity for Maxalt is scheduled to expire in a number of major European markets in February 2013. However, the Company has applied for a six-month pediatric extension in the EU, which has been granted by most major countries and the Company expects to obtain the extension in the remaining countries by February 2013. The Company anticipates that sales in the United States and in these European markets will decline significantly after these patent expiries.

Other products included in the Primary Care and Women’s Health customer business line include among others, Asmanex (mometasone furoate inhalation powder), an inhaled corticosteroid for asthma; Dulera (mometasone furoate/formoterol fumarate dihydrate) Inhalation Aerosol, a fixed-dose combination asthma treatment; Implanon (etonogestrel implant), a single-rod subdermal contraceptive implant; Cerazette (desogestrol), a progestin only oral contraceptive; Arcoxia (etoricoxib) for the treatment of arthritis and pain; and Avelox (moxifloxacin hydrochloride), which the Company only markets in the United States, a broad-spectrum fluoroquinolone antibiotic for the treatment of certain respiratory and skin infections. In January 2012, Merck received a Complete Response Letter from the FDA on the Company’s supplemental New Drug Application for Dulera, for the treatment of chronic obstructive pulmonary disease. The Company is evaluating next steps.

Hospital and Specialty

Immunology

Sales of Remicade, a treatment for inflammatory diseases, declined 13% to $490 million for the third quarter of 2012 compared with the third quarter of 2011 reflecting declines in Europe. Foreign exchange unfavorably affected global sales performance by 13% in the third quarter of 2012. Sales of Remicade declined 29% to $1.5 billion for the first nine months of 2012 compared with the same period of 2011. Prior to July 1, 2011, Remicade was marketed by the Company outside of the United States (except in Japan and certain other Asian markets). As a result of the agreement reached in April 2011 to amend the agreement governing the distribution rights to Remicade and Simponi (as discussed above), effective July 1, 2011, Merck relinquished marketing rights for these products in certain territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific. Sales performance in the first nine months of 2012 as compared with the same period in 2011 reflects these changes. In the Retained Territories, Remicade sales declined 5% in the first nine months of 2012, which reflects an 8% unfavorable effect from foreign exchange. Sales of Simponi, a once-monthly subcutaneous treatment for certain inflammatory diseases, were $86 million in the third quarter of 2012 compared with $74 million in the third quarter of 2011 due to continued uptake since launch. Sales of Simponi were $236 million for the first nine

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months of 2012 compared with $203 million for the first nine months of 2011. In the Retained Territories, sales of Simponi grew 35% in the first nine months of 2012 due in part to ongoing launches. In July 2012, a submission was made to the European Medicines Agency requesting approval of Simponi for the treatment of adult patients with moderately to severely active ulcerative colitis who have had an inadequate response to conventional therapy.

Infectious Disease

Global sales of Isentress, an HIV integrase inhibitor for use in combination with other antiretroviral agents for the treatment of HIV-1 infection, were $399 million in the third quarter of 2012, an increase of 16% compared with the third quarter of 2011, and were $1.1 billion in the first nine months of 2012, an increase of 17% compared with the first nine months of 2011, primarily reflecting volume growth in the United States and, for the year-to-date period, growth in Latin America and the Eastern Europe, Middle East and Africa region. Foreign exchange unfavorably affected global sales performance by 7% and 4% in the third quarter and first nine months of 2012, respectively.

Worldwide sales of PegIntron (peginterferon alpha-2b), a treatment for chronic hepatitis C, were $165 million for the third quarter of 2012, an increase of 1% compared with the third quarter of 2011, and were $510 million for the first nine months of 2012, an increase of 6% compared with the same period in 2011. Foreign exchange unfavorably affected global sales performance by 7% and 4% for the third quarter and first nine months of 2012, respectively. Sales performance in the first nine months of 2012 reflects volume growth and favorable pricing in the United States and volume growth in the Eastern Europe, Middle East and Africa region, partially offset by volume declines in Japan.

In May 2011, the FDA approved Victrelis, the Company’s innovative oral medicine for the treatment of chronic hepatitis C. Victrelis is approved for the treatment of chronic hepatitis C genotype 1 infection, in combination with peginterferon alfa and ribavirin, in adult patients (18 years of age and older) with compensated liver disease, including cirrhosis, who are previously untreated or who have failed previous interferon and ribavirin therapy. Victrelis is an antiviral agent designed to interfere with the ability of the hepatitis C virus to replicate by inhibiting a key viral enzyme. In July 2011, the EC approved Victrelis. The EC’s decision grants a single marketing authorization that is valid in the 27 countries that are members of the EU, as well as unified labeling applicable to Iceland, Liechtenstein and Norway. Victrelis is approved in 64 countries and has launched in 31 of those markets. Sales of Victrelis were $149 million and $31 million for the third quarter of 2012 and 2011, respectively, and $387 million and $53 million for the first nine months of 2012 and 2011, respectively.

Sales of Primaxin, an anti-bacterial product, were $109 million in the third quarter of 2012, a decline of 12% compared with the third quarter of 2011, primarily due to volume declines in the United States and Europe, partially offset by increases in certain emerging markets. Sales of Primaxin were $301 million for the first nine months of 2012, a decline of 24% compared with the same period of 2011, primarily reflecting volume declines in the United States, Europe, Latin America and the Eastern Europe, Middle East Africa region, partially offset by volume growth in China. Patents on Primaxin have expired worldwide and multiple generics have been launched. Accordingly, the Company is experiencing a decline in sales of Primaxin and the Company expects the decline to continue.

Oncology

Sales of Temodar (temozolomide) (marketed as Temodal outside the United States), a treatment for certain types of brain tumors, were $227 million for the third quarter of 2012, an increase of 2% compared with the third quarter of 2011, and were $688 million for the first nine months of 2012, representing a decline of 2% compared with the same period of 2011. Foreign exchange unfavorably affected global sales performance by 4% and 2% for the third quarter and first nine months of 2012, respectively. Sales performance primarily reflects generic competition in Europe, mitigated in part by price increases in the United States. Temodar lost patent exclusivity in the EU in 2009. As previously disclosed, by agreement, one generic manufacturer has been given the right to enter the U.S. market in August 2013. The U.S. patent and exclusivity periods otherwise will expire in February 2014.

Global sales of Emend (aprepitant), for the prevention of chemotherapy-induced and post-operative nausea and vomiting, were $111 million in the third quarter of 2012, an increase of 12% compared with the third quarter of 2011, and were $358 million for the first nine months of 2012, an increase of 17% compared with the first nine months of 2011. Foreign exchange unfavorably affected global sales performance by 6% and 3% for the third quarter and first nine months of 2012, respectively. Sales performance in both periods primarily reflects volume growth in the United States, as well as in the emerging markets. In addition, higher volumes in Japan also contributed to sales growth in the first nine months of 2012.

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Other

Worldwide sales of ophthalmic products Cosopt (dorzolamide hydrochloride-timolol maleate ophthalmic solution) and Trusopt (dorzolamide hydrochloride ophthalmic solution) were $102 million in the third quarter of 2012, a decline of 18% compared with the third quarter of 2011, and were $331 million for the first nine months of 2012, a decrease of 8% compared with the same period in 2011, primarily reflecting lower sales in Europe. The year-to-date decline was mitigated in part by higher Cosopt sales in Japan. Foreign exchange unfavorably affected global sales performance by 6% and 4% for the third quarter and first nine months of 2012, respectively. The patent that provided U.S. market exclusivity for Cosopt and Trusopt has expired. Trusopt has also lost market exclusivity in a number of major European markets. The patent for Cosopt will expire in a number of major European markets in March 2013 and the Company expects sales in those markets to decline significantly thereafter.

In February 2012, the FDA approved Cosopt PF (dorzolamide hydrochloride-timolol maleate ophthalmic solution), Merck’s preservative-free formulation of Cosopt ophthalmic solution, indicated for the reduction of elevated intraocular pressure in appropriate patients with open-angle glaucoma or ocular hypertension.

Bridion (sugammadex), for the reversal of certain muscle relaxants used during surgery, is currently approved and has been launched in many countries outside of the United States. Sales of Bridion were $68 million and $52 million for the third quarter of 2012 and 2011, respectively, and were $186 million and $141 million for the first nine months of 2012 and 2011, respectively. Sugammadex is in Phase III development in the United States.

In 2009, the FDA approved Saphris (asenapine), an antipsychotic indicated for the treatment of schizophrenia in adults and for the acute treatment, as monotherapy or adjunctive therapy to lithium or valproate, of manic or mixed episodes associated with bipolar I disorder in adults. In 2010, asenapine, sold under the brand name Sycrest, received marketing approval in the EU for the treatment of moderate to severe manic episodes associated with bipolar I disorder in adults. In 2010, Merck and H. Lundbeck A/S (“Lundbeck”) announced a worldwide commercialization agreement for Sycrest sublingual tablets (5 mg, 10 mg). Under the terms of the agreement, Lundbeck paid a fee and makes product supply payments in exchange for exclusive commercial rights to Sycrest in all markets outside the United States, China and Japan. Merck’s sales of Saphris were $39 million and $34 million in the third quarter of 2012 and 2011, respectively, and were $123 million and $80 million for the first nine months of 2012 and 2011, respectively. Merck continues to focus on building the brand awareness of Saphris in the United States. If increasing the brand awareness in the United States or Lundbeck’s on-going launch of the product in the EU is not successful, the Company may take a non-cash impairment charge with respect to the value of the Saphris/Sycrest intangible asset, which had a carrying value of approximately $570 million at September 30, 2012. If the Saphris/Sycrest intangible asset is determined to be impaired, the impairment charge could be material.

In February 2012, the FDA approved Zioptan (tafluprost ophthalmic solution), a preservative-free prostaglandin analog ophthalmic solution for reducing elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension. Merck has exclusive commercial rights to tafluprost in Western Europe (excluding Germany), North America, South America, Africa, the Middle East, India and Australia. Zioptan is marketed as Saflutan in certain markets outside the United States.

Other products contained in the Hospital and Specialty customer business line include among others, Cancidas (caspofungin acetate), an anti-fungal product; Invanz (ertapenem sodium) for the treatment of certain infections; Noxafil (posaconazole) for the prevention of certain invasive fungal infections; and Integrilin (eptifibatide) Injection, a treatment for patients with acute coronary syndrome, which is sold by the Company in the United States and Canada. The compound patent that provides U.S. market exclusivity for Cancidas expires in September 2013.

Diversified Brands

Merck’s diversified brands are human health pharmaceutical products that are approaching the expiration of their marketing exclusivity or are no longer protected by patents in developed markets, but continue to be a core part of the Company’s offering in other markets around the world.

Global sales of Cozaar and its companion agent Hyzaar (a combination of Cozaar and hydrochlorothiazide), treatments for hypertension, declined 27% in the third quarter of 2012 and 22% in the first nine months of 2012 compared with the same periods of 2011. The patents that provided market exclusivity for Cozaar and Hyzaar in the United States and in a number of major international markets have expired. Accordingly, the Company is experiencing significant declines in Cozaar and Hyzaar sales and the Company expects the declines to continue.

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Other products contained in the Diversified Brands customer business line include among others, Propecia (finasteride), a product for the treatment of male pattern hair loss; Zocor, a statin for modifying cholesterol; prescription Claritin (loratadine), a treatment for seasonal outdoor allergies and year-round indoor allergies; Remeron (mirtazapine), an antidepressant; Proscar (finasteride), a urology product for the treatment of symptomatic benign prostate enlargement; and Vasotec (enalapril maleate) and Vaseretic (enalapril maleate-hydrochlorothiazide), hypertension and/or heart failure products.

Vaccines

The following discussion of vaccines does not include sales of vaccines sold in most major European markets through Sanofi Pasteur MSD (“SPMSD”), the Company’s joint venture with Sanofi Pasteur, the results of which are reflected in Equity income from affiliates (see “Selected Joint Venture and Affiliate Information” below). Supply sales to SPMSD, however, are included.

Worldwide sales of Gardasil recorded by Merck grew 31% in the third quarter of 2012 to $581 million and rose 27% to $1.2 billion for the first nine months of 2012 reflecting growth in the United States driven by greater uptake in males, and growth in the emerging markets, particularly in Latin America and the Asia Pacific region. In addition, the launch in Japan also contributed to the performance of Gardasil in the year-to-date period. Gardasil, the world’s top-selling human papillomavirus (“HPV”) vaccine, is indicated for girls and women 9 through 26 years of age for the prevention of cervical, vulvar, vaginal and anal cancer caused by HPV types 16 and 18, certain precancerous or dysplastic lesions caused by HPV types 6, 11, 16 and 18, and genital warts caused by HPV types 6 and 11. Gardasil is also approved in the United States for use in boys and men 9 through 26 years of age for the prevention of anal cancer caused by HPV types 16 and 18, anal dysplasias and precancerous lesions caused by HPV types 6, 11, 16 and 18, and genital warts caused by HPV types 6 and 11.

In recent years, the Company has experienced difficulties in producing its varicella zoster virus (“VZV”)-containing vaccines. These difficulties have resulted in supply constraints for ProQuad, Varivax and Zostavax.

ProQuad [Measles, Mumps, Rubella and Varicella Virus Vaccine Live], a pediatric combination vaccine to help protect against measles, mumps, rubella and varicella, one of the VZV-containing vaccines, became available for ordering in October 2012. Merck’s sales of ProQuad were $37 million in the first quarter of 2011 when ProQuad was last available.

Merck’s sales of Varivax, a vaccine to help prevent chickenpox (varicella), were $283 million for the third quarter of 2012 compared with $290 million for the third quarter of 2011 and were $675 million for the first nine months of 2012 compared with $640 million for the first nine months of 2011. The sales increase in the first nine months of 2012 was driven primarily by positive performance in the United States from volume growth and favorable pricing. Merck’s sales of M-M-R II [Measles, Mumps and Rubella Virus Vaccine Live], a vaccine to help protect against measles, mumps and rubella, were $111 million for the third quarter of 2012 compared with $102 million for the third quarter of 2011 and were $292 million for the first nine months of 2012 compared with $251 million for the first nine months of 2011 driven primarily by higher volumes in the United States.

Global sales of RotaTeq [Rotavirus Vaccine, Live, Oral, Pentavalent], a vaccine to help protect against rotavirus gastroenteritis in infants and children, recorded by Merck were $150 million in the third quarter of 2012, a decline of 19% compared with the third quarter of 2011, due primarily to lower public sector sales in the United States, as well as lower sales in the emerging markets. Sales for the first nine months of 2012 were $433 million, a decline of 5% compared with the first nine months of 2011, largely reflecting lower public sector sales in the United States, partially offset by volume growth in the emerging markets.

Merck’s sales of Zostavax, a vaccine to help prevent shingles (herpes zoster) in adults 50 years of age and older, were $202 million in the third quarter of 2012 as compared with $108 million in the third quarter of 2011 and were $426 million in the first nine months of 2012 compared with $254 million in the first nine months of 2011. Sales performance in the third quarter and first nine months of 2012 reflects a positive response to supply availability and increased promotional efforts in the United States. The Company experienced supply issues in 2011. No broad international launches or immunization programs are currently planned for 2012.

Merck’s sales of Pneumovax, a vaccine to help prevent pneumococcal disease, grew 20% to $160 million in the third quarter of 2012 and increased 35% to $372 million in the first nine months of 2012 compared with the same periods of 2011. Sales growth in both periods was driven primarily by positive performance in the United

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States due to higher volumes and favorable pricing. In addition, higher sales in Japan contributed to sales growth for the first nine months of 2012.

Merck’s adult formulation of Vaqta [Hepatitis A Vaccine, Inactivated], a vaccine against hepatitis A which was experiencing supply issues, became available in the third quarter of 2012.

Other

Animal Health

Animal Health includes pharmaceutical and vaccine products for the prevention, treatment and control of disease in all major farm and companion animal species. Animal Health sales are affected by intense competition and the frequent introduction of generic products. Global sales of Animal Health products totaled $815 million for the third quarter of 2012, a decline of 1% compared with the third quarter of 2011. Foreign exchange unfavorably affected global sales performance by 8% in the third quarter of 2012. Sales of Animal Health products for the first nine months of 2012 were $2.5 billion, an increase of 5% compared with the same period in 2011, which reflects a 5% unfavorable effect from foreign exchange. Excluding the impact of foreign exchange, sales performance in both periods reflects growth in cattle, poultry and companion animal products. In addition, higher sales of swine products also contributed to sales growth for the first nine months of 2012.

Consumer Care

Consumer Care products include over-the-counter, foot care and sun care products such as Claritin non-drowsy antihistamines; MiraLAX, a treatment for occasional constipation; Dr. Scholl’s foot care products; and Coppertone sun care products. Global sales of Consumer Care products were $451 million for the third quarter of 2012, an increase of 7% compared with the third quarter of 2011, and were $1.6 billion for the first nine months of 2012, an increase of 5% compared with the first nine months of 2011. Sales growth in both periods reflects higher sales of Dr. Scholl’s and Coppertone. Higher sales of MiraLAX and Claritin also contributed to revenue growth in the first nine months of 2012. Revenue growth in the year-to-date period was partially offset by lower sales of Marvelon, an oral contraceptive, which is an over-the-counter product in China. Consumer Care product sales are affected by competition and consumer spending patterns.

Costs, Expenses and Other

In February 2010, subsequent to the Merck and Schering-Plough Corporation (“Schering-Plough”) merger (the “Merger”), the Company commenced actions under a global restructuring program (the “Merger Restructuring Program”) in conjunction with the integration of the legacy Merck and legacy Schering-Plough businesses. This Merger Restructuring Program is intended to optimize the cost structure of the combined company. In July 2011, the Company announced the latest phase of the Merger Restructuring Program during which the Company expects to reduce its workforce measured at the time of the Merger by an additional 12% to 13% across the Company worldwide. A majority of the workforce reductions in this phase of the Merger Restructuring Program relate to manufacturing (including Animal Health), administrative and headquarters organizations. Previously announced workforce reductions of approximately 17% in earlier phases of the program primarily reflect the elimination of positions in sales, administrative and headquarters organizations, as well as from the sale or closure of certain manufacturing and research and development sites and the consolidation of office facilities. The Company will continue to hire employees in strategic growth areas of the business as necessary. The Company will also continue to pursue productivity efficiencies and evaluate its manufacturing supply chain capabilities on an ongoing basis which may result in future restructuring actions.

The Company recorded total pretax restructuring costs of $150 million and $255 million in the third quarter of 2012 and 2011, respectively, and $718 million and $1.2 billion in the first nine months of 2012 and 2011, respectively, related to this program. The restructuring actions under the Merger Restructuring Program are expected to be substantially completed by the end of 2013, with the exception of certain actions, principally manufacturing-related, which are expected to be substantially completed by 2016. The Company now expects the estimated total cumulative pretax costs for this program to be approximately $7.2 billion to $7.5 billion. The increase from original estimates primarily reflects accelerated depreciation related to additional facility closures identified during the Company’s ongoing assessment of worldwide capacity requirements for its manufacturing, research and administrative facilities subsequent to the Merger, including the recently announced move of the Company’s worldwide headquarters to Summit, New Jersey. The Company estimates that approximately two-thirds of the cumulative pretax costs relate to cash outlays, primarily related to employee separation expense. Approximately one-third of the cumulative pretax costs are non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested. The Company expects the Merger Restructuring Program to yield annual savings by the end of 2013 of approximately $3.5 billion to $4.0 billion and annual savings upon completion of the program of approximately $4.0 billion to $4.6 billion. These cost savings, which are expected to come from all areas of the Company’s pharmaceutical business, are in addition to the previously

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announced ongoing cost reduction initiatives at both legacy companies. Additional savings will come from non-restructuring-related activities.

In October 2008, Merck announced a global restructuring program (the “2008 Restructuring Program”) to reduce its cost structure, increase efficiency, and enhance competitiveness. As part of the 2008 Restructuring Program, the Company expects to eliminate approximately 7,200 positions — 6,800 active employees and 400 vacancies — across the Company worldwide. Pretax restructuring costs of $13 million and $20 million were recorded in the third quarter of 2012 and 2011, respectively, and $23 million and $25 million were recorded in the first nine months of 2012 and 2011, respectively, related to the 2008 Restructuring Program. The 2008 Restructuring Program was substantially completed in 2011, with the exception of certain manufacturing-related actions, which are expected to be completed by 2015, with the total cumulative pretax costs estimated to be up to $2.0 billion. The Company estimates that two-thirds of the cumulative pretax costs relate to cash outlays, primarily from employee separation expense. Approximately one-third of the cumulative pretax costs are non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested. Merck expects the 2008 Restructuring Program to yield cumulative pretax savings of $3.8 billion to $4.2 billion from 2008 to 2013.

The Company anticipates that total costs associated with restructuring activities in 2012 for the Merger Restructuring Program and the 2008 Restructuring Program will be in the range of $800 million to $1.1 billion.

The costs associated with all of these restructuring activities are primarily comprised of accelerated depreciation recorded in Materials and production, Marketing and administrative and Research and development and separation costs recorded in Restructuring costs (see Note 2 to the interim consolidated financial statements).

Materials and Production

Materials and production costs were $4.1 billion for the third quarter of 2012, a decline of 5% compared with the third quarter of 2011, and were $12.3 billion for the first nine months of 2012, a decline of 3% compared with the first nine months of 2011. Costs in the third quarter of 2012 and 2011 include $1.2 billion and $1.3 billion, respectively, and for each of the first nine months of 2012 and 2011 include $3.7 billion, of expenses for the amortization of intangible assets recognized in connection with mergers and acquisitions. Costs in the first nine months of 2011 also include an intangible asset impairment charge of $118 million. The Company may recognize additional non-cash impairment charges in the future related to product intangibles that were measured at fair value and capitalized in connection with mergers and acquisitions and such charges could be material. Also included in materials and production costs were costs associated with restructuring activities which amounted to $60 million and $99 million in the third quarter of 2012 and 2011, respectively, and $148 million and $280 million in the first nine months of 2012 and 2011, respectively, including accelerated depreciation and asset write-offs related to the planned sale or closure of manufacturing facilities. Separation costs associated with manufacturing-related headcount reductions have been incurred and are reflected in Restructuring costs as discussed below.

Gross margin was 64.0% in the third quarter of 2012 compared with 63.8% in the third quarter of 2011 and was 65.4% in the first nine months of 2012 compared with 64.5% in the first nine months of 2011. The amortization of intangible assets, impairment charges and restructuring charges noted above had an unfavorable effect on gross margin of 11.2 and 11.5 percentage points for the third quarter of 2012 and 2011, respectively, and 10.8 and 11.8 percentage points for the first nine months of 2012 and 2011, respectively. Excluding these impacts, the gross margins in 2012 as compared with the same periods of 2011 declined reflecting the significant decline in Singulair sales as a result of the loss of U.S. market exclusivity, partially offset by improvements resulting from other changes in product mix and lower costs due to manufacturing efficiencies. The Company anticipates that gross margin will continue to be negatively affected by the Singulair U.S. patent expiry and by the Singulair patent expiry in major European markets in 2013.

Marketing and Administrative

Marketing and administrative expenses were $3.1 billion in the third quarter of 2012, a decline of 8% compared with the third quarter of 2011, and were $9.4 billion in the first nine months of 2012, a decrease of 6% compared with the first nine months of 2011. The declines were due to the favorable impact of foreign exchange, a decline in promotion costs and lower selling costs resulting from restructuring activities. Expenses for the third quarter of 2012 and 2011 include restructuring costs of $25 million and $31 million, respectively, and for the first nine months of 2012 and 2011 include $70 million and $77 million, respectively, related primarily to accelerated depreciation for facilities to be closed or divested. Separation costs associated with sales force reductions have been incurred and are reflected in Restructuring costs as discussed below. Marketing and administrative expenses also include $68 million and $57 million of acquisition-related costs in the third quarter of 2012 and 2011, respectively, and $183 million and $192 million for the first nine months of 2012 and 2011, respectively, consisting largely of integration costs.

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Research and Development

Research and development expenses were $1.9 billion for the third quarter of 2012, a decline of 2% compared with the third quarter of 2011, and were $5.9 billion for the first nine months of 2012, a decrease of 2% compared with the first nine months of 2011. Research and development expenses are comprised of the costs directly incurred by Merck Research Labs (“MRL”), the Company’s research and development division that focuses on human health-related activities, which were approximately $1.1 billion in each of the third quarter of 2012 and the third quarter of 2011, and were $3.3 billion and $3.4 billion in the first nine months of 2012 and 2011, respectively. Also included in research and development expenses are costs incurred by other divisions in support of research and development activities, including depreciation, production and general administrative, as well as certain costs from operating segments, including Pharmaceutical, Animal Health and Consumer Care, which were $798 million and $800 million in the aggregate for the third quarter of 2012 and 2011, respectively, and $2.4 billion and $2.3 billion for the first nine months of 2012 and 2011, respectively. Research and development expenses in 2012 and 2011 were favorably affected by cost savings resulting from restructuring activities.

Research and development expenses also include in-process research and development (“IPR&D”) impairment charges and research and development related restructuring charges. During the third quarter of 2012 and 2011, the Company recorded $40 million and $22 million, respectively, and for the first nine months of 2012 and 2011, recognized $176 million and $343 million, respectively, of IPR&D impairment charges primarily for programs that had previously been deprioritized and were subsequently deemed to have no alternative use during the period. Certain of the charges in 2011 were also attributable to compounds that were out-licensed to a third party for consideration that was less than the related asset’s carrying value. The Company may recognize additional non-cash impairment charges in the future for the cancellation or delay of other pipeline programs that were measured at fair value and capitalized in connection with mergers and acquisitions and such charges could be material. Research and development expenses also reflect accelerated depreciation and asset abandonment costs associated with restructuring activities of $(32) million and $28 million in the third quarter of 2012 and 2011, respectively, and $54 million and $89 million in the first nine months of 2012 and 2011, respectively. In the third quarter of 2012, the Company recorded an adjustment to accelerated depreciation costs included in research and development expenses revising previously recorded amounts for certain facilities. Included in research and development expenses in the first nine months of 2012 is a $120 million upfront payment related to an agreement with Endocyte, Inc. (“Endocyte”). See “Research and Development Update” below.

Restructuring Costs

Restructuring costs, primarily representing separation and other related costs associated with restructuring activities, were $110 million and $473 million for the third quarter and first nine months of 2012, nearly all of which related to the Merger Restructuring Program. Restructuring costs were $119 million and $773 million for the third quarter and first nine months of 2011, respectively. Separation costs were incurred associated with actual headcount reductions, as well as estimated expenses under existing severance programs for headcount reductions that were probable and could be reasonably estimated. Merck eliminated approximately 535 positions in the third quarter of 2012, of which 525 related to the Merger Restructuring Program and 10 related to the 2008 Restructuring Program. During the first nine months of 2012, Merck eliminated approximately 2,475 positions of which 2,325 related to the Merger Restructuring Program and 150 related to the 2008 Restructuring Program. For the third quarter of 2011, Merck eliminated 1,510 positions of which 1,300 related to the Merger Restructuring Program, 110 related to the 2008 Restructuring Program and 100 related to a legacy Schering-Plough program. During the first nine months of 2011, Merck eliminated approximately 3,025 positions of which 2,635 related to the Merger Restructuring Program, 290 related to the 2008 Restructuring Program and 100 related to the legacy Schering-Plough program. These position eliminations are comprised of actual headcount reductions, and the elimination of contractors and vacant positions. Also included in restructuring costs are curtailment, settlement and termination charges associated with pension and other postretirement benefit plans, share-based compensation and shutdown costs. For segment reporting, restructuring costs are unallocated expenses. Additional costs associated with the Company’s restructuring activities are included in Materials and production, Marketing and administrative and Research and development. (See Note 2 to the interim consolidated financial statements.)

Equity Income from Affiliates

Equity income from affiliates, which reflects the performance of the Company’s joint ventures and other equity method affiliates, primarily AZLP, was $158 million in the third quarter of 2012 compared with $161 million in the third quarter of 2011 and $410 million for the first nine months of 2012 compared with $354 million in the first nine months of 2011. The increase in the first nine months of 2012 largely reflects higher equity income from AZLP. (See “Selected Joint Venture and Affiliate Information” below.)

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Other (Income) Expense, Net

Other (income) expense, net was $200 million of expense in the third quarter of 2012 compared with $66 million of expense in the third quarter of 2011. The third quarter of 2011 includes a $136 million gain on the divestiture of the Company’s interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company (“JJMCP”) joint venture (see Note 8 to the interim consolidated financial statements). Other (income) expense, net was $446 million of expense in the first nine months of 2012 compared with $809 million of expense in the first nine months of 2011. Included in other (income) expense, net during the first nine months of 2011 was a $500 million charge related to the resolution of the arbitration proceeding involving the Company’s rights to market Remicade and Simponi (see Note 4 to the interim consolidated financial statements), as well as the $136 million gain on the divestiture of the Company’s interest in the JJMCP joint venture noted above, and a $127 million gain on the sale of certain manufacturing facilities and related assets.

Segment Profits

	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2012		2011		2012		2011
Pharmaceutical segment profits	$	6,265	$	6,355	$	19,767	$	19,014
Other non-reportable segment profits		819		783		2,397		2,300
Other		(4,866)		(4,786)		(14,759)		(15,561)
Income before income taxes	$	2,218	$	2,352	$	7,405	$	5,753

Segment profits are comprised of segment sales less standard costs and certain operating expenses directly incurred by the segment and components of equity income or loss from affiliates and depreciation and amortization expenses. For internal management reporting presented to the chief operating decision maker, Merck does not allocate materials and production costs, other than standard costs, the majority of research and development expenses or general and administrative expenses, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. Also excluded from the determination of segment profits are the arbitration settlement charge, a gain on the divestiture of the Company’s interest in the JJMCP joint venture, and a gain on the sale of certain manufacturing facilities and related assets recorded in 2011, the amortization of purchase accounting adjustments and other acquisition-related costs, intangible asset impairment charges, restructuring costs, taxes paid at the joint venture level and a portion of equity income. Additionally, segment profits do not reflect other expenses from corporate and manufacturing cost centers and other miscellaneous income or expense. These unallocated items are reflected in “Other” in the above table. Also included in “Other” are miscellaneous corporate profits (losses), as well as operating profits (losses) related to third-party manufacturing sales, divested products or businesses, and other supply sales.

Pharmaceutical segment profits declined 1% in the third quarter of 2012, driven primarily by the effects of the loss of U.S. market exclusivity for Singulair. Pharmaceutical segment profits increased 4% in first nine months of 2012 driven largely by lower operating expenses, partially offset by the effects of the loss of U.S. market exclusivity for Singulair.

Taxes on Income

The effective tax rates of 20.5% and 27.8% for the third quarter and first nine months of 2012 and 26.7% and 15.7% for the third quarter and first nine months of 2011 reflect the impacts of acquisition-related costs and restructuring costs, partially offset by the beneficial impact of foreign earnings. In addition, the effective tax rates for the third quarter and first nine months of 2012 also reflect the favorable impacts of a tax settlement with the Canada Revenue Agency (the “CRA”) and the realization of foreign tax credits. The effective tax rate for the first nine months of 2011 also reflects the net favorable impact of approximately $700 million relating to the settlement of Merck’s 2002-2005 federal income tax audit, the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting, as well as the unfavorable impact of the $500 million charge related to the resolution of the arbitration proceeding with J&J.

Net Income and Earnings per Common Share

Net income attributable to Merck & Co., Inc. was $1.7 billion for the third quarter of 2012 compared with $1.7 billion for the third quarter of 2011 and $5.3 billion for the first nine months of 2012 compared with $4.8 billion for the first nine months of 2011. Earnings per common share assuming dilution attributable to Merck & Co., Inc. common shareholders (“EPS”) for the third quarter of 2012 were $0.56 compared with $0.55 in the third quarter of 2011 and were $1.71 for the first nine months of 2012 compared with $1.53 for the first nine months of

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2011. Net income and EPS were up slightly in the third quarter of 2012 as compared with the third quarter of 2011 due primarily to lower marketing and administrative expenses, lower restructuring costs and the favorable impact of tax items, largely offset by the effects of the loss of U.S. market exclusivity for Singulair in 2012, as well as the gain recognized in 2011 on the divestiture of the Company’s interest in the JJMCP joint venture. The increases in net income and EPS in the first nine months of 2012 as compared with the same period in 2011 were primarily due to lower marketing and administrative expenses, lower restructuring costs, lower intangible asset impairment charges and the arbitration settlement charge recorded in 2011, partially offset by the effects of the loss of U.S. market exclusivity for Singulair in 2012, as well as by the favorable impact of tax items and the gains recognized on certain divestitures in 2011.

Non-GAAP Income and Non-GAAP EPS

Non-GAAP income and non-GAAP EPS are alternative views of the Company’s performance used by management that Merck is providing because management believes this information enhances investors’ understanding of the Company’s results. Non-GAAP income and non-GAAP EPS exclude certain items because of the nature of these items and the impact that they have on the analysis of underlying business performance and trends. The excluded items consist of acquisition-related costs, restructuring costs and certain other items. These excluded items are significant components in understanding and assessing financial performance. Therefore, the information on non-GAAP income and non-GAAP EPS should be considered in addition to, but not in lieu of, net income and EPS prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Additionally, since non-GAAP income and non-GAAP EPS are not measures determined in accordance with GAAP, they have no standardized meaning prescribed by GAAP and, therefore, may not be comparable to the calculation of similar measures of other companies.

Non-GAAP income and non-GAAP EPS are important internal measures for the Company. Senior management receives a monthly analysis of operating results that includes non-GAAP income and non-GAAP EPS and the performance of the Company is measured on this basis along with other performance metrics. Senior management’s annual compensation is derived in part using non-GAAP income and non-GAAP EPS.

A reconciliation between GAAP financial measures and non-GAAP financial measures is as follows:

	Three Months Ended September 30,				Nine Months Ended   September 30,
($ in millions except per share amounts)	2012		2011		2012		2011
Pretax income as reported under GAAP	$	2,218	$	2,352	$	7,405	$	5,753
Increase (decrease) for excluded items:
Acquisition-related costs		1,340		1,363		4,046		4,460
Restructuring costs		163		277		745		1,219
Other items:
Gain on divestiture of interest in JJMCP joint venture and other		-		(137)		-		(137)
Arbitration settlement charge		-		-		-		500
Gain on sale of manufacturing facilities and related assets		-		-		-		(127)
		3,721		3,855		12,196		11,668
Taxes on income as reported under GAAP		455		628		2,055		904
Estimated tax benefit on excluded items		300		287		848		1,025
Tax benefit from settlement of federal income tax audit		-		-		-		700
Tax benefit from foreign and state tax rate changes		-		-		-		230
		755		915		2,903		2,859
Non-GAAP net income		2,966		2,940		9,293		8,809
Less: Net income attributable to noncontrolling interests		34		32		89		89
Non-GAAP net income attributable to Merck & Co., Inc.	$	2,932	$	2,908	$	9,204	$	8,720
EPS assuming dilution as reported under GAAP	$	0.56	$	0.55	$	1.71	$	1.53
EPS difference (1)		0.39		0.39		1.28		1.27
Non-GAAP EPS assuming dilution	$	0.95	$	0.94	$	2.99	$	2.80

⁽¹⁾  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 applicable period.

Acquisition-Related Costs

Non-GAAP income and non-GAAP EPS exclude the impact of certain amounts recorded in connection with mergers and acquisitions. These amounts include the amortization of intangible assets and inventory step-up,

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as well as intangible asset impairment charges. Also excluded are integration and transaction costs associated with the Merger, as well as other costs associated with mergers and acquisitions, such as severance costs which are not part of the Company’s formal restructuring programs. These costs are excluded because management believes that these costs are not representative of ongoing normal business activities.

Restructuring Costs

Non-GAAP income and non-GAAP EPS exclude costs related to restructuring actions, including restructuring activities related to the Merger (see Note 2 to the interim consolidated financial statements). These amounts include employee separation costs and accelerated depreciation associated with facilities to be closed or divested. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the revised useful life of the site, based upon the anticipated date the site will be closed or divested, and depreciation expense as determined utilizing the useful life prior to the restructuring actions. The Company has undertaken restructurings of different types during the covered periods and therefore these charges should not be considered non-recurring; however, management excludes these amounts from non-GAAP income and non-GAAP EPS because it believes it is helpful for understanding the performance of the continuing business.

Certain Other Items

Non-GAAP income and non-GAAP EPS exclude certain other items. These items represent substantive, unusual items that are evaluated on an individual basis. Such evaluation considers both the quantitative and the qualitative aspect of their unusual nature and generally represent items that, either as a result of their nature or magnitude, management would not anticipate that they would occur as part of the Company’s normal business on a regular basis. Certain other items are comprised of the gain on the divestiture of the Company’s interest in the JJMCP joint venture, the arbitration settlement charge and the gain associated with the sale of certain manufacturing facilities and related assets recorded in 2011 discussed above. Also excluded from non-GAAP income and non-GAAP EPS are the tax benefits from the settlement of a federal income tax audit and the favorable impact of certain foreign and state tax rate changes that resulted in a net reduction of deferred tax liabilities on intangibles established in purchase accounting.

Research and Development Update

In November 2012, Merck announced that the New Drug Application (“NDA”) for suvorexant (MK-4305), the Company’s investigational insomnia medicine, has been accepted for standard review by the FDA. The NDA for suvorexant was based on data from a broad clinical development program, including: two pivotal, three-month efficacy trials that evaluated the ability of suvorexant to help patients fall asleep and stay asleep; a 12-month study, followed by a two-month discontinuation phase, that was designed to assess the safety of suvorexant, while also evaluating its longer term efficacy and the impact of stopping treatment; and two next-day driving studies that provided an assessment of residual effects following evening use of suvorexant. If approved, suvorexant would be the first in a new class of medicines, called orexin receptor antagonists, for use in patients with difficulty falling or staying asleep. Suvorexant will be evaluated by the Controlled Substance Staff of the FDA during NDA review. If approved by the FDA, suvorexant will become available after a schedule assessment and determination has been completed by the U.S. Drug Enforcement Administration, which routinely occurs after FDA approval. The Company is continuing with plans to seek approval for suvorexant in other countries around the world.

In October 2012, the Company announced it had completed a study of sugammadex (MK-8616), a neuromuscular blockade reversal agent, to assess bleeding risk when co-administered with anticoagulants in a surgical setting. The Company continues to anticipate resubmitting an NDA for sugammadex to the FDA in 2012. Sugammadex is marketed outside the United States as Bridion.

In September 2012, Merck and Cardiome Pharma Corp. (“Cardiome”) announced that Merck will return the global marketing and development rights for both the intravenous and oral formulations for vernakalant, a treatment for atrial fibrillation, to Cardiome for business reasons.

In August 2012, Merck provided an update on the cardiovascular development programs for vorapaxar (MK-5348), Tredaptive (MK-0524A) and anacetrapib (MK-0859). Following a review of the clinical trial data and discussions with external experts, Merck plans to file applications for vorapaxar, an investigational anti-thrombotic medicine, in the United States and the EU in 2013. Merck plans to seek an indication for the prevention of cardiovascular events in patients with a history of heart attack and no history of transient ischemic attack or stroke. Discussions with worldwide regulatory agencies are continuing. For Tredaptive, Merck confirmed that the HPS2-THRIVE (Treatment of HDL to Reduce the Incidence of Vascular Events) study is on track to complete later in 2012, and Merck plans to file applications in the United States and the EU in 2013. The event-driven cardiovascular clinical outcomes trial of anacetrapib, REVEAL (Randomized EValuation of the Effects of Anacetrapib through Lipid-modification), which like HPS2-THRIVE is being led by Oxford University’s Clinical Trial Service Unit, is predicted to be completed in 2017.

In June 2012, Merck announced that the FDA issued a Complete Response Letter regarding the NDA for ridaforolimus (MK-8669). Ridaforolimus is an investigational oral mTOR inhibitor under development for maintenance therapy for patients with metastatic soft tissue or bone sarcoma who have stable disease or better after four or more cycles of chemotherapy. The Complete Response Letter states that the FDA cannot approve the application in its present form, and that additional clinical trial(s) would need to be conducted to further assess safety and efficacy. The Company is evaluating next steps. Merck also is in ongoing discussions with health

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authorities in Europe and other countries as part of their application procedures for ridaforolimus for the treatment of metastatic soft-tissue or bone sarcomas in patients who had a favorable response to chemotherapy. Additionally, Merck is studying ridaforolimus in combination with other mechanisms in several tumor types. As part of an exclusive license agreement with ARIAD Pharmaceuticals, Inc. (“ARIAD”), Merck is responsible for the development and worldwide commercialization of ridaforolimus in oncology. ARIAD has exercised its option to co-promote ridaforolimus for sarcoma if the drug is approved in the United States.

In March 2012, Merck announced that the FDA issued a Complete Response Letter regarding Merck’s NDA for Atozet (MK-0653C), an investigational combination medicine for the treatment of primary or mixed hyperlipidemia. In the letter, the FDA advised Merck that it has completed its review of the submission and stated that additional data are needed. Merck is planning to submit additional information to the FDA for ezetimibe and atorvastatin by the end of 2012, including supportive data from studies that were completed earlier this year. The previously disclosed patent litigation with Pfizer has been resolved.

In October 2012, the Company discontinued the clinical development program for MK-0524B, a combination product of extended-release niacin with laropriprant and simvastatin for cholesterol management, for business reasons. This has no impact on the HPS2-THRIVE trial or the MK-0524A program, both of which are continuing as planned.

Merck has also decided at this time to discontinue the clinical development program for MK-0431E, a combination product of sitagliptin and atorvastatin for the treatment of type 2 diabetes, for business reasons.

In April 2012, the Company entered into an agreement with Endocyte to develop and commercialize Endocyte’s novel investigational therapeutic candidate vintafolide (MK-8109). Vintafolide is currently being evaluated in a Phase III clinical trial for platinum-resistant ovarian cancer (PROCEED) and a Phase II trial for non-small cell lung cancer. Under the agreement, Merck gained worldwide rights to develop and commercialize vintafolide. Endocyte received a $120 million upfront payment, which the Company recorded in Research and development expenses in the second quarter of 2012, and is eligible for milestone payments of up to $880 million based on the successful achievement of development, regulatory and commercialization goals for vintafolide for a total of six cancer indications. In addition, if vintafolide receives regulatory approval, Endocyte will receive an equal share of the profit in the United States as well as a royalty on sales of the product in the rest of the world. Endocyte has retained the right to co-promote vintafolide with Merck in the United States and Merck has the exclusive right to promote vintafolide in the rest of world. Endocyte will be responsible for the majority of funding and completion of the PROCEED trial. Merck will be responsible for most other development activities, all other costs and have most decision rights for vintafolide. Merck has the right to terminate the agreement on 90 days notice. Merck and Endocyte both have the right to terminate the agreement due to the material breach or insolvency of the other party. Endocyte has the right to terminate the agreement in the event that Merck challenges an Endocyte patent right relating to vintafolide. Upon termination of the agreement, depending upon the circumstances, the parties have varying rights and obligations with respect to the continued development and commercialization of vintafolide and, in the case of termination for cause by Merck, certain royalty obligations and U.S. profit and loss sharing. Endocyte plans to file an application for vintafolide in the EU for the treatment of folate receptor positive platinum-resistant ovarian cancer in 2012. Endocyte remains responsible for the development, manufacture and commercialization worldwide of etarfolatide, a non-invasive companion diagnostic imaging agent that is used to identify folate receptor positive tumor cells.

In October 2012, Merck and AiCuris entered into an exclusive licensing agreement which provides Merck with worldwide rights to develop and commercialize candidates in AiCuris’ novel portfolio of investigational medicines targeting Human Cytomegalovirus (“HCMV”), including letermovir (AIC246), an oral, late-stage antiviral candidate being investigated for the treatment and prevention of HCMV infection in transplant recipients. AiCuris will receive a €110 million upfront payment (approximately $140 million at September 30, 2012), which the Company will record as research and development expense, and is eligible for milestone payments of up to €332.5 million based on successful achievement of development, regulatory and commercialization goals for HCMV candidates, including letermovir, an additional back-up candidate as well as other Phase I candidates designed to act via an alternate mechanism. In addition, AiCuris will be entitled to receive royalty payments reflecting the advanced stage of the clinical program on any potential products that result from the agreement. Merck will be responsible for all development activities and costs. The agreement may be terminated by either party in the event of a material uncured breach or insolvency. The agreement may be terminated by Merck at any time in the event that any of the compounds licensed from AiCuris develop an adverse safety profile or any material adverse issue arises related to the development, efficacy or dosing regimen of any of the compounds and/or in the event that certain patents are invalid and/or unenforceable in certain jurisdictions. Merck (i) may terminate the agreement with respect to certain compounds after successful completion of the first proof of concept clinical trial or (ii) must terminate the agreement with respect to certain compounds if Merck fails to minimally invest in such compounds.

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In addition, Merck may terminate the agreement as a whole at any time upon six months prior written notice at any time after completion of the first Phase III clinical trial for a compound. AiCuris may terminate the agreement in the event that Merck challenges any AiCuris patent covering the compounds licensed from AiCuris. Upon termination of the agreement, depending upon the circumstances, the parties have varying rights and obligations with respect to the continued development and commercialization of compounds and, in the case of termination for cause by Merck, certain royalty obligations. Closing of the transaction is contingent upon obtaining clearance from the relevant authorities.

The chart below reflects the Company’s research pipeline as of November 1, 2012. Candidates shown in Phase III include specific products and the date such candidate entered into Phase III development. Candidates shown in Phase II include the most advanced compound with a specific mechanism or, if listed compounds have the same mechanism, they are each currently intended for commercialization in a given therapeutic area. Small molecules and biologics are given MK-number designations and vaccine candidates are given V-number designations. Candidates in Phase I, additional indications in the same therapeutic area and additional claims, line extensions or formulations for in-line products are not shown.

Phase II	Phase III (Phase III entry date)	Under Review
Allergy       MK-8237, Immunotherapy(1) Asthma       MK-1029 Cancer       MK-0646 (dalotuzumab)       MK-1775       MK-2206       MK-7965 (dinaciclib)(2) Contraception, Medicated IUS       MK-8342 Hepatitis C       MK-5172 HIV       MK-1439 Insomnia       MK-6096 Migraine       MK-1602 Overactive Bladder       MK-4618 Pneumoconjugate Vaccine       V-114 Psoriasis       MK-3222 Rheumatoid Arthritis       MK-8457	Allergy       MK-7243, Grass pollen (March 2008)(1)       MK-3641, Ragweed (September 2009)(1) Atherosclerosis       MK-0524A (extended-release niacin/laropiprant) (U.S.)           (December 2005)       MK-0859 (anacetrapib) (May 2008) Clostridium difficile Infection       MK-3415A (actoxumab/bezlotoxumab) (November 2011) Contraception       MK-8175A (NOMAC/E2) (U.S.) (June 2006)(3) Diabetes Mellitus       MK-3102 (September 2012) Fertility       MK-8962 (corifollitropin alfa for injection) (U.S.) (July 2006) Hepatitis C       MK-7009 (vaniprevir) (June 2011)(4) Herpes Zoster       V212 (inactivated VZV vaccine) (December 2010) HPV-Related Cancers       V503 (HPV vaccine (9 valent)) (September 2008) Neuromuscular Blockade Reversal       MK-8616 (sugammadex) (U.S.) (November 2005) Osteoporosis       MK-0822 (odanacatib) (September 2007) Parkinson’s Disease       MK-3814 (preladenant) (July 2010) Pediatric Hexavalent Combination Vaccine       V419 (April 2011) Platinum-Resistant Ovarian Cancer       MK-8109 (vintafolide) (April 2011)(5) Thrombosis       MK-5348 (vorapaxar) (September 2007)	Atherosclerosis       MK-0653C (Atozet) (U.S.)(6) Insomnia       MK-4305 (suvorexant) (U.S.) Sarcoma       MK-8669 (ridaforolimus) (EU) (U.S.)(7)
		Footnotes: (1)   North American rights only. (2)   Phase IIb/III adaptive design in patients with chronic lymphocytic leukemia. (3)   In November 2011, Merck received a Complete Response letter from the FDA for NOMAC/E2 (MK-8175A). The Company is conducting an additional clinical study requested by the FDA and plans to update the application in the future. (4)  For development in Japan only. (5)  Vintafolide started Phase III clinical trials in April 2011 sponsored by Endocyte, Inc. (6)   In March 2012, Merck received a Complete Response Letter from the FDA for Atozet (MK-0653C). Merck is planning to submit additional information to the FDA. (7)   In June 2012, Merck received a Complete Response Letter from the FDA for ridaforolimus (MK-8669). The Company is evaluating next steps.

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Selected Joint Venture and Affiliate Information

AstraZeneca LP

In 1998, Merck and Astra completed the restructuring of the ownership and operations of their existing joint venture whereby Merck acquired Astra’s interest in KBI Inc. (“KBI”) and contributed KBI’s operating assets to a new U.S. limited partnership, Astra Pharmaceuticals L.P. (the “Partnership”), in exchange for a 1% limited partner interest. Astra contributed the net assets of its wholly owned subsidiary, Astra USA, Inc., to the Partnership in exchange for a 99% general partner interest. The Partnership, renamed AstraZeneca LP (“AZLP”) upon Astra’s 1999 merger with Zeneca Group Plc, became the exclusive distributor of the products for which KBI retained rights.

In June 2012, Merck and AstraZeneca amended the 1998 option agreement which gave AstraZeneca the option to buy Merck’s common stock interest in KBI and, through it, Merck’s interest in Nexium and Prilosec as well as AZLP. The updated agreement eliminates AstraZeneca’s option to acquire Merck’s interest in KBI in 2012 and provides AstraZeneca a new option to acquire Merck’s interest in KBI in June 2014. As a result of the amended agreement, Merck will continue to record supply sales and equity income from the partnership for the remainder of 2012 and 2013. In 2014, AstraZeneca has the option to purchase Merck’s interest in KBI based in part on the value of Merck’s interest in Nexium and Prilosec. AstraZeneca’s option is exercisable between March 1, 2014 and April 30, 2014. If AstraZeneca chooses to exercise this option, the closing date is expected to be June 30, 2014. Under the amended agreement, AstraZeneca will make a payment to Merck upon closing of $327 million, reflecting an estimate of the fair value of Merck’s interest in Nexium and Prilosec. This portion of the exercise price is subject to a true-up in 2018 based on actual sales from closing in 2014 to June 2018. The exercise price will also include an additional amount equal to a multiple of ten times Merck’s average 1% annual profit allocation in the partnership for the three years prior to exercise. The Company believes that it is likely that AstraZeneca will exercise its option in 2014. If AstraZeneca exercises its option, the Company will no longer record equity income from AZLP and supply sales to AZLP will decline substantially.

Sanofi Pasteur MSD

In 1994, Merck and Pasteur Mérieux Connaught (now Sanofi Pasteur S.A.) established an equally-owned joint venture to market vaccines in Europe and to collaborate in the development of combination vaccines for distribution in Europe. Total vaccine sales reported by SPMSD were $336 million and $375 million in the third quarter of 2012 and 2011, respectively, and were $771 million and $805 million for the first nine months of 2012 and 2011, respectively. SPMSD sales of Gardasil were $82 million and $59 million for the third quarter of 2012 and 2011, respectively, and were $197 million and $183 million for the first nine months of 2012 and 2011, respectively.

The Company records the results from its interest in AZLP and SPMSD in Equity income from affiliates.

Liquidity and Capital Resources

	September 30,		December 31,
($ in millions)	2012		2011
Cash and investments	$	23,677	$	18,430
Working capital		20,646		16,936
Total debt to total liabilities and equity		18.4%		16.7%

During the first nine months of 2012, cash provided by operating activities was $8.2 billion compared with $9.2 billion in the first nine months of 2011. Cash provided by operating activities in the first nine months of 2012 reflects the payment of $960 million (including interest) related to the resolution of certain litigation related to Vioxx (see Note 10 to the interim consolidated financial statements). Cash provided by operating activities continues to be the Company’s primary source of funds to finance operating needs, capital expenditures, treasury stock purchases and dividends paid to shareholders. During the fourth quarter of 2012, the Company anticipates contributing approximately $900 million to its U.S. defined benefit pension plans.

The global economic downturn and the sovereign debt issues, among other factors, have adversely impacted foreign receivables in certain European countries (see Note 5 to the interim consolidated financial statements). While the Company continues to receive payment on these receivables, including significant collections during the second quarter in connection with the Spanish government’s debt stabilization/stimulus plan, these conditions have resulted in an increase in the average length of time it takes to collect accounts receivable outstanding thereby adversely affecting cash provided by operating activities.

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Cash used in investing activities was $2.4 billion in the first nine months of 2012 compared with $1.2 billion in the first nine months of 2011 primarily reflecting higher purchases of securities and other investments in 2012, as well as proceeds received from the disposition of businesses in 2011, partially offset by higher proceeds from the sales of securities and other investments in 2012 and the use of funds for the acquisitions of businesses in 2011. Cash used in financing activities in the first nine months of 2012 was $2.0 billion compared with $4.7 billion in the first nine months of 2011. The lower use of cash in financing activities was primarily driven by proceeds from the issuance of debt, lower payments on debt and higher proceeds from the exercise of stock options, partially offset by a decrease in short-term borrowings, higher dividends paid to stockholders and increased purchases of treasury stock.

At September 30, 2012, the total of worldwide cash and investments was $23.7 billion, including $18.1 billion of cash, cash equivalents and short-term investments and $5.6 billion of long-term investments. Generally 80%-90% of these cash and investments are held by foreign subsidiaries and would be subject to significant tax payments if such cash and investments were repatriated in the form of dividends. The Company records U.S. deferred tax liabilities for certain unremitted earnings, but when amounts earned overseas are expected to be indefinitely reinvested outside of the United States, no accrual for U.S. taxes is provided. The amount of cash and investments held by U.S. and foreign subsidiaries fluctuates due to a variety of factors including the timing and receipt of payments in the normal course of business. Cash provided by operating activities in the United States continues to be the Company’s primary source of funds to finance domestic operating needs, capital expenditures, treasury stock purchases and dividends paid to shareholders.

As previously disclosed, the Canada Revenue Agency (the “CRA”) had proposed adjustments for 1999 and 2000 relating to intercompany pricing matters and, in July 2011, the CRA issued assessments for other miscellaneous audit issues for tax years 2001-2004. In the third quarter of 2012, Merck and the CRA reached a settlement that calls for Merck to pay additional Canadian tax of approximately $65 million. The Company’s unrecognized tax benefits related to these matters exceeded the settlement amount and therefore the Company recorded a net $112 million tax provision benefit in the third quarter of 2012. A portion of the taxes paid is expected to be creditable for U.S. tax purposes. The Company had previously established reserves for these matters. The resolution of these matters did not have a material effect on the Company’s results of operations, financial position or liquidity.

In April 2011, the Internal Revenue Service (the “IRS”) concluded its examination of Merck’s 2002-2005 federal income tax returns and as a result the Company was required to make net payments of approximately $465 million. The Company’s unrecognized tax benefits for the years under examination exceeded the adjustments related to this examination period and therefore the Company recorded a net $700 million tax provision benefit in the second quarter of 2011. This net benefit reflects the decrease of unrecognized tax benefits for the years under examination partially offset by increases to the unrecognized tax benefits for years subsequent to the examination period as a result of this settlement. The Company disagrees with the IRS treatment of one issue raised during this examination and is appealing the matter through the IRS administrative process.

Capital expenditures totaled $1.2 billion and $1.1 billion for the first nine months of 2012 and 2011, respectively.

Dividends paid to stockholders were $3.8 billion and $3.5 billion for the first nine months of 2012 and 2011, respectively. In May and July 2012, the Board of Directors declared a quarterly dividend of $0.42 per share on the Company’s common stock payable in July and October of 2012, respectively.

In April 2011, Merck’s Board of Directors approved additional purchases of up to $5.0 billion of Merck’s common stock for its treasury. The Company purchased $1.4 billion of its common stock (36 million shares) for its treasury during the first nine months of 2012. The Company has approximately $3.0 billion remaining under this program. The treasury stock purchases have no time limit and will be made over time on the open market, in block transactions or in privately negotiated transactions.

In September 2012, the Company closed an underwritten public offering of $2.5 billion senior unsecured notes consisting of $1.0 billion aggregate principle amount of 1.1% notes due 2018, $1.0 billion aggregate principle amount of 2.4% notes due 2022 and $500 million aggregate principle amount of 3.6% notes due 2042. Interest on the notes is payable semi-annually. The notes of each series are redeemable in whole or in part at any time at the Company’s option at varying redemption prices. Proceeds from the notes will be used for general corporate purposes, including making contributions to the Company’s pension plans and the repayment of outstanding commercial paper and upcoming debt maturities.

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In May 2012, the Company terminated its existing credit facilities and entered into a new $4.0 billion, five-year credit facility maturing in May 2017. The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes. The Company has not drawn funding from this facility.

Critical Accounting Policies

The Company’s significant accounting policies, which include management’s best estimates and judgments, are included in Note 2 to the consolidated financial statements for the year ended December 31, 2011 included in Merck’s Form 10-K filed on February 28, 2012. Certain of these accounting policies are considered critical as disclosed in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Merck’s Form 10-K because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates. There have been no significant changes in the Company’s critical accounting policies since December 31, 2011.

Recently Issued Accounting Standards Not Yet Adopted

In July 2012, the Financial Accounting Standards Board issued amended guidance that simplifies how an entity tests indefinite-lived intangibles for impairment. The amended guidance will allow companies to first assess qualitative factors to determine whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. The updated guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is currently evaluating the impact of adoption on its financial position and results of operations.

Item 4.  Controls and Procedures

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures over financial reporting for the period covered by this Form 10–Q. Based on this assessment, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2012, the Company’s disclosure controls and procedures are effective. There have been no changes in internal control over financial reporting for the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

This report and other written reports and oral statements made from time to time by the Company may contain so-called “forward-looking statements,” all of which are based on management’s current expectations and are subject to risks and uncertainties which may cause results to differ materially from those set forth in the statements. One can identify these forward-looking statements by their use of words such as “anticipates,” “expects,” “plans,” “will,” “estimates,” “forecasts,” “projects” and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address the Company’s growth strategy, financial results, product development, product approvals, product potential and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ materially from the Company’s forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially.

The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors, including risk factors, described in the Company’s filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and 8-K. In Item 1A. “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, as filed on February 28, 2012, the Company discusses in more detail various important risk factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties.

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PART II - Other Information

Item 1.  Legal Proceedings

The information called for by this Item is incorporated herein by reference to Note 10 included in Part I, Item 1, Financial Statements (unaudited) — Notes to Consolidated Financial Statements.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Issuer purchases of equity securities for the three months ended September 30, 2012 were as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

				($ in millions)
Period	Total Number   of Shares Purchased(1)		Average Price   Paid Per Share	Approximate Dollar Value of Shares     That May Yet Be Purchased Under the Plans or Programs(1)
July 1 - July 31		2,464,800	$42.08	$3,397
August 1 - August 31		812,900	$43.13	$3,362
September 1 - September 30		7,140,066	$44.25	$3,046
Total		10,417,766	$43.65	$3,046

⁽¹⁾All shares purchased during the period were made as part of a plan approved by the Board of Directors in April 2011 to purchase up to $5 billion in Merck shares.

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Item 6.  Exhibits

Number	Description
3.1	Restated Certificate of Incorporation of Merck & Co., Inc. (November 3, 2009) – Incorporated by reference to Current Report on Form 8-K filed on November 4, 2009
3.2	By-Laws of Merck & Co., Inc. (effective January 1, 2012) – Incorporated by reference to Current Report on Form 8-K filed December 21, 2011
10	Amended and Restated KBI Shares Option Agreement dated as of June 26, 2012 by and among AstraZeneca AB, Merck Sharp & Dohme Corp. and Merck Holdings LLC
31.1	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Executive Officer
31.2	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
101	The following materials from Merck & Co., Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statement of Income, (ii) the Consolidated Statement of Comprehensive Income, (iii) the Consolidated Balance Sheet, (iv) the Consolidated Statement of Cash Flows, and (v) Notes to Consolidated Financial Statements.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MERCK & CO., INC.
Date: November 9, 2012	/s/ Bruce N. Kuhlik
	BRUCE N. KUHLIK
	Executive Vice President and General Counsel
Date: November 9, 2012	/s/ John Canan
	JOHN CANAN
	Senior Vice President Finance - Global Controller

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EXHIBIT INDEX

Number	Description
3.1	Restated Certificate of Incorporation of Merck & Co., Inc. (November 3, 2009) – Incorporated by reference to Current Report on Form 8-K filed on November 4, 2009
3.2	By-Laws of Merck & Co., Inc. (effective January 1, 2012) – Incorporated by reference to Current Report on Form 8-K filed December 21, 2011
10	Amended and Restated KBI Shares Option Agreement dated as of June 26, 2012 by and among AstraZeneca AB, Merck Sharp & Dohme Corp. and Merck Holdings LLC
31.1	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Executive Officer
31.2	Rule 13a – 14(a)/15d – 14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer
101	The following materials from Merck & Co., Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statement of Income, (ii) the Consolidated Statement of Comprehensive Income, (iii) the Consolidated Balance Sheet, (iv) the Consolidated Statement of Cash Flows, and (v) Notes to Consolidated Financial Statements.

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EX-10

Exhibit 10

FINAL EXECUTION COPY

AMENDED AND RESTATED

KBI SHARES OPTION AGREEMENT

DATED AS OF JUNE 26, 2012

BY AND AMONG

ASTRAZENECA AB, MERCK SHARP & DOHME CORP. AND MERCK HOLDINGS LLC

TABLE OF CONTENTS

		Page
ARTICLE I GRANT OF OPTION			2
1.1	Option		2
ARTICLE II EXERCISE OF OPTION			3
2.1	Option Exercise Price		3
2.2	Exercise of Option		5
2.3	Transition Manufacturing		14
2.4	Cross-References		17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF TR AND TR HOLDINGS			17
3.1	Ownership of Shares		17
ARTICLE IV COVENANTS AND AGREEMENTS OF TR AND TR HOLDINGS REGARDING THE KBI BUSINESS			17
4.1	Preservation of Corporate Existence; Operation of KBI and its Subsidiaries		17
4.2	Payment of State and Local Taxes		18
4.3	Financial Statements; Books and Records		18
4.4	Limitation on Transfer of License Rights		19
4.5	Compliance with Laws		19
4.6	Cash		19
4.7	Merck Holdings, Inc		19
ARTICLE V [RESERVED]			19
ARTICLE VI ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES			19
6.1	Reasonable Efforts; Further Assurances		19
6.2	HSR Act		20
6.3	Payment of Federal Income Taxes		20
6.4	Consents		20
6.5	Non-Contravention		20
6.6	KBI Balance Sheet		20
6.7	Consent to Transfer KBI Preferred Stock		22

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ARTICLE VII INDEMNIFICATION		23
ARTICLE VIII ARBITRATION		24
ARTICLE IX TERMINATION		24
ARTICLE X MISCELLANEOUS		24
10.1	Expenses	24
10.2	Assignment	24
10.3	No Third Party Beneficiaries	24
10.4	Notices	25
10.5	Governing Law	25
10.6	Entire Agreement; Amendments and Waivers	25
10.7	Counterparts	26
10.8	Invalidity	26
10.9	Headings	26
10.10	Remedies	26
10.11	Gender and Number	26
10.12	No Consent to Section 338 Tax Election	26

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AMENDED AND RESTATED

KBI SHARES OPTION AGREEMENT

This AMENDED AND RESTATED KBI SHARES OPTION AGREEMENT (this “Agreement”) is made and entered into as of June 26, 2012 (the “Restatement Date”) by and among AstraZeneca AB (formerly Astra AB), a company limited by shares organized and existing under the laws of Sweden (“KB”), Merck Sharp & Dohme Corp. (formerly Merck & Co., Inc.), a corporation organized and existing under the laws of the State of New Jersey (“TR” or “Merck”), and Merck Holdings LLC, a limited liability company organized and existing under the laws of the State of Delaware, a wholly-owned subsidiary of TR and the successor by conversion to Merck Holdings, Inc. (“TR Holdings”). Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to such terms in the Master Restructuring Agreement dated as of June 19, 1998, as amended, between KB, TR, KBI Inc. (formerly Astra Merck Inc.), a Delaware corporation (“KBI”), Astra USA, Inc., a New York corporation (“KB USA”), AstraZeneca Pharmaceuticals LP (formerly KB USA, L.P.), a Delaware limited partnership (“AZPLP”), KBI-E Inc. (formerly Astra Merck Enterprises Inc.), a Delaware corporation (“KBI-E”), KBI Sub Inc., a Delaware corporation (“KBI Sub”), TR Holdings and AstraZeneca LP (formerly Astra Pharmaceuticals, L.P.), a Delaware limited partnership (the “Partnership” or “AZLP”)) (the “Master Restructuring Agreement”).

This Agreement amends and restates the KBI Shares Option Agreement made and entered into as of July 1, 1998 (such agreement, the “Original Agreement” and such date the “Original Date”) by and among KB, TR and TR Holdings.

W I T N E S S E T H:

WHEREAS, TR Holdings is the holder of all of the issued and outstanding shares of common stock of KBI, and all of the issued and outstanding shares of Class D Voting Preferred Stock of KBI (the “Class D Preferred Stock”) and Class E Non-Voting Convertible Participating Preferred Stock of KBI (the “Class E Preferred Stock”); and

WHEREAS, KB is the holder of all of the issued and outstanding shares of Class A Non-Voting Preferred Stock of KBI, par value $12,160 per share (the “Class A Preferred Stock”) (as of the Restatement Date, 193,256.58 shares of Class A Preferred Stock) and Class C Voting Preferred Stock of KBI, par value $9,600 per share (the “Class C Preferred Stock”) (as of the Restatement Date, 5,208.33 shares of Class C Preferred Stock); and

WHEREAS, as provided in the Original Agreement TR Holdings granted to KB and KB acquired from TR Holdings an option to acquire complete ownership of KBI under certain circumstances as hereinafter described; and

WHEREAS, KB, AZPLP, KB USA, the Partnership, TR, TR Holdings, KBI, KBI-E and KBI Sub have entered into a Settlement Agreement and Release dated as of September 15, 2010 (the “Settlement Agreement”), relating to among other things the terms on which Vimovo (as defined in the Settlement Agreement, “Vimovo”) will be included in the calculation of the Option Exercise Price provided for herein; and

WHEREAS, the parties desire to modify the manner in which Vimovo will be included in the computation of the Option Exercise Price in the event of a 2014 Option Exercise (as defined in Section 2.2(d)); and

WHEREAS, KB, TR, KBI, KBI-E, KB USA and AZLP have entered into that certain letter agreement dated as of June 1, 2011 pursuant to which the parties agreed to take certain Referenced Products (as defined in such letter agreement) out of the supply chain under the Manufacturing Agreement and the KBI Supply Agreement and provide for the manner of payment of the Agreed Mark-Up otherwise payable with respect to such Referenced Products pursuant to the KBI Supply Agreement (such letter agreement as amended or supplemented, the “June Letter”); and

WHEREAS, the parties hereto desire to provide for certain arrangements in connection with the exercise of such option in the year 2014 and to make certain other modifications to the Original Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual representations, warranties, covenants and agreements hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

GRANT OF OPTION

1.1 Option. (a) On the terms and subject to the conditions of this Agreement and in reliance upon the representations, warranties, covenants and agreements contained herein, TR Holdings hereby grants to KB and KB hereby acquires from TR Holdings an option (the “Option”) to acquire from TR Holdings on the Option Closing Date (as such term is defined in Section 2.2(e)(ii) hereof) all of the outstanding shares of capital stock of KBI of whatever classes or series not owned by KB or its Affiliates or successors or assigns (the “KBI Shares”) through the exercise of the Option at the Option Exercise Price (as such term is defined in Section 2.1 hereof).

(b) If requested by KB prior to the exercise of the Option, TR Holdings agrees to cooperate in good faith with KB to structure the transaction contemplated by the Option in another manner mutually agreeable to the parties; KB acknowledges, however, that TR Holdings has no obligation to enter into any such other transaction. KB agrees that in connection with any such mutually agreed upon restructuring, KB would give TR Holdings a “hold harmless” indemnity acceptable to TR Holdings. As of the date of this Agreement, KB believes that either of the following transactions is considered to achieve the objective of preserving KB’s cost basis of the KBI-E assets (for U.S. Federal income tax purposes) to the fullest extent possible: (i) KB contributes cash to KBI in an amount equal to the Option Exercise Price, and TR Holdings will then cause KBI to redeem all of the KBI Shares, and (ii) KB contributes cash in an amount equal to the Option Exercise Price to a wholly-owned US corporation (“USCO”), and TR will then cause KBI to merge with USCO in a transaction pursuant to which KB shall acquire complete ownership of the stock of KBI. The exercise of the Option by KB by means of KB’s purchase of

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the KBI Shares or any of the foregoing means shall hereinafter be referred to as the “KBI Acquisition.”

ARTICLE II

EXERCISE OF OPTION

2.1 Option Exercise Price. (a) For purposes of this Agreement, the “Option Exercise Price” shall be the price payable by KB to TR Holdings upon the exercise of the Option as determined in accordance with the formula set forth in Section 2.1(b) below (subject to adjustment pursuant to the provisions of Sections 2.2(d)(v), 2.2(d)(vi), 2.2(d)(vii) and 2.2(d)(viii) hereof, or Sections 2.2(e)(v), 2.2(e)(vi) and 2.2(e)(vii) hereof, as the case may be) and consistent with Section 6.6. For purposes of calculating the Option Exercise Price, the following terms shall have the following meanings:

(i) “Fourth Tier and Group E NPV” shall mean the sum of (A) the net present value of the projected pre-tax amounts that would otherwise be allocated after the Option Closing Date to the Limited Partner for the Fourth Tier Amount pursuant to the Partnership Agreement, which amount shall be determined assuming that the Partnership will in each Fiscal Year have sufficient Profits (as defined in the Partnership Agreement) to make allocations to the Limited Partner pursuant to Section 4.1(h) of the Partnership Agreement, and (B) the net present value of the projected pre-tax amounts of the payments to which KBI-E would otherwise be entitled after the Option Closing Date pursuant to Section 7.3 of the Amended and Restated KBI License, in each case as such net present value is determined pursuant to Section 2.2(d) or (e) hereof, as the case may be.

(ii) “Omeprazole NPV and Perprazole NPV” shall mean the net present value of the projected consolidated net pre-tax cash flows of KBI and its subsidiaries determined by taking into account only payments that would otherwise be received by KBI after the Option Closing Date for sales of Omeprazole Products and Perprazole Products to the Partnership (whether such sales occur before or after the Option Closing Date) under the KBI Supply Agreement, less (A) payments that would otherwise be made by KBI after the Option Closing Date to TR, KB or an Alternate Producer (as defined in the Manufacturing Agreement) for the purchase of Omeprazole Products and Perprazole Products (whether such purchases occur before or after the Option Closing Date) and (B) royalties that would otherwise be paid to KB after the Option Closing Date with respect to Perprazole Net Sales (whether such sales occur before or after the Option Closing Date) under the Amended and Restated KBI License, as such net present value is determined pursuant to Section 2.2(d) or (e) hereof, as the case may be. Solely for purposes of determining the Omeprazole NPV and Perprazole NPV, all payments received or that would have been received by KBI under the June Letter or as Other Payments (and any adjustments to such payments) shall be deemed to have been received under the KBI Supply Agreement. “Other Payments” shall have the meaning set forth in the Agreed Methodology (as hereinafter defined).

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(iii) “Omeprazole Net Sales” shall mean Net Sales of Omeprazole Products as defined in the Master Restructuring Agreement.

(iv) “Perprazole Net Sales” shall mean Net Sales of Perprazole Products as defined in the Master Restructuring Agreement.

(b) The Option Exercise Price shall be calculated as follows:

OEP = [ONPV + PNPV + FTGENPV] + [10 x LPI] + LP2

where:
OEP	means the Option Exercise Price
ONPV + PNPV	means Omeprazole NPV and Perprazole NPV
FTGENPV	means Fourth Tier and Group E NPV
LPI	means the average annual amount of Profits allocated to the Limited Partner of the Partnership pursuant to Section 4.1(h) of the Partnership Agreement, if any, for the last three (3) Fiscal Years ending prior to the year of the Option Closing Date.
LP2	means the amount determined as of the Option Closing Date equal to the sum of (i)(A) the amount of cash and cash equivalents of KBI and its consolidated subsidiaries, (B) the amount that would be required to be distributed to the Limited Partner by the Partnership if (1) the taxable year of the Partnership had closed as of the Option Closing Date, (2) the Priority Return (as defined in the Partnership Agreement) for the Fiscal Quarter including the Option Closing Date was determined by pro-rating on a daily basis, and (3) all distributions required to be made for the partial year and all prior Fiscal Years (and not previously distributed) were distributed, assuming that the Partnership has sufficient Profits to satisfy all allocation tiers through Section 4.1(e) of the Partnership Agreement in such partial year, less (ii)(A) the amount of all accrued dividends (whether or not declared and determined by pro-rating on a daily basis) on the outstanding shares of preferred stock of KBI not held by TR Holdings or its successors and assigns, and (B) taxes (other than Federal Income Taxes) of KBI and its consolidated subsidiaries accrued in accordance with GAAP.

Vimovo shall be included in the computation of the Option Exercise Price (i) as provided in Section 2.2(d) in the event of a 2014 Option Exercise (as defined in Section 2.2(d))

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or (ii) as provided in the Settlement Agreement in the event of an exercise of the Option other than a 2014 Option Exercise.

(c) For purposes of determining the amount of payments and allocations KBI or KBI-E or any of their Affiliates would have received or to which they would have been entitled after the Option Closing Date for purposes of computing the Option Exercise Price (whether such amounts would have been paid pursuant to the KBI Supply Agreement, Section 7.3 of the Amended and Restated KBI License or the June Letter or as Other Payments or allocated pursuant to the Partnership Agreement), such amounts shall be determined as if the Option had not been exercised and, accordingly, as if the contractual arrangements between the parties and their Affiliates, including the KBI Supply Agreement, remained in effect (including for purposes of the June Letter and with respect to the Other Payments). For clarity, with respect to a 2014 Option Exercise, such amounts shall be used to compute the Option Exercise Price in accordance with the Agreed Methodology (as defined in Section 2.2(d)(i)) and Section 2.2(d)(vii).

2.2 Exercise of Option. (a) Provided that (i) no Allocation Shortfall or Allocation Default (each as defined in the Partnership Agreement) shall have occurred and remain uncured and (ii) no Put Option Event shall have occurred, KB shall have the right at any time during any Option Notice Period (as hereinafter defined) to give a written and dated notice (a “Notice of Exercise”) to TR Holdings of its election to exercise the Option.

(b) For purposes of this Section 2.2, each of the following shall constitute an “Option Notice Period”: (i) the period from March 1, 2014 through April 30, 2014; (ii) if the Option is not exercised during the period described in clause (i) of this subsection (b), the period from January 1, 2017 through June 30, 2017; (iii) in the event that (x)(A) there shall have been no Allocation Shortfall or Allocation Default or (B) such Allocation Shortfall or Allocation Default shall have been cured, (y) KBI shall be Past Due (as defined in the Amended and Restated Certificate of Incorporation of KBI) on the payment of any dividend to the holder(s) of the Class A Preferred Stock or Class C Preferred Stock and (z) such shares shall be accruing dividends at the 7.00% annual rate set forth in the Amended and Restated Certificate of Incorporation of KBI, and, in the case of the foregoing clause (x)(A), with at least fifteen (15) days having expired after written notice from such holder(s) to KBI of non-receipt of such dividend with such dividend continuing to be Past Due, any time after such fifteen (15) day period shall have expired (in the case of the foregoing clause (x)(A)) or such 7.00% dividend rate shall have become effective (in the case of the foregoing clause (x)(b)); and (iv) in the event that the aggregate amount of Omeprazole Net Sales and Perprazole Net Sales for any period of twelve (12) consecutive months ending on or after the Restatement Date (a “Measuring Period”) is less than or equal to $200 million, the six-month period commencing on the first day of the second month following the expiration of such Measuring Period.

(c) Upon KB’s delivery of the Notice of Exercise pursuant to Section 2.2(a) above, the parties agree to cooperate and to cause their respective Affiliates to cooperate in good faith in preparing and making any filing (“HSR Filing”) that may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (or any successor statute) (“HSR Act”), within thirty (30) days after the date of delivery of such Notice of Exercise.

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(d) If KB delivers a Notice of Exercise during the Option Notice Period described in Section 2.2(b)(i) hereof (a “2014 Option Exercise”), then the following shall occur:

(i) The parties agree that the aggregate amount of ONPV + PNPV plus FTGENPV to be included in the Option Exercise Price as of the 2014 Option Closing Date (as defined in Section 2.2(d)(ii) hereof) is $327.4 million (the “Initial Agreed Amount”). The parties have agreed and documented the methodology that has been used by the parties to calculate such Initial Agreed Amount (the “Agreed Methodology”). As soon as reasonably practicable after the delivery of such Notice of Exercise, KB and TR Holdings shall prepare a statement (the “Agreed Option Exercise Statement”) showing their good faith calculation of the Option Exercise Price in accordance with the provisions of Section 2.1 hereof and, to the extent applicable, based on the Initial Agreed Amount, it being understood for purposes of such Agreed Option Exercise Statement that KB shall calculate item LPI of the Option Exercise Price and shall estimate item (i)(B) of the LP2 component of the Option Exercise Price and TR Holdings shall calculate items (i)(A) and (ii)(A) of the LP2 component of the Option Exercise Price and shall estimate item (ii)(B) of the LP2 component of the Option Exercise Price (the sum of each of the estimated items of LP2 referred to above being referred to herein as the “LP2 Estimated Amount”). Subject to the provisions of Sections 2.2(d)(v), 2.2(d)(vi), 2.2(d)(vii) and 2.2(d)(viii) hereof, the Agreed Option Exercise Statement shall be binding and conclusive upon, and deemed accepted by, each of TR Holdings and KB unless TR Holdings or KB shall have notified the other in writing of any objections to any of the items calculated by the other party within sixty (60) days after the date of the Agreed Option Exercise Statement. A notice under this Section 2.2(d)(i) shall specify in reasonable detail each item on the Agreed Option Exercise Statement which is being disputed and a summary of the reasons for such dispute, it being understood that only the calculation of the component LPI and items (i)(A) and (ii)(A) of the component LP2 of the Option Exercise Price reflected on the Agreed Option Exercise Statement may be so disputed. Any such dispute shall be resolved pursuant to the provisions of Section 2.2(d)(vi) hereof, but the pendency of such dispute shall not delay the 2014 Option Closing Date.

(ii) KB shall pay the Option Exercise Price reflected on the Agreed Option Exercise Statement prepared in accordance with Section 2.2(d)(i) hereof at a closing (the “2014 Option Closing”) on the date (the “2014 Option Closing Date”) that shall be the later of (A) June 30, 2014, effective at the close of business, and (B) five (5) business days after the date on which any applicable waiting period under the HSR Act shall have expired or been terminated.

(iii) On the 2014 Option Closing Date, as consideration for the KBI Acquisition, KB shall pay to TR Holdings the Option Exercise Price specified in the Agreed Option Exercise Statement, all of which shall be payable to TR Holdings by wire transfer in Dollars of immediately available funds to an account of TR Holdings in the United States which shall be designated by TR Holdings in writing at least one (1) week prior to the 2014 Option Closing Date.

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(iv) On the 2014 Option Closing Date, TR Holdings and KB shall execute and deliver such agreements, endorsements, certificates of title, stock powers, assignments and other good and sufficient instruments of conveyance and take such other actions as shall be necessary to effect the KBI Acquisition. TR Holdings further agrees that, from and after the 2014 Option Closing Date, it will execute and deliver to KB such additional instruments and documents and take such further action as KB may reasonably require in order to complete the KBI Acquisition.

(v) As soon as reasonably possible after the 2014 Option Closing Date (but not later than ninety (90) days thereafter) KB and TR Holdings shall work together in good faith to determine the actual amount of the components of the Option Exercise Price comprising the LP2 Estimated Amount (the “LP2 Final Amount”). If KB and TR Holdings are unable to agree on the LP2 Final Amount within such time period, then KB and TR Holdings shall, as soon as reasonably possible thereafter (but not later than thirty (30) days thereafter), engage a mutually acceptable independent accounting firm to determine the LP2 Final Amount. In the event that KB and TR Holdings cannot agree on such accounting firm, such firm shall be selected at random from the list of internationally-recognized accounting firms set forth on Exhibit 2.2(d)(v) hereto (the “List of Internationally Recognized Accountants”); provided, however, that (A) such randomly selected accounting firm shall be independent of both TR and KB and their Affiliates and (B) if an accounting firm has been already selected pursuant to Section 2.2(d)(vi) hereof, such selected accounting firm shall be used also to determine the LP2 Final Amount. If any such randomly selected accounting firm is not independent of both TR and KB and their Affiliates or is otherwise unavailable, one or more additional accounting firms shall be selected at random from such list until an independent accounting firm is selected and is available. Such accounting firm shall have access at all reasonable times upon reasonable prior notice during normal business hours, to audit and examine, and make copies or extracts of and from, the books, records and accounts of (x) the Partnership and its Affiliates and any Person included as an Outlicensee pursuant to Section 1(d) of the Settlement Agreement and (y) TR and its Affiliates, as may be necessary in such accounting firm’s judgment to permit it to determine the LP2 Final Amount. KB and TR Holdings shall enter into a written engagement with such accounting firm providing that (1) the scope of the engagement with respect to such audit and examination is limited to the determination of the LP2 Final Amount (and if the audit is performed in connection with another audit permitted by this Agreement, the rights under the terms of this Agreement with respect to such other audit), and (2) such accounting firm agrees to use reasonable efforts, consistent with its professional responsibility, the availability of materials and information and the level of assistance received, to conclude the audit and examination within a reasonable period of time, and (3) such accounting firm agrees to keep any such information to which it has access pursuant to the foregoing confidential and not to disclose to any party (or any of its Affiliates) any information other than information relating to the accuracy of the information provided by the other party (or any of its Affiliates). In the event that such accounting firm determines that the LP2 Final Amount is greater than or less than the LP2 Estimated Amount, KB shall pay to TR Holdings the amount of such increase or TR Holdings shall pay to KB the amount of such decrease, as the case may be, within ten (10) business days after such determination, together with interest at the rate of LIBOR

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determined using a LIBOR Period of three (3) months for the period from the 2014 Option Closing Date through the date of such payment. The fees and expenses of the accounting firm engaged to determine the LP2 Final Amount shall be shared equally by KB and TR Holdings, subject to the last sentence of Section 2.2(d)(vi) below.

(vi) In the event that TR Holdings gives KB timely written notice in accordance with Section 2.2(d)(i) above of a dispute concerning the LPI component of the Option Exercise Price reflected on the Agreed Option Exercise Statement or KB gives TR Holdings timely written notice in accordance with Section 2.2(d)(i) above of a dispute concerning item (i)(A) and/or (ii)(A) of the LP2 component of the Option Exercise Price reflected on the Agreed Option Exercise Statement, the parties shall attempt to resolve such disagreement. However, if any such disagreement is not resolved by the parties within thirty (30) days after receipt of such notice, then KB and TR Holdings shall engage a mutually acceptable independent accounting firm to resolve such disagreement. In the event that KB and TR Holdings cannot agree on such accounting firm, such firm shall be selected at random from the List of Internationally Recognized Accountants; provided, however, that (A) such randomly selected accounting firm shall be independent of both TR and KB and their Affiliates and (B) if an accounting firm has been already selected pursuant to Section 2.2(d)(v) hereof, such selected accounting firm shall be used also to resolve such disagreement. If any such randomly selected accounting firm is not independent of both TR and KB and their Affiliates or is otherwise unavailable, one or more additional accounting firms shall be selected at random from such list until an independent accounting firm is selected and is available. Such accounting firm shall have access at all reasonable times upon reasonable prior notice during normal business hours, to audit and examine, and make copies or extracts of and from, the books, records and accounts of (x) the Partnership and its Affiliates and any Person included as an Outlicensee pursuant to Section 1(d) of the Settlement Agreement and (y) TR and its Affiliates, as may be necessary in such accounting firm’s judgment to permit it to verify such amounts in order to resolve such disagreement. KB and TR Holdings shall enter into a written engagement with such accounting firm providing that (1) the scope of the engagement with respect to such audit and examination is limited to the verification of such amounts (and if the audit is performed in connection with another audit permitted by this Agreement, the rights under the terms of this Agreement with respect to such other audit), and (2) such accounting firm agrees to use reasonable efforts, consistent with its professional responsibility, the availability of materials and information and the level of assistance received, to conclude the audit and examination within a reasonable period of time, and (3) such accounting firm agrees to keep any such information to which it has access pursuant to the foregoing confidential and not to disclose to any party (or any of its Affiliates) any information other than information relating to the accuracy of the information provided by the other party (or any of its Affiliates). The decision of such accounting firm shall be final and shall be binding and conclusive upon all of the parties hereto. In the event that such accounting firm determines that the Option Exercise Price reflected on the Agreed Option Exercise Statement should be increased or decreased due to an adjustment to the calculation of any of the foregoing components, then KB shall pay to TR Holdings the amount of such increase or TR Holdings shall pay to KB the amount of such decrease, as the case may be, within ten (10) business days after such determination, together with interest at the rate of LIBOR determined using a LIBOR

8

Period of three (3) months for the period from the 2014 Option Closing Date through the date of such payment. In the event of any disputes resolved under this Section 2.2(d)(vi), the Dollar amount of all such disputes shall be aggregated and the fees and expenses of the accounting firm engaged to resolve such disputes shall be paid by the party against whom the greater Dollar amount is resolved; provided, however, that if such accounting firm is the accounting firm that is selected to determine the LP2 Final Amount pursuant to Section 2.2(d)(v), the fees and expenses of such accounting firm related to this section and to Section 2.2(d)(v) shall be allocated and paid pursuant to the terms of each such section.

(vii) The aggregate amount of ONPV + PNPV plus FTGENPV originally included in the Option Exercise Price pursuant to Section 2.2(d)(i) shall be revised (without appraisers) as necessary to more accurately reflect the amount of ONPV + PNPV plus FTGENPV (and to include, if applicable pursuant to Section 2.2(d)(viii), Vimovo) as of the original 2014 Option Closing Date (the “Revised Agreed Amount”). Such Revised Agreed Amount shall be calculated using the same methodology (including the same discount factors) that was used to calculate the Initial Agreed Amount (i.e., the Agreed Methodology), except as follows:

(A) Subject to Section 2.2(d)(vii)(B) below, instead of using projected Net Sales, (1) the actual Omeprazole Net Sales, Perprazole Net Sales (and, if applicable pursuant to Section 2.2(d)(viii), actual Net Sales of Vimovo), Group E Product Net Sales and Fourth Tier Amount that would have resulted in allocations or payments to KBI or its subsidiaries (determined consistent with Section 2.1(c)) during the twelve (12) quarters immediately following June 30, 2014 shall be used to calculate a revised 12 Quarters Amount (as such term is used in the Agreed Methodology, but including Vimovo, if applicable, pursuant to Section 2.2(d)(viii)); and (2) the actual Omeprazole Net Sales, Perprazole Net Sales (and, if applicable pursuant to Section 2.2(d)(viii), actual Net Sales of Vimovo), Group E Product Net Sales and Fourth Tier Amount that would have resulted in payments or allocations to KBI or its subsidiaries (determined consistent with Section 2.1(c)) during the four (4) quarter period ending on June 30, 2018 shall be used to calculate a revised Terminal Value (as such term is used in the Agreed Methodology); and

(B) If the “inventory value” of Category 1 Products at the 2014 Option Closing Date differs from the “consumption value” of Category 1 Products for the month of July 2014, then certain of the actual Net Sales referred to in Section 2.2(d)(vii)(A) above shall be revised as described in Exhibit 2.2(d)(vii). (As used herein, “inventory value” and “consumption value” shall have the meanings set forth in Exhibit 2.2(d)(vii); “Category 1 Products” shall have the meaning used in the Agreed Methodology.)

By June 30, 2018, KB shall provide TR Holdings with a statement setting forth the calculation of the Revised Agreed Amount. Final settlement shall occur by December 31, 2018. In the event of the revision of the amount of any Net Sales used to compute the Revised Agreed Amount as the result of any audit conducted pursuant to

9

Section 2.2(d)(x), the parties shall promptly (in any event within thirty (30) days following the completion of such audit) recompute the Revised Agreed Amount. If the Revised Agreed Amount is less than the Initial Agreed Amount, then TR Holdings shall pay to KB the amount of the difference. If the Revised Agreed Amount is greater than the Initial Agreed Amount, then KB shall pay to TR Holdings the amount of the difference. The party responsible for paying the difference shall pay such amount to the other party together with interest thereon at the rate of LIBOR, determined using a LIBOR Period of four (4) years for the period from the 2014 Option Closing Date through the payment date.

The parties acknowledge that the computation of the Initial Agreed Amount did not include any amount in respect of the FTGENPV component of the Option Exercise Price. KB and AZLP hereby represent, warrant and covenant to TR and TR Holdings that to their best knowledge there will not be any arrangements that would result in payments or allocations following the Option Exercise Date that would be includible in the FTGENPV component, and the parties agree that if there are any changes or developments that would result in payments or allocations in the period following the 2014 Option Closing Date, determined consistent with Section 2.1(c), that would be includible in the FTGENPV component, the parties shall include such payments and allocations in the computation of the Revised Agreed Amount.

(viii) Notwithstanding the terms of Section 1(a) of the Settlement Agreement, the following terms shall apply with respect to Vimovo in the event of a 2014 Option Exercise:

(A) For purposes of calculating the Initial Agreed Amount set forth in Section 2.2(d)(i) hereof, the parties have not included Vimovo.

(B) If Net Sales of Vimovo in the Territory exceed $100 million in the aggregate in any four (4) consecutive calendar quarters prior to a 2014 Option Exercise, then Vimovo (and the Net Sales of Vimovo) shall be included in the computation of the Revised Agreed Amount described in Section 2.2(d)(vii) hereof as a Category 2 Product and at an assumed contingent payment rate of 3% of Net Sales in the Territory with respect to the period after June 30, 2014. Vimovo shall not be included in the computation of the Option Exercise Price under this Section 2.2(d) under any other circumstances.

(C) For clarity, Section 1(a), clause (ii) of the first sentence of Section 1(b), clause (2) of the second sentence of Section 1(b) and clause (y) of the final sentence of Section 1(b) of the Settlement Agreement shall no longer be in effect, and the reference set forth in Section 1(c) of the Settlement Agreement to Section 1(a) of the Settlement Agreement shall be deemed to refer to this Section 2.2(d).

(D) Section 1(d) of the Settlement Agreement shall apply with respect to the determination of Net Sales of Vimovo.

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(ix) The Partnership shall keep, and shall cause its Affiliates and any Person included as an Outlicensee pursuant to Section 1(d) of the Settlement Agreement to keep, true, accurate and complete records of the actual Net Sales described in Section 2.2(d)(vii)(A) above in sufficient detail to permit determination of the Option Exercise Price and to permit an audit of such records by the independent accountants of TR and its Affiliates pursuant to Section 2.2(d)(x) of this Agreement. Within thirty (30) days after the end of each calendar quarter in the period commencing July 1, 2014 and ending March 31, 2018, the Partnership shall provide TR with a report of such actual Net Sales that would have resulted in payments or allocations to KBI or its subsidiaries, determined consistent with Section 2.1(c), during such calendar quarter. By June 30, 2018, the Partnership shall provide TR with a report of such actual Net Sales that would have resulted in payments or allocations to KBI or its subsidiaries, determined consistent with Section 2.1(c), during the period between April 1, 2018 and June 30, 2018.

(x) During the period between June 30, 2018 and December 1, 2018, TR shall have a one-time right for its then currently engaged independent accountants to have access at all reasonable times upon reasonable prior notice during normal business hours, to audit and examine, and make copies or extracts of and from, the books, records and accounts of the Partnership and its Affiliates and any Person included as an Outlicensee pursuant to Section 1(d) of the Settlement Agreement as may be necessary in such accountant’s judgment to permit such accountant to verify the accuracy of the information provided by the Partnership to TR pursuant to Section 2.2(d)(ix), to attest that the actual Net Sales described in Section 2.2(d)(vii)(A) above conform to the terms of this Agreement and to verify the amount of the payments and allocations, determined consistent with Section 2.1(c), that would have resulted from such Net Sales. TR shall enter into a written engagement with such accountants, a copy of which shall be provided to the Partnership, providing that (i) the scope of the engagement with respect to such audit and examination is limited to the rights provided in this Section 2.2(d)(x), and (ii) such accountants agree to use reasonable efforts, consistent with their professional responsibility, the availability of materials and information and the level of assistance received, to conclude the audit and examination by December 1, 2018, and (iii) such accountants agree to keep any such information to which they have access pursuant to the foregoing confidential and not to disclose to TR (or any of its Affiliates) any information other than information relating to the accuracy of the information provided by the Partnership to TR pursuant to Section 2.2(d)(ix), whether the actual Net Sales described in Section 2.2(d)(vii)(A) above conform to the terms of this Agreement and the amount of the allocations and payments, determined consistent with Section 2.1(c), that would have resulted from such Net Sales; and in no event shall quantities or prices or rebates to individual customers be disclosed to TR (or any of its Affiliates) or any other Person.

(e) If KB delivers a Notice of Exercise during an Option Notice Period described in Section 2.2(b)(ii), (iii) or (iv) hereof, then the following shall occur:

(i) Promptly after delivery of such Notice of Exercise but in no event later than thirty (30) days after such delivery, each of KB and TR Holdings shall engage an appraiser independent of it and its Affiliates that is skilled in preparing appraisals of the future value of pharmaceutical products (the “Appraisers” and each, an “Appraiser”)

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to determine the Omeprazole NPV, and Perprazole NPV and the Fourth Tier and Group E NPV (the “KB Appraised Value” and the “TR Holdings Appraised Value,” respectively), each as of the Other Option Closing Date (as defined in Section 2.2(e)(ii) hereof). Each of KB and TR Holdings shall bear all costs and expenses of the Appraiser it engages. After KB and TR Holdings have selected the Appraisers, KB shall cause the General Partner of the Partnership to afford the Appraisers such access to the books and records of the Partnership, including, without limitation, sales forecasts, patent status and expiration data, and status reports concerning competitive products (collectively, “Partnership Data”) and furnish to the Appraisers copies of such financial statements of the Partnership as they may request, and TR Holdings may, in its discretion, furnish the Appraisers with sales forecasts and other information (“TR Data”), in order for the Appraisers to determine the KB Appraised Value and the TR Holdings Appraised Value. Based on such information, each of the Appraisers shall deliver a report to KB and TR Holdings showing its calculations. The average of the KB Appraised Value and the TR Holdings Appraised Value shall be the “Appraised Value.” Upon the determination of the Appraised Value, KB and TR Holdings shall prepare a statement (the “Other Option Exercise Statement”) showing their good faith calculation of the Option Exercise Price in accordance with the provisions of Section 2.1 hereof and, to the extent applicable, based on the Appraised Value, it being understood for purposes of such Other Option Exercise Statement that KB shall calculate item LPI of the Option Exercise Price and shall estimate item (i)(B) of the LP2 component of the Option Exercise Price and TR Holdings shall calculate items (i)(A) and (ii)(A) of the LP2 component of the Option Exercise Price and shall estimate item (ii)(B) of the LP2 component of the Option Exercise Price (the sum of each of the estimated items of LP2 referred to above being referred to herein as the “LP2 Estimated Amount”). Subject to the provisions of Sections 2.2(e)(v), 2.2(e)(vi) and 2.2(e)(vii) hereof and to the provisions of the Settlement Agreement concerning the inclusion of Vimovo, the Other Option Exercise Statement shall be binding and conclusive upon, and deemed accepted by, each of TR Holdings and KB unless TR Holdings or KB shall have notified the other in writing of any objections to any of the items calculated by the other party within sixty (60) days after the date of the Other Option Exercise Statement. A notice under this Section 2.2(e)(i) hereof shall specify in reasonable detail each item on the Other Option Exercise Statement which is being disputed and a summary of the reasons for such dispute, it being understood that only the calculation of the component LPI and items (i)(A) and (ii)(A) of the component LP2 of the Option Exercise Price reflected on the Other Option Exercise Statement may be so disputed. Any such dispute shall be resolved pursuant to the provisions of Section 2.2(e)(vi) hereof, but the pendency of such dispute shall not delay the Other Option Closing Date. Vimovo shall be included in the computation of the Option Exercise Price pursuant to this Section 2.2(e) as provided in the Settlement Agreement.

(ii) KB shall pay the Option Exercise Price reflected on the Other Option Exercise Statement prepared in accordance with Section 2.2(e)(i) hereof on the date (the “Other Option Closing Date”) that shall be the later of (A) the last day of the month immediately following the end of the month in which the date of the Other Option Exercise Statement occurs (or if such date is not a business day, then the next business day thereafter) and (B) five (5) business days after the date on which any applicable waiting period under the HSR Act shall have expired or been terminated (the 2014

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Option Closing Date or the Other Option Closing Date shall be referred to herein as the “Option Closing Date”).

(iii) On the Other Option Closing Date, as consideration for the KBI Acquisition, KB shall pay to TR Holdings the Option Exercise Price specified in the Other Option Exercise Statement, all of which shall be payable to TR Holdings by wire transfer in Dollars of immediately available funds to an account of TR Holdings in the United States which shall be designated by TR Holdings in writing at least one (1) week prior to the Other Option Closing Date.

(iv) On the Other Option Closing Date, TR Holdings and KB shall execute and deliver such agreements, endorsements, certificates of title, stock powers, assignments and other good and sufficient instruments of conveyance and take such other actions as shall be necessary to effect the KBI Acquisition. TR Holdings further agrees that, from and after the Other Option Closing Date, it will execute and deliver to KB such additional instruments and documents and take such further action as KB may reasonably require in order to complete the KBI Acquisition.

(v) As soon as reasonably possible after the Other Option Closing Date (but not later than thirty (30) days thereafter) KB and TR Holdings shall engage a mutually acceptable independent accounting firm to determine the LP2 Final Amount. In the event that KB and TR Holdings cannot agree on such accounting firm, such firm shall be selected at random from a pool of available internationally-recognized accounting firms, which pool shall exclude any accounting firms that had been originally proposed by either party. In the event that such accounting firm determines that the LP2 Final Amount is greater than or less than the LP2 Estimated Amount, KB shall pay to TR Holdings the amount of such increase or TR Holdings shall pay to KB the amount of such decrease, as the case may be, within ten (10) business days after such determination, together with interest at the rate of LIBOR determined using a LIBOR Period of three (3) months for the period from the Other Option Closing Date through the date of such payment.

(vi) In the event that TR Holdings gives KB timely written notice in accordance with Section 2.2(e)(i) above of a dispute concerning the LPI component of the Option Exercise Price reflected on the Other Option Exercise Statement or KB gives TR Holdings timely written notice in accordance with Section 2.2(e)(i) above of a dispute concerning item (i)(A) and/or (ii)(A) of the LP2 component of the Option Exercise Price reflected on the Other Option Exercise Statement, the parties shall attempt to resolve such disagreement. However, if any such disagreement is not resolved by the parties within thirty (30) days after receipt of such notice, such disagreement shall be submitted to the accounting firm selected pursuant to Section 2.2(e)(v) above for the resolution of such dispute. The decision of such accounting firm shall be final and shall be binding and conclusive upon all of the parties hereto. In the event that such accounting firm determines that the Option Exercise Price reflected on the Other Option Exercise Statement should be increased or decreased due to an adjustment to the calculation of any of the foregoing components, then KB shall pay to TR Holdings the amount of such increase or TR Holdings shall pay to KB the amount of such decrease, as the case may

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be, within ten (10) business days after such determination, together with interest at the rate of LIBOR determined using a LIBOR Period of three (3) months for the period from the Other Option Closing Date through the date of such payment. In the event of any disputes resolved under this Section 2.2(e)(vi), the Dollar amount of all such disputes shall be aggregated and the fees and expenses of the accounting firm engaged to resolve such disputes shall be paid by the party against whom the greater Dollar amount is resolved.

(vii) In the event that the lower of the TR Holdings Appraised Value and the KB Appraised Value is less than 75% of the value of the higher of the two, then promptly after the expiration of twelve (12) full calendar quarterly periods after the first day of the calendar quarter in which the Other Option Closing Date occurs, KB and TR Holdings shall choose an appraisal firm of national reputation which is skilled in preparing appraisals of the future value of pharmaceutical products (the “Reviewing Appraiser”) to review the original Appraised Values utilized in determining the Option Exercise Price as set forth in the Other Option Exercise Statement. After KB and TR Holdings have selected the Reviewing Appraiser, KB shall cause the General Partner of the Partnership to afford the Reviewing Appraiser such access to the books and records of the Partnership (including, without limitation, Partnership Data), and furnish to the Reviewing Appraiser copies of such financial statements of the Partnership as it may request, and TR Holdings may, in its discretion, furnish the Reviewing Appraiser with TR Data, in order for the Reviewing Appraiser to review the original Appraised Value. The Reviewing Appraiser shall review the Partnership Data, the TR Data and the actual Omeprazole Net Sales, Perprazole Net Sales, Fourth Tier Amount and Net Sales of Group E Products for the twelve (12) full calendar quarterly periods from and after the first day of the calendar quarter in which the Other Option Closing Date occurs and shall revise the Appraised Values as necessary to more accurately reflect the Omeprazole and Perprazole NPV and FTGENPV as of the original Other Option Closing Date (the “Revised Appraised Value”) and deliver a report to KB and TR Holdings showing its calculation of the Revised Appraised Value. If the Revised Appraised Value is less than the Appraised Value, then TR Holdings shall pay to KB the amount of the difference. If the Revised Appraised Value is greater than the Appraised Value, then KB shall pay to TR Holdings the amount of the difference. The party responsible for paying the difference shall pay such amount to the other party within ten (10) business days of the determination of the difference, together with interest thereon at the rate of LIBOR, determined using a LIBOR Period of two (2) years for the period from the Other Option Closing Date through the payment date. KB and TR Holdings shall share equally the costs and expenses of the Reviewing Appraiser.

2.3 Transition Manufacturing. (a) For purposes of this Section 2.3, the following terms shall have the following meanings:

(i) “Alternate Producer” has the meaning ascribed to such term in the Manufacturing Agreement.

(ii) “Bulk Chemical Form” has the meaning ascribed to such term in the Manufacturing Agreement.

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(iii) “Exit Two License” means any grant by KB or any Affiliate of KB to any Person of any right to sell in the Territory the Compound omeprazole or perprazole or any Omeprazole Product or Perprazole Product, whether exclusive or non-exclusive and whether by sale, license, sublicense, co-marketing agreement, subdistribution arrangement, complete or partial assignment of contract rights, other dispositions, covenant not to sue or immunity from suit, or otherwise.

(iv) “Exit Two Licensee” means a Person receiving a grant under an Exit Two License.

(v) “Finished Dosage Form” has the meaning ascribed to such term in the Manufacturing Agreement.

(vi) “Formulation Manufacturing Stage” has the meaning ascribed to such term in the Manufacturing Agreement.

(vii) “Intermediate Form” has the meaning ascribed to such term in the Manufacturing Agreement.

(viii) “Manufacturing Stage” has the meaning ascribed to such term in the Manufacturing Agreement.

(ix) “Packaging Manufacturing Stage” has the meaning ascribed to such term in the Manufacturing Agreement.

(x) “Primary Manufacturing Stage” has the meaning ascribed to such term in the Manufacturing Agreement.

(xi) “Producer” has the meaning ascribed to such term in the Manufacturing Agreement.

(xii) “Transfer Price” has the meaning ascribed to such term in the Manufacturing Agreement.

(xiii) “Transition Period” means, with respect to any Transition Product,

(A) if, and only if, KB delivers a Notice of Exercise pursuant to the terms of Section 2.2 hereof during an Option Notice Period described in Section 2.2(b)(iii) or (iv) (but not Section 2.2(b)(i) or (ii)), and

(B) such Notice of Exercise is delivered prior to January 1, 2017,

the period starting with the Other Option Closing Date and ending on the earlier of (x) two (2) years after the Other Option Closing Date and (y) December 31, 2017.

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(xiv) “Transition Product” means any Omeprazole Product or Perprazole Product for which TR or an Alternate Producer has been allocated responsibility as the Producer for any Manufacturing Stage (or an Intermediate Form of any such product).

(xv) “Transition Requirements” means all of the requirements of KB, any Affiliate of KB and any Exit Two Licensee for Transition Product for sale or promotion within the Territory.

(b) For clarity, if KB delivers a Notice of Exercise pursuant to the terms of Section 2.2 hereof during an Option Notice Period described in Section 2.2(b)(i) or Section 2.2(b)(ii), then (i) there shall be no Transition Period; (ii) the proviso in Section 11.01(b) of the Manufacturing Agreement shall be without effect; and (iii) the proviso in Section 8.01(c) of the KBI Supply Agreement shall be without effect.

(c) Upon the occurrence of the Other Option Closing Date for each Transition Product during its Transition Period, if any:

(i) If TR is the Producer of the Packaging Manufacturing Stage, TR shall toll package Transition Product for all Transition Requirements for KB or a Person designated by KB at the Transfer Price. If an Alternate Producer is the Producer of the Packaging Manufacturing Stage, the Alternate Producer shall toll package Transition Product for all Transition Requirements under contract with KBI for KB or such Person at the Transfer Price determined in accordance with the terms of Article V of the Manufacturing Agreement, which will be payable by KB to KBI.

(ii) If TR or an Alternate Producer is the Producer of a Primary Manufacturing Stage, KB or a Person designated by KB shall purchase from TR or, in the case of an Alternate Producer, KBI at the Transfer Price Transition Product for all Transition Requirements as follows: (x) if TR or an Alternate Producer is the Producer of the Formulation Manufacturing Stage, in the Finished Dosage Form at the cumulative Transfer Price and (y) if KB is the Producer of the Formulation Manufacturing Stage and TR or an Alternate Producer is the Producer of the Bulk Chemical Manufacturing Stage, in the Bulk Chemical Form at the Transfer Price.

(iii) KB, KB USA and TR shall retain their full rights and obligations as Producers under the Manufacturing Agreement.

(iv) Neither KB nor any Affiliate of KB shall grant an Exit Two License that includes the right to make or have made a Transition Product during its Transition Period.

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2.4 Cross-References. The parties acknowledge that the amendments effected by this Amended and Restated KBI Shares Option Agreement have resulted in the renumbering or relettering of certain subsections of Section 2.2 hereof and that certain other agreements, including the Master Restructuring Agreement and certain Ancillary Agreements include references to certain of such redesignated subsections. Accordingly, any reference in the Master Restructuring Agreement or any other Ancillary Agreement to any such redesignated subsection of Section 2.2 shall be deemed to refer to such subsection as redesignated herein.

ARTICLE III

REPRESENTATIONS AND

WARRANTIES OF TR AND TR HOLDINGS

Each of TR and TR Holdings, jointly and severally, hereby represents and warrants to KB as of the Restatement Date that:

3.1 Ownership of Shares. TR and its Wholly-Owned Subsidiaries own of record and beneficially the sole membership interest in TR Holdings, free and clear of any claim, hypothecation, deed of trust, mortgage, lien, pledge, option, charge, security interest or encumbrance of any kind or character (collectively, “Encumbrances”). TR Holdings is in good standing as a limited liability company under the laws of the State of Delaware. TR Holdings is a Wholly-Owned Subsidiary of TR. TR Holdings owns of record and beneficially all of the KBI Shares, free and clear of all Encumbrances (other than the Option). The KBI Shares consist of 100,000 shares of common stock, par value $.01 per share, 12,500 shares of Class D Preferred Stock, par value $9,600 per share, and 187,500 shares of Class E Preferred Stock, par value $12,160 per share. KBI owns of record and beneficially all of the issued and outstanding shares of capital stock of KBI-E, KBI Sub and KBI-P Inc. (formerly Astra Merck Pharmaceuticals, Inc.), a Delaware corporation (“KBI-P”), in each case free and clear of all Encumbrances other than encumbrances existing as of the date of this Agreement or arising as a result of any Initial Agreement or any Ancillary Agreement.

ARTICLE IV

COVENANTS AND AGREEMENTS OF TR AND

TR HOLDINGS REGARDING THE KBI BUSINESS

TR and TR Holdings hereby covenant and agree with KB to cause KBI and, where applicable, each Subsidiary (as defined in the Partnership Agreement) of KBI, to comply with the following obligations, from and after the Original Date and until the Option Closing Date, if any:

4.1 Preservation of Corporate Existence; Operation of KBI and its Subsidiaries. KBI shall, and shall cause each of its Subsidiaries to, preserve its present corporate organization and existence, maintain its full corporate power and authority to conduct its business and remain in good standing under the laws of its state of incorporation. Each of KBI, KBI Sub, KBI-E, KBI-P and any other Subsidiary of KBI shall not incur any material liabilities of any nature whatsoever other than obligations under any Initial Agreement, Ancillary

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Agreement or the Partnership Agreement or as expressly contemplated thereby or liabilities as to which any KB Party has agreed to indemnify any TR Party pursuant to the terms of any Initial Agreement or Ancillary Agreement. Notwithstanding the foregoing terms of this Section 4.1, a liquidation or dissolution of KBI-P shall be deemed not to violate the provisions of this Section.

4.2 Payment of State and Local Taxes. KBI shall, and shall cause each of its Subsidiaries to, file on a timely basis all state and local tax returns required to be filed by it and pay all such taxes due and payable with respect to the periods covered by such tax returns (whether or not reflected thereon). KBI will, unless prohibited by applicable law, close the taxable period of KBI and its subsidiaries as of the close of business on the Option Closing Date. If applicable law does not permit KBI or any of its subsidiaries to close its taxable year on the Option Closing Date or, in any case in which any taxes are assessed with respect to a taxable period which includes the Option Closing Date (but does not begin or end on that day) (a “Straddle Period”), the taxes, if any, attributable to a Straddle Period shall be allocated (i) to TR for the period up to and including the close of business on the Option Closing Date, and (ii) to KB for the period subsequent to the Option Closing Date. Any allocation of income or deductions required to determine any taxes attributable to a Straddle Period shall be made by means of a closing of the books and records of KBI and its subsidiaries as of the close of the Option Closing Date, provided that exemptions, allowances or deductions that are calculated on an annual basis (including, but not limited to, depreciation and amortization deductions) shall be allocated between the period ending on the Option Closing Date and the period after the Option Closing Date in proportion to the number of days in each such period.

4.3 Financial Statements: Books and Records. (a) KBI shall, and shall cause each of its Subsidiaries to, deliver to KB (i) as soon as practicable after the end of each fiscal year of KBI, and in any event within 90 days thereafter, an unaudited consolidated balance sheet of KBI as of the end of such year and an unaudited consolidated income statement of KBI for such year (collectively, the “Financial Statements”) and (ii) within five (5) business days after the end of each fiscal quarter of KBI, a certificate in the form set forth as Exhibit 4.3(a) hereto executed by the chief financial officer of KBI, certifying compliance with the provisions of this Article IV and Section 3.12 of the Master Restructuring Agreement. Notwithstanding the foregoing, in the event that there shall have been no Allocation Shortfall or Allocation Default or such Allocation Shortfall or Allocation Default shall have been cured and KBI shall be Past Due on the payment of any dividend to the holder(s) of the Class A Preferred Stock or Class C Preferred Stock, the Financial Statements required to be delivered pursuant to clause (i) of this Section 4.3(a) shall be audited.

(b) The Financial Statements shall (i) be in accordance with the books and records of KBI and its consolidated Subsidiaries, (ii) fairly present the financial position of KBI as of the dates and for the periods indicated therein in accordance with GAAP, except for (i) the recognition of the revaluation of the net assets of KBI (the “Asset Revaluation”) effected in connection with the declaration and payment of a stock dividend to KB and TR Holdings in November, 1997 and (ii) the non-recognition of the purchase accounting consequences of TR Holdings’ purchase of the KBI Common Shares at the Closing.

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(c) KBI shall, and shall cause each of its Subsidiaries to, maintain true, correct and complete books, records and accounts in accordance with GAAP (except for the treatment of the Asset Revaluation and TR Holdings’ purchase of the KBI Common Shares).

4.4 Limitation on Transfer of License Rights. Except as approved in writing by KB or as expressly permitted or required by this Agreement, any Initial Agreement or any other Ancillary Agreement, neither KBI nor any of its Subsidiaries shall sell, transfer, pledge or otherwise encumber, assign or otherwise dispose of any rights relating to any Licensed Compound.

4.5 Compliance with Laws. Each of KBI and each of its Subsidiaries shall conduct its respective business in compliance in all material respects with all applicable laws, rules and regulations and in compliance with all applicable orders, rules, writs, judgments, injunctions, decrees and ordinances.

4.6 Cash. TR shall use reasonable efforts to keep the cash in KBI to a reasonable minimum, taking into account the GAAP net worth of KBI and the fair market value of its assets and liabilities and TR’s objective that KBI and its subsidiaries remain part of TR’s consolidated group for U.S. federal income tax purposes.

4.7 Merck Holdings, Inc. Merck represents and warrants to KB that TR Holdings has succeeded to and is bound by the provisions of, and all liabilities and obligations of Merck Holdings, Inc. under, the Master Restructuring Agreement, the Ancillary Agreements and any Future Agreement (including the Settlement Agreement) as fully and to the same extent as though TR Holdings had originally executed such agreements as the result of the conversion of Merck Holdings, Inc. to a limited liability company in accordance with Delaware law. All references to Merck Holdings, Inc. in such agreements shall be deemed also to be a reference to TR Holdings.

ARTICLE V

[RESERVED]

ARTICLE VI

ADDITIONAL COVENANTS

AND AGREEMENTS OF THE PARTIES

6.1 Reasonable Efforts; Further Assurances. Subject to the terms and conditions of this Agreement, each of KB, TR and TR Holdings shall use reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary to consummate the transactions contemplated hereby, including, without limitation, to effect the KBI Acquisition. Each of KB, TR and TR Holdings agrees to execute and deliver promptly such other documents, certificates, agreements or instruments (including any amendments or supplements thereto) and to take, or cause to be taken, such other actions as may be reasonably necessary in order to consummate or implement expeditiously the transactions

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contemplated hereby. TR hereby covenants and agrees that it shall take all actions necessary to ensure that TR Holdings complies with its obligations hereunder. TR Holdings covenants and agrees that it shall take all actions necessary to ensure that KBI complies with its obligations hereunder. Each party hereto covenants and agrees that all instruments of conveyance and other agreements, documents and instruments to be executed and delivered by such party in connection herewith shall constitute the legal, valid and binding obligations of such party, enforceable against it in accordance with its terms.

6.2 HSR Act. In connection with any filing that may be required under the HSR Act as contemplated by Section 2.2(c) hereof, the parties hereto agree to cooperate in good faith to respond promptly to all inquiries made by governmental authorities.

6.3 Payment of Federal Income Taxes. TR hereby covenants and agrees with KB to file on a timely basis all Federal income tax returns of the TR consolidated group that includes KBI and each of its Subsidiaries required to be filed by TR for each year from and after the year of this Agreement through the tax year that ends on the Option Closing Date, if any, and to pay all such taxes due and payable with respect to the periods covered by such tax returns (whether or not reflected thereon) or if applicable, the relevant portion of any Straddle Period as provided in Section 4.2.

6.4 Consents. TR and TR Holdings hereby covenant and agree that they shall not (and shall cause KBI not to) take any action that would result in the consent of any third party being required in connection with TR’s or TR Holdings’ performance of its obligations under this Agreement and all other documents and instruments to be executed and delivered by it in connection with the KBI Acquisition (collectively, including this Agreement, the “Option Documents”).

6.5 Non-Contravention. TR and TR Holdings hereby covenant and agree that they shall not (and shall cause KBI not to) take any action that would result in the consummation of the transactions contemplated by the Option Documents violating, conflicting with or resulting in a breach of any provision of:

(i) any mortgage, deed of trust, lease, note, shareholders’ agreement, bond, indenture, other instrument or agreement, license, sublicense, permit, trust, custodianship, or other restriction with any third party to which TR, TR Holdings or KBI is a party; or

(ii) the certificate of incorporation or by-laws (each as amended) of TR, TR Holdings or KBI.

6.6 KBI Balance Sheet. Prior to the Option Closing Date the parties hereto shall endeavor to effect, and cause their Affiliates to effect, such transactions and make such adjustments regarding the assets and liabilities of KBI such that, at the Option Closing Date, as nearly as practicable KBI shall have no assets and no liabilities reflected on its consolidated balance sheet (other than any accrued dividends relating to any preferred stock issued by KBI solely if the Option Closing Date does not occur on either June 30 or December 31); provided that such transactions and adjustments shall not affect any contractual rights under the Master

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Restructuring Agreement, the Partnership Agreement, this Agreement or any other Ancillary Agreement or under any other contract with any of the parties hereto or any of their Affiliates. The parties have separately documented in a pro forma balance sheet the nature of the balance sheet eliminations and adjustments that are provided for in this Section 6.6 (the “Pro Forma Adjusted Balance Sheet”), it being understood that the actual amounts of such eliminations and adjustments will differ from those set forth on the Pro Forma Adjusted Balance Sheet based on circumstances existing at the time such eliminations and adjustments are made. At least thirty (30) days prior to the Option Closing Date, TR Holdings shall prepare and deliver to KB a pro forma consolidated balance sheet reflecting the estimated assets and liabilities of KBI as of the Option Closing Date, such pro forma eliminations and adjustments and the resulting adjusted amounts. Among other things, such transactions, eliminations and adjustments shall reflect the following:

(a) (i) On or prior to the Option Closing Date, the Partnership shall pay KBI the outstanding payables to KBI that are otherwise due after the Option Closing Date under the KBI Supply Agreement (the “Outstanding AZLP Payables”). For the avoidance of doubt, the Agreed Mark-Up component of the Outstanding AZLP Payables has not been included in the computation of the Initial Agreed Amount and shall not be included in the calculation of the Revised Agreed Amount. The parties shall discuss a process whereby invoices for June shipments purchased by AZLP from KBI will be issued in time for payment to be made on or prior to the Option Closing Date.

(ii) Subject to KBI’s receipt of the payment referred to in subsection (a)(i) above, on or prior to the Option Closing Date, KBI shall apply the payment received pursuant to subsection (a)(i) above to the payment of the outstanding payables to (A) TR as a Producer under the Manufacturing Agreement, and (B) KB for the royalties with respect to Perprazole Net Sales under the Amended and Restated KBI License; provided, however, that if any such payables remain unpaid on the Option Closing Date because of the failure of KBI to apply the payment received pursuant to subsection (a)(i) above to the payment of such outstanding payables, KB may deduct from the Option Exercise Price the amount of any such payables that remain unpaid as a result of KBI’s failure to so apply such payment.

(iii) The Agreed Mark-Up component of the Outstanding AZLP Payables shall be adjusted to reflect actual Net Sales and the actual Agreed Mark-Up (rather than the Standard Mark-Up) pursuant to Section 4.04(c)(iii) and Section 4.04(c)(iv) of the KBI Supply Agreement, with the adjustment pursuant to Section 4.04(c)(iv) being computed on the basis of the period from January 1, 2014 through the 2014 Option Closing Date. Within sixty (60) days after the Option Closing Date, the Partnership shall provide a report of such actual Net Sales to TR Holdings. Within ninety (90) days after the Option Closing Date, TR Holdings or the Partnership, as the case may be, shall pay directly to the other the amount required by such adjustment; provided, however, that the amount of any such adjustment to be paid by either party shall be reduced by the royalties with respect to Perprazole Net Sales under the Amended and Restated KBI License as in effect at the Option Closing Date. With respect to such actual Net Sales, TR and TR Holdings shall have, during the five (5) month period immediately following the Option Closing Date, a one-time right for its then currently engaged independent accountants to

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audit the Partnership that is equivalent to the right to audit that TR or KBI had immediately prior to the Option Closing Date but without regard to any limitation as to the time period subject to audit contained in such audit rights that would limit the right of TR or TR Holdings to audit the Net Sales to be reflected in the Agreed Mark-Up component of the Outstanding AZLP Payables. In the event such audit shows that an adjustment is required to the actual Net Sales reported by the Partnership, the parties shall recompute the Agreed Mark-Up component of the Outstanding AZLP Payables and within ninety (90) days after the completion of such audit, TR Holdings or the Partnership, as the case may be, shall pay directly to the other the amount required by such adjustment; provided, however, that the amount of any such adjustment to be paid by either party shall be reduced by the royalties with respect to Perprazole Net Sales under the Amended and Restated KBI License as in effect at the Option Closing Date.

(b) On the Option Closing Date, KB or an Affiliate of KB shall purchase from KBI its inventory on hand for a price equal to the Transfer Price under the Manufacturing Agreement paid by KBI for such inventory.

(c) “Due from Merck, Net” shall be settled by Merck prior to the Option Closing Date.

(d) On or before the Option Closing Date, the Partnership shall pay to KBI Sub the Priority Return for the quarter ended June 30, 2014 and any other amount allocated to the Limited Partner included in the Fourth Tier Amount through June 30, 2014.

(e) On or before the Option Closing Date, any tax provisions and deferred tax liabilities shall be eliminated.

(f) On or before the Option Closing Date, the “Deferred Income” shall be settled.

(g) On or before the Option Closing Date and before the consummation of the transfer of the KBI Shares pursuant to the exercise of the Option and following the transactions provided for above in this Section 6.6, KBI’s cash and cash equivalents shall be distributed, as well as any interest receivable, any assets of the type recorded as of the Restatement Date on KBI’s balance sheet as “Other Investments” and any claims that KBI may have under the KBI Supply Agreement or KBI Sub may have as the Limited Partner in respect of Net Sales or payments prior to the Option Closing Date. KB hereby waives on behalf of itself and its assignees all of KB’s right to receive or participate in any distribution in respect of shares of KBI made pursuant to this paragraph so that all of such distribution shall be paid to TR Holdings in respect of the KBI Shares held by TR Holdings.

6.7 Consent to Transfer KBI Preferred Stock. TR hereby consents to (a) the Transfer by KB to any Affiliate of KB that is a Wholly-Owned Subsidiary of AstraZeneca PLC, a company organized under the laws of England and Wales (“AZPLC”), of the Class A Preferred Stock and the Class C Preferred Stock at any time after the Restatement Date; and (b) the subsequent Transfer by such Affiliate of KB of such shares to any Wholly-Owned Subsidiary of such Affiliate at any time after the Restatement Date; provided, however, that such Transfer and

22

any such subsequent Transfer shall be subject to the security interest and other rights of KBI set forth in the Pledge Agreement dated July 1, 1998 between KB and KBI (the “Pledge Agreement”); and provided further that as conditions to and prior to the effectiveness of any such Transfer to any such Affiliate (A) the transferee shall agree in writing, substantially in the form of Exhibit 6.7A to be bound by the provisions of, and assume all liabilities and obligations of KB and any prior direct or indirect transferee of KB as a stockholder of KBI under, the Master Restructuring Agreement and this Agreement as fully and to the same extent as though such transferee had originally executed the Master Restructuring Agreement and this Agreement, (B) the transferor and AZPLC shall agree in writing, substantially in the form of Exhibit 6.7B (each, a “Parent Agreement”) (1) that neither the transferor nor AZPLC shall be relieved of any of its liabilities or obligations under the Initial Agreements, any Ancillary Agreement and any Future Agreement to which it is a party or under any prior Parent Agreement, (2) that the transferor and AZPLC shall cause the transferee to satisfy the liabilities and obligations assumed by the transferee pursuant to clause (A) above and (3) that, prior to the time that the transferee or any subsequent transferee ceases to be an Affiliate of KB or a Wholly-Owned Subsidiary of AZPLC, the transferor and AZPLC shall cause the transferee to Transfer its shares of KBI to an Affiliate of KB that also is a Wholly-Owned Subsidiary of AZPLC, (C) the transferor and AZPLC shall deliver to TR and KBI an executed copy of each of the agreements referred to in the foregoing clauses (A) and (B) to TR and TR Holdings and (D) the transferor and such transferee shall execute and deliver to KBI and TR such documents and consent to such filings as may be reasonably requested by TR in order to continue in effect the pledge of such shares to secure the Obligations (as defined in the Pledge Agreement) and to perfect (or maintain perfection of) KBI’s security interest in such shares. KBI shall record such Transfers of such shares on its books after notification thereof by KB to KBI and receipt by KBI of all necessary documentation evidencing the Transfer and compliance with this Section 6.7.

ARTICLE VII

INDEMNIFICATION

TR and TR Holdings agree to defend, indemnify and hold harmless KB and its Affiliates and each of their respective officers, directors, employees and agents from and against any and all Indemnity Losses arising out of, based upon or resulting from any liabilities or obligations of KBI of any nature whatsoever other than (i) liabilities or obligations under any Initial Agreement or Ancillary Agreement arising from and after the Option Closing Date, (ii) liabilities for which any KB Party has agreed to indemnify any TR Party pursuant to the terms of any Initial Agreement or Ancillary Agreement and (iii) liabilities or obligations incurred by KBI in connection with KB’s operation of KBI from and after the Option Closing Date. KB shall indemnify TR, TR Holdings and their Affiliates (including KBI and its subsidiaries) (the “Tax Indemnitees”) for any federal, state, local and foreign taxes (including any incremental amount of tax and any interest, penalty or addition to any such tax) imposed on any Tax Indemnitee as a result of the transactions provided for in Section 6.7 and which would not have been imposed on or borne by any Tax Indemnitee absent such transactions regardless of whether such taxes are imposed directly or through the withholding of any payment to a Tax Indemnitee. Any claim for indemnification hereunder shall be on a net after-tax basis in accordance with, and shall be subject to the procedures set forth in, Section 10.3 of the Master Restructuring Agreement.

23

ARTICLE VIII

ARBITRATION

Subject to the provisions of Sections 2.2(d)(i), 2.2(d)(v), 2.2(d)(vi), 2.2(e)(v), 2.2(e)(vi) and 2.2(e)(vii) hereof and Section 9.4 of the Master Restructuring Agreement, any dispute, controversy or claim between KB, on the one hand, and TR and TR Holdings on the other hand, arising out of or related to this Agreement, or the interpretation or breach hereof, shall be settled by binding arbitration pursuant to the principles and procedures set forth in Article 9 of the Master Restructuring Agreement.

ARTICLE IX

TERMINATION

This Agreement may be terminated at any time by the written mutual consent of each of the parties hereto. In the event that this Agreement is terminated as aforesaid, this Agreement shall be of no further force or effect and no party shall have any liability to any other party hereto; provided, however, that the termination of this Agreement will not relieve any party of any liability for breach of any covenant or agreement hereunder occurring prior to such termination and the terms of Article 4 of the Master Restructuring Agreement (relating to confidentiality) shall remain in full force and effect in accordance with its terms.

ARTICLE X

MISCELLANEOUS

10.1 Expenses. Each of the parties to this Agreement shall bear all the expenses incurred by it in connection with the negotiation and preparation of this Agreement and the consummation of the transactions contemplated by this Agreement regardless of whether this Agreement shall be terminated.

10.2 Assignment. Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party without the prior written consent of the other parties; provided, however, that KB may, without the consent of the other parties hereto, assign its rights and obligations under this Agreement to any of its Affiliates; and provided, further, that TR Holdings may assign its rights and obligations under this Agreement to any permitted transferee of the KBI Shares under Section 3.3 of the Master Restructuring Agreement. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors, heirs and assigns.

10.3 No Third Party Beneficiaries. Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon or give to any person, firm, corporation or legal entity, other than the parties hereto and their respective Affiliates, or their respective successors and permitted assigns, any rights, remedies or other benefits or any obligations or liabilities under or by reason of this Agreement.

24

10.4 Notices. Unless otherwise provided herein, any notice, request, instruction, other document or other communication under or with respect to this Agreement or the Option Documents shall be in writing and shall be deemed to have been duly given if delivered personally, sent by facsimile with confirmation of receipt, or sent by internationally-recognized courier service to any party hereto at its address as specified below.

If to KB:	SE-431 83 Mölndal SWEDEN
	Attention: Legal Department Facsimile No.: 011-46-3177-63871
With a copy to:	AstraZeneca Pharmaceuticals LP 1800 Concord Pike Wilmington, DE 19803
	Attention: Richard Kenny, Assistant General Counsel Facsimile No.: 302-885-6862
If to TR, TR
Holdings or KBI:	One Merck Drive P.O. Box 100 Whitehouse Station, NJ 08889-0100
	Attention: Corporate Secretary Facsimile No.: 908-735-1246
With a copy to:	Merck & Co., Inc. One Merck Drive P.O. Box 100 Whitehouse Station, NJ 08889-0100
	Attention: General Counsel Facsimile No.: 908-735-1244

Any party hereto by written notice to the other parties hereto in accordance with the above may change the address to which such notices, requests, instructions, other documents or other communications to it shall be directed.

10.5 Governing Law. This Agreement shall be construed and governed in accordance with the laws of the State of New York without regard to any choice of law rules other than Section 5-1401 of the New York General Obligations Law.

10.6 Entire Agreement: Amendments and Waivers. This Agreement, together with all exhibits and schedules hereto and the other documents referred to herein, constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all

25

prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. No supplement, amendment, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

10.7 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. An executed signature page of this Agreement delivered by facsimile transmission or by electronic mail in “portable document format” (“.pdf”) shall be as effective as an original executed signature page.

10.8 Invalidity. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument.

10.9 Headings. The headings of the Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

10.10 Remedies. Notwithstanding anything to the contrary contained in this Agreement, each of the parties to this Agreement is entitled to all remedies in the event of breach provided at law or in equity, specifically including, but not limited to, specific performance.

10.11 Gender and Number. All pronouns used herein shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity or number of the person, persons, entity or entities may require.

10.12 No Consent to Section 338 Tax Election. Nothing in this Agreement or any Ancillary Agreement shall be construed to constitute the consent (or an agreement to give the consent) of TR or any member of the TR affiliated group to an election under Section 338(h)(10) of the Internal Revenue Code of 1986, or any successor provision, with respect to the effecting of the KBI Acquisition.

*  *  *

26

IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or have caused this Agreement to be duly executed on their respective behalf by their respective officers thereunto duly authorized, as of the day and year first above written.

ASTRAZENECA AB (publ)
By:	/s/ Jan-Olof Jacke
	Name:	Jan-Olof Jacke
	Title:	CFO
MERCK SHARP & DOHME CORP.
By:	/s/ John Canan
	Name:	John Canan
	Title:	President
MERCK HOLDINGS LLC
By:	/s/ John Canan
	Name:	John Canan
	Title:	President

27

Accepted and Agreed as of the day and year first above written with respect to Sections 2.1, 2.2(d)(viii), 2.2(d)(ix), 2.2(d)(x). 2.2(e)(i), 2.3 (b), 2.4, 6.6 and 6.7 hereof and Article 5 hereof:

KBI INC.			ASTRAZENECA PHARMACEUTICALS LP
By:	/s/ Jon Filderman		By:	/s/ Richard Fante
	Name:	Jon Filderman		Name:	Richard Fante
	Title:	Secretary		Title:	President, US Business & Regional Vice President, Americas
KBI-E INC.			ASTRA USA, INC.
By:	/s/ Katie Fedosz		By:	/s/ Stephen F. Mohr
	Name:	Katie Fedosz		Name:	Stephen F. Mohr
	Title:	Assistant Secretary		Title:	Chairman, President & CEO
KBI SUB INC.			ASTRAZENECA LP
By:	/s/ Jon Filderman		By:	/s/ Richard Fante
	Name:	Jon Filderman		Name:	Richard Fante
	Title:	Secretary		Title:	President, US Business & Regional Vice President, Americas

28

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Kenneth C. Frazier, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Merck & Co., Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   November 9, 2012

By:	/s/ Kenneth C. Frazier
	KENNETH C. FRAZIER Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Peter N. Kellogg, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Merck & Co., Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   November 9, 2012

By:	/s/ Peter N. Kellogg
	PETER N. KELLOGG
	Executive Vice President & Chief Financial Officer

EX-32.1

Exhibit 32.1

Section 1350

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Merck & Co., Inc. (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  November 9, 2012	/s/ Kenneth C. Frazier
	Name:	KENNETH C. FRAZIER
	Title:	Chairman, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Section 1350

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350, the undersigned officer of Merck & Co., Inc. (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  November 9, 2012	/s/ Peter N. Kellogg
	Name:	PETER N. KELLOGG
	Title:	Executive Vice President & Chief Financial Officer

XML

Collaborative Arrangements - Textual (Detail) (USD $) In Millions, unless otherwise specified	1 Months Ended
	Apr. 30, 2011	Oct. 31, 2009
Extended marketing rights for both products (Remicade and Simponi)		15 years
Arbitration settlement payment	$ 500

XML

Contingencies and Environmental Liabilities - NuvaRing Litigation - Textual (Detail) (NuvaRing)	Sep. 30, 2012 LegalMatter
Loss Contingencies [Line Items]
Loss contingency, pending claims number	1,220
New Jersey state court [Member]
Loss Contingencies [Line Items]
Loss contingency, pending claims number	185
Initial number of cases selected for review	20
Other State Court [Member]
Loss Contingencies [Line Items]
Loss contingency, pending claims number	5
NuvaRing MDL | Federal [Member]
Loss Contingencies [Line Items]
Loss contingency, pending claims number	1,030
Initial number of cases selected for review	20
Subsequent number of cases selected for review	8

XML

Joint Ventures and Other Equity Method Affiliates - Equity Income From Affiliates (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Equity Income from Affiliates [Line Items]
Equity income from affiliates	$ 158	$ 161	$ 410	$ 354
Other [Member]
Equity Income from Affiliates [Line Items]
Equity income from affiliates	24	20	23	36
AstraZeneca LP [Member]
Equity Income from Affiliates [Line Items]
Equity income from affiliates	$ 134	$ 141	$ 387	$ 318

XML

Earnings Per Share - Calculations of Earnings Per Share Under Two-Class Method (Detail) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Basic Earnings per Common Share
Net Income Attributable to Merck & Co., Inc.	$ 1,729	$ 1,692	$ 5,261	$ 4,760
Less: Income allocated to participating securities		3	4	12
Net income allocated to common shareholders	1,729	1,689	5,257	4,748
Average common shares outstanding	3,045	3,070	3,043	3,079
Basic Earnings per Common Share Attributable to Merck & Co., Inc. Common Shareholders	$ 0.57	$ 0.55	$ 1.73	$ 1.54
Earnings per Common Share Assuming Dilution
Net Income Attributable to Merck & Co., Inc.	1,729	1,692	5,261	4,760
Less: Income allocated to participating securities		3	4	12
Net income allocated to common shareholders	$ 1,729	$ 1,689	$ 5,257	$ 4,748
Average common shares outstanding	3,045	3,070	3,043	3,079
Common shares issuable	34	21	34	23
Average common shares outstanding assuming dilution	3,079	3,091	3,077	3,102
Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders	$ 0.56	$ 0.55	$ 1.71	$ 1.53

XML

Contingencies and Environmental Liabilities - Propecia/Proscar - Textual (Detail) (Propecia [Member])	Sep. 30, 2012 Plaintiff LegalMatter
Propecia [Member]
Loss Contingencies [Line Items]
Loss contingency, pending claims number	265
Number of plaintiff groups	415

XML

Inventories - Textual (Detail) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Inventories [Line Items]
Inventories not expected to be sold within one year included in Other assets	$ 1,300,000,000	$ 1,300,000,000
Inventories produced in preparation for product launches included in Other Assets	$ 191,000,000	$ 127,000,000

XML

Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Calculations of Earnings Per Share Under Two-Class Method

The calculations of earnings per share under the two-class method are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ and shares in millions except per share amounts)	2012		2011		2012		2011
Basic Earnings per Common Share
Net income attributable to Merck & Co., Inc.	$	1,729	$	1,692	$	5,261	$	4,760
Less: Income allocated to participating securities		-		3		4		12
Net income allocated to common shareholders	$	1,729	$	1,689	$	5,257	$	4,748
Average common shares outstanding		3,045		3,070		3,043		3,079
	$	0.57	$	0.55	$	1.73	$	1.54
Earnings per Common Share Assuming Dilution
Net income attributable to Merck & Co., Inc.	$	1,729	$	1,692	$	5,261	$	4,760
Less: Income allocated to participating securities		-		3		4		12
Net income allocated to common shareholders	$	1,729	$	1,689	$	5,257	$	4,748
Average common shares outstanding		3,045		3,070		3,043		3,079
Common shares issuable (1)		34		21		34		23
Average common shares outstanding assuming dilution		3,079		3,091		3,077		3,102
	$	0.56	$	0.55	$	1.71	$	1.53

⁽¹⁾  Issuable primarily under share-based compensation plans.

XML

Segment Reporting - Sales of Company's Products (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segment Reporting Information [Line Items]
Sales	$ 11,488	$ 12,022	$ 35,530	$ 35,753
Other pharmaceutical [Member]
Segment Reporting Information [Line Items]
Sales	1,023	1,015	3,031	2,975
Total Pharmaceutical segment sales [Member]
Segment Reporting Information [Line Items]
Sales	9,875	10,354	30,517	30,534
Other segment sales [Member]
Segment Reporting Information [Line Items]
Sales	1,556	1,586	4,830	4,908
Total segment sales [Member]
Segment Reporting Information [Line Items]
Sales	11,431	11,940	35,347	35,442
Other [Member]
Segment Reporting Information [Line Items]
Sales	57	82	183	311
Zetia [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	645	614	1,891	1,788
Vytorin [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	423	469	1,312	1,407
Januvia [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	975	846	2,952	2,364
Janumet [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	405	350	1,207	977
Singulair [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	602	1,336	3,373	4,018
Nasonex [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	292	266	960	962
Clarinex [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	64	128	337	492
Asmanex [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	42	42	141	149
Dulera [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	52	22	140	59
Fosamax [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	152	215	522	644
NuvaRing [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	156	159	459	455
Follistim AQ [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	111	129	352	404
Implanon [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	93	80	254	220
Cerazette [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	64	74	202	199
Maxalt [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	166	156	476	460
Arcoxia [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	109	108	338	321
Avelox [Member] | Primary Care and Women's Health [Member]
Segment Reporting Information [Line Items]
Sales	30	59	146	227
Remicade [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	490	561	1,527	2,156
Simponi [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	86	74	236	203
Isentress [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	399	343	1,133	972
PegIntron [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	165	163	510	482
Cancidas [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	163	150	474	476
Victrelis [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	149	31	387	53
Invanz [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	118	107	329	296
Primaxin [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	109	124	301	397
Noxafil [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	66	61	191	171
Temodar [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	227	223	688	704
Emend [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	111	98	358	305
Cosopt/Trusopt [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	102	124	331	360
Bridion [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	68	52	186	141
Integrilin [Member] | Hospital and Specialty [Member]
Segment Reporting Information [Line Items]
Sales	48	53	160	172
Cozaar/Hyzaar [Member] | Diversified Brands [Member]
Segment Reporting Information [Line Items]
Sales	295	404	969	1,236
Propecia [Member] | Diversified Brands [Member]
Segment Reporting Information [Line Items]
Sales	104	112	312	330
Zocor [Member] | Diversified Brands [Member]
Segment Reporting Information [Line Items]
Sales	86	110	285	345
Claritin Rx [Member] | Diversified Brands [Member]
Segment Reporting Information [Line Items]
Sales	47	55	181	240
Remeron [Member] | Diversified Brands [Member]
Segment Reporting Information [Line Items]
Sales	52	65	175	181
Proscar [Member] | Diversified Brands [Member]
Segment Reporting Information [Line Items]
Sales	55	58	160	171
Vasotec/Vaseretic [Member] | Diversified Brands [Member]
Segment Reporting Information [Line Items]
Sales	42	57	144	173
Gardasil [Member] | Vaccines [Member]
Segment Reporting Information [Line Items]
Sales	581	445	1,189	935
ProQuad/M-M-R II/Varivax [Member] | Vaccines [Member]
Segment Reporting Information [Line Items]
Sales	396	391	967	927
RotaTeq [Member] | Vaccines [Member]
Segment Reporting Information [Line Items]
Sales	150	184	433	457
Zostavax [Member] | Vaccines [Member]
Segment Reporting Information [Line Items]
Sales	202	108	426	254
Pneumovax [Member] | Vaccines [Member]
Segment Reporting Information [Line Items]
Sales	$ 160	$ 133	$ 372	$ 276

XML

Contingencies and Environmental Liabilities - AWP Litigation - Textual (Detail) (Awp Litigation [Member])	Sep. 30, 2012 LegalMatter
Awp Litigation [Member]
Loss Contingencies [Line Items]
Loss contingency, pending claims number	6

XML

Earnings per Share - Textual (Detail) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share [Line Items]
Common shares issuable under share-based compensation plans excluded from diluted earnings per common share	97	170	111	170

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Restructuring (Tables)

9 Months Ended

Sep. 30, 2012

Charges Related to Merger Restructuring Program and 2008 Restructuring Program Activities by Type of Cost

The following tables summarize the charges related to Merger Restructuring Program and 2008 Restructuring Program activities by type of cost:

	Three Months Ended September 30, 2012										Nine Months Ended September 30, 2012
($ in millions)	Separation Costs			Accelerated Depreciation			Other		Total		Separation Costs			Accelerated Depreciation		Other		Total
Merger Restructuring Program
Materials and production	$	-		$	42		$	13	$	55	$	-		$	75	$	50	$	125
Marketing and administrative		-			16			3		19		-			59		5		64
Research and development		-			(33	) (1)		1		(32)		-			49		5		54
Restructuring costs		59			-			49		108		363			-		112		475
		59			25			66		150		363			183		172		718
2008 Restructuring Program
Materials and production		-			1			4		5		-			4		15		19
Marketing and administrative		-			6			-		6		-			6		-		6
Restructuring costs		(1	)		-			3		2		(12	)		-		10		(2)
		(1	)		7			7		13		(12	)		10		25		23
	$	58		$	32		$	73	$	163	$	351		$	193	$	197	$	741

	Three Months Ended September 30, 2011									Nine Months Ended September 30, 2011
($ in millions)	Separation Costs		Accelerated Depreciation		Other			Total		Separation Costs			Accelerated Depreciation		Other			Total
Merger Restructuring Program
Materials and production	$	-	$	81	$	7		$	88	$	-		$	233	$	12		$	245
Marketing and administrative		-		22		9			31		-			67		10			77
Research and development		-		27		1			28		-			107		(18	)		89
Restructuring costs		63		-		45			108		670			-		95			765
		63		130		62			255		670			407		99			1,176
2008 Restructuring Program
Materials and production		-		10		(1	)		9		-			16		1			17
Restructuring costs		5		-		6			11		(3	)		-		11			8
		5		10		5			20		(3	)		16		12			25
	$	68	$	140	$	67		$	275	$	667		$	423	$	111		$	1,201

⁽¹⁾  In the third quarter of 2012, the Company recorded an adjustment to accelerated depreciation costs included in research and development expenses revising previously recorded amounts for certain facilities.

Charges and Spending Relating to Merger Restructuring Program and 2008 Restructuring Program Activities

The following table summarizes the charges and spending relating to Merger Restructuring Program and 2008 Restructuring Program activities for the nine months ended September 30, 2012:

($ in millions)	Separation Costs		Accelerated Depreciation		Other		Total
Merger Restructuring Program
Restructuring reserves January 1, 2012	$	1,144	$	-	$	51	$	1,195
Expense		363		183		172		718
(Payments) receipts, net		(742)		-		(131)		(873)
Non-cash activity		-		(183)		(74)		(257)
Restructuring reserves September 30, 2012 (1)	$	765	$	-	$	18	$	783
2008 Restructuring Program
Restructuring reserves January 1, 2012	$	126	$	-	$	-	$	126
Expense		(12)		10		25		23
(Payments) receipts, net		(19)		-		(8)		(27)
Non-cash activity		-		(10)		(17)		(27)
Restructuring reserves September 30, 2012 (1)	$	95	$	-	$	-	$	95

⁽¹⁾  The cash outlays associated with the Merger Restructuring Program are expected to be substantially completed by the end of 2013 with the exception of certain actions, principally manufacturing-related, which are expected to be substantially completed by 2016. The cash outlays associated with the remaining restructuring reserves for the 2008 Restructuring Program are primarily manufacturing-related and are expected to be completed by the end of 2015.

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Joint Ventures and Other Equity Method Affiliates - Summarized Financial Information for AZLP (Detail) (AstraZeneca LP [Member], USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
AstraZeneca LP [Member]
Equity Income from Affiliates [Line Items]
Sales	$ 1,232	$ 1,124	$ 3,424	$ 3,460
Materials and production costs	561	464	1,520	1,524
Other expense, net	204	357	936	1,004
Income before taxes	$ 467	$ 303	$ 968	$ 932

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Financial Instruments - Location and Pretax Gain or Loss Amounts for Derivatives (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Derivatives designated in fair value hedging relationships [Member] | Interest rate swap contracts [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of loss (gain) recognized in Other (income) expense, net on derivatives		$ (40)		$ (203)
Amount of loss recognized in Other (income) expense, net on hedged item		40		203
Derivatives designated in foreign currency cash flow hedging relationships [Member] | Foreign exchange contract [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of (gain) loss reclassified from AOCI to Sales	(4)	30	49	57
Amount of loss (gain) recognized in OCI on derivatives	236	(70)	202	183
Derivatives designated in foreign currency net investment hedging relationships [Member] | Foreign exchange contract [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain recognized in Other (income) expense, net on derivatives	(5)	(1)	(15)	(9)
Amount of loss (gain) recognized in OCI on derivatives	54	124	(2)	158
Derivatives Not Designated as Hedging Instruments [Member] | Foreign exchange contract [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of loss (gain) recognized in Other (income) expense, net on derivatives	157	(351)	131	(31)
Amounts of loss recognized in Sales on hedged item	$ 17		$ 17

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Restructuring - Charges and Spending Relating to Merger Restructuring Program and 2008 Restructuring Program Activities (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Restructuring Cost and Reserve [Line Items]
Expense	$ 163	$ 275	$ 741	$ 1,201
Merger Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring reserves January 1, 2012			1,195
Expense	150	255	718	1,176
(Payments) receipts, net			(873)
Non-cash activity			(257)
Restructuring reserves September 30, 2012	783		783
2008 Global Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring reserves January 1, 2012			126
Expense	13	20	23	25
(Payments) receipts, net			(27)
Non-cash activity			(27)
Restructuring reserves September 30, 2012	95		95
Separation Costs [Member]
Restructuring Cost and Reserve [Line Items]
Expense	58	68	351	667
Separation Costs [Member] | Merger Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring reserves January 1, 2012			1,144
Expense	59	63	363	670
(Payments) receipts, net			(742)
Restructuring reserves September 30, 2012	765		765
Separation Costs [Member] | 2008 Global Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring reserves January 1, 2012			126
Expense	(1)	5	(12)	(3)
(Payments) receipts, net			(19)
Restructuring reserves September 30, 2012	95		95
Accelerated Depreciation [Member]
Restructuring Cost and Reserve [Line Items]
Expense	32	140	193	423
Accelerated Depreciation [Member] | Merger Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Expense	25	130	183	407
Non-cash activity			(183)
Accelerated Depreciation [Member] | 2008 Global Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Expense	7	10	10	16
Non-cash activity			(10)
Other [Member]
Restructuring Cost and Reserve [Line Items]
Expense	73	67	197	111
Other [Member] | Merger Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring reserves January 1, 2012			51
Expense	66	62	172	99
(Payments) receipts, net			(131)
Non-cash activity			(74)
Restructuring reserves September 30, 2012	18		18
Other [Member] | 2008 Global Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Expense	7	5	25	12
(Payments) receipts, net			(8)
Non-cash activity			$ (17)

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Contingencies and Environmental Liabilities - Vioxx Litigation - Textual (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended			12 Months Ended
	Sep. 30, 2011	Sep. 30, 2012 Vioxx MDL Litigation [Member] LegalMatter	Sep. 30, 2012 Vioxx Securities Lawsuits [Member] LegalMatter	Dec. 31, 2010 Vioxx Investigations [Member]	Oct. 15, 2012 Vioxx [Member]
Loss Contingencies [Line Items]
Loss contingency, pending claims number		100
Number of class actions remaining		30
Reflects the estimated amount of loss from the specified contingency as of the balance sheet date					$ 39
Number of suits brought on by County		1
Cases in which motions to dismiss were filed			1
Upper limit of directors and officers insurance coverage			175
Litigation charges	$ (500)			$ 950

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Other (Income) Expense, Net (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Other Income Expense [Line Items]
Interest income	$ (47)	$ (32)	$ (177)	$ (102)
Interest expense	178	176	524	522
Exchange losses	50	59	130	102
Other, net	19	(137)	(31)	287
Other (income) expense, net	$ 200	$ 66	$ 446	$ 809

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Equity - Accumulated Balances Related to Each Component of Other Comprehensive Income (Loss) (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Accumulated Other Comprehensive Loss, Beginning Balance			$ (3,132)	$ (3,216)
Accumulated Other Comprehensive Loss, Other comprehensive (loss) income	86	63	92	503
Accumulated Other Comprehensive Loss, Ending Balance	(3,040)	(2,713)	(3,040)	(2,713)
Cumulative Translation Adjustment, beginning balance			(811)	(1,245)
Cumulative Translation Adjustment, Other comprehensive (loss) income	170	(22)	84	532
Cumulative Translation Adjustment, ending balance	(727)	(713)	(727)	(713)
Employee Benefit Plans, Beginning balance			(2,346)	(2,043)
Benefit plan net gain (loss) and prior service cost (credit), net of amortization	27	31	45	59
Employee Benefit Plans, Ending balance	(2,301)	(1,984)	(2,301)	(1,984)
Investments, Beginning balance			21	31
Investments, Other comprehensive (loss) income	32	(6)	62	(11)
Investments, Ending balance	83	20	83	20
Derivatives, Beginning balance			4	41
Derivatives, Other comprehensive (loss) income	(143)	60	(99)	(77)
Derivatives, Ending balance	$ (95)	$ (36)	$ (95)	$ (36)

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Other Intangibles - Textual (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Goodwill And Other Intangible Assets [Line Items]
Impairment charges associated with in-process research and development	$ 40	$ 22	$ 176	$ 343
Intangible asset impairment charge related to marketed product				$ 118

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Acquisitions, Divestitures, Research Collaborations and License Agreements

9 Months Ended

Sep. 30, 2012

Acquisitions, Divestitures, Research Collaborations and License Agreements

3. Acquisitions, Divestitures, Research Collaborations and License Agreements

In April 2012, the Company entered into an agreement with Endocyte, Inc. (“Endocyte”) to develop and commercialize Endocyte’s novel investigational therapeutic candidate vintafolide (MK-8109). Vintafolide is currently being evaluated in a Phase III clinical trial for platinum-resistant ovarian cancer (PROCEED) and a Phase II trial for non-small cell lung cancer. Under the agreement, Merck gained worldwide rights to develop and commercialize vintafolide. Endocyte received a $120 million upfront payment, which the Company recorded in Research and development expenses in the second quarter of 2012, and is eligible for milestone payments of up to $880 million based on the successful achievement of development, regulatory and commercialization goals for vintafolide for a total of six cancer indications. In addition, if vintafolide receives regulatory approval, Endocyte will receive an equal share of the profit in the United States as well as a royalty on sales of the product in the rest of the world. Endocyte has retained the right to co-promote vintafolide with Merck in the United States and Merck has the exclusive right to promote vintafolide in the rest of world. Endocyte will be responsible for the majority of funding and completion of the PROCEED trial. Merck will be responsible for most other development activities, all other costs and will have most decision rights for vintafolide. Merck has the right to terminate the agreement on 90 days notice. Merck and Endocyte both have the right to terminate the agreement due to the material breach or insolvency of the other party. Endocyte has the right to terminate the agreement in the event that Merck challenges an Endocyte patent right relating to vintafolide. Upon termination of the agreement, depending upon the circumstances, the parties have varying rights and obligations with respect to the continued development and commercialization of vintafolide and, in the case of termination for cause by Merck, certain royalty obligations and U.S. profit and loss sharing.

In May 2011, Merck completed the acquisition of Inspire Pharmaceuticals, Inc. (“Inspire”), a specialty pharmaceutical company focused on developing and commercializing ophthalmic products. Under the terms of the merger agreement, Merck acquired all outstanding shares of common stock of Inspire at a price of $5.00 per share in cash for a total of approximately $420 million. The transaction was accounted for as an acquisition of a business; accordingly, the assets acquired and liabilities assumed were recorded at their respective fair values as of the acquisition date. The determination of fair value requires management to make significant estimates and assumptions. In connection with the acquisition, substantially all of the purchase price was allocated to Inspire’s product and product right intangible assets and related deferred tax liabilities, a deferred tax asset relating to Inspire’s net operating loss carryforwards, and goodwill. This transaction closed on May 16, 2011, and accordingly, the results of operations of the acquired business have been included in the Company’s results of operations since the acquisition date. Pro forma financial information has not been included because Inspire’s historical financial results are not significant when compared with the Company’s financial results.

In March 2011, the Company sold the Merck BioManufacturing Network, a provider of contract manufacturing and development services for the biopharmaceutical industry and wholly owned by Merck, to Fujifilm Corporation (“Fujifilm”). Under the terms of the agreement, Fujifilm purchased all of the equity interests in two Merck subsidiaries which together owned all of the assets of the Merck BioManufacturing Network comprising facilities located in Research Triangle Park, North Carolina and Billingham, United Kingdom. As part of the agreement with Fujifilm, Merck has committed to purchase certain development and manufacturing services at fair value from Fujifilm over a three-year period following the closing of the transaction. The transaction resulted in a gain of $127 million in the first nine months of 2011 reflected in Other (income) expense, net.

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Share-Based Compensation Plans (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Amounts of share-based compensation cost recorded in the Consolidated Statement of Income
Pretax share-based compensation expense	$ 88	$ 86	$ 257	$ 287
Income tax benefit	(28)	(30)	(81)	(99)
Total share-based compensation expense, net of taxes	$ 60	$ 56	$ 176	$ 188

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Financial Instruments - Gross Unrealized Gains and Losses on Available-For-Sale Investments (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Fair Value	$ 6,503	$ 5,069
Amortized Cost	6,405	5,042
Gross Unrealized, Gains	101	37
Gross Unrealized, Losses	(3)	(10)
Commercial paper [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	168	1,029
Amortized Cost	168	1,029
Corporate notes and bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	3,705	2,032
Amortized Cost	3,650	2,024
Gross Unrealized, Gains	56	16
Gross Unrealized, Losses	(1)	(8)
U.S. government and agency securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	1,156	1,021
Amortized Cost	1,154	1,018
Gross Unrealized, Gains	2	3
Asset-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	648	292
Amortized Cost	644	292
Gross Unrealized, Gains	4	1
Gross Unrealized, Losses		(1)
Mortgage-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	334	223
Amortized Cost	334	223
Gross Unrealized, Gains	2	1
Gross Unrealized, Losses	(2)	(1)
Foreign government bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	72	72
Amortized Cost	71	72
Gross Unrealized, Gains	1
Other debt securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value		3
Amortized Cost		1
Gross Unrealized, Gains		2
Equity securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value	420	397
Amortized Cost	384	383
Gross Unrealized, Gains	$ 36	$ 14

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Equity (Tables)

9 Months Ended

Sep. 30, 2012

Shareholders' Equity

											Accumulated
					Other						Other								Non-
	Common Stock				Paid-In			Retained			Comprehensive			Treasury Stock					Controlling
($ and shares in millions)	Shares		Par Value		Capital			Earnings			Loss			Shares			Cost		Interests			Total
Balance January 1, 2011		3,577	$	1,788	$	40,701		$	37,536		$	(3,216	)		495		$	(22,433)	$	2,429		$	56,805
Net income attributable to Merck & Co., Inc.		-		-		-			4,760			-			-			-		-			4,760
Cash dividends declared on common stock		-		-		-			(3,533	)		-			-			-		-			(3,533)
Treasury stock shares purchased		-		-		-			-			-			41			(1,359)		-			(1,359)
Share-based compensation plans and other		-		-		16			-			-			(11	)		377		-			393
Other comprehensive income		-		-		-			-			503			-			-		-			503
Net income attributable to noncontrolling interests		-		-		-			-			-			-			-		89			89
Distributions attributable to noncontrolling interests		-		-		-			-			-			-			-		(62	)		(62)
Balance September 30, 2011		3,577	$	1,788	$	40,717		$	38,763		$	(2,713	)		525		$	(23,415)	$	2,456		$	57,596
Balance January 1, 2012		3,577	$	1,788	$	40,663		$	38,990		$	(3,132	)		536		$	(23,792)	$	2,426		$	56,943
Net income attributable to Merck & Co., Inc.		-		-		-			5,261			-			-			-		-			5,261
Cash dividends declared on common stock		-		-		-			(3,861	)		-			-			-		-			(3,861)
Treasury stock shares purchased		-		-		-			-			-			36			(1,439)		-			(1,439)
Share-based compensation plans and other		-		-		(192	)		-			-			(39	)		1,369		-			1,177
Other comprehensive income		-		-		-			-			92			-			-		-			92
Net income attributable to noncontrolling interests		-		-		-			-			-			-			-		89			89
Distributions attributable to noncontrolling interests		-		-		-			-			-			-			-		(50	)		(50)
Balance September 30, 2012		3,577	$	1,788	$	40,471		$	40,390		$	(3,040	)		533		$	(23,862)	$	2,465		$	58,212

Accumulated Balances Related to Each Component of Other Comprehensive Income (Loss)

($ in millions)	Derivatives		Investments		Employee Benefit Plans		Cumulative Translation    Adjustment		Accumulated  Other  Comprehensive  Loss
Balance January 1, 2011	$	41	$	31	$	(2,043)	$	(1,245)	$	(3,216)
Other comprehensive (loss) income		(77)		(11)		59		532		503
Balance at September 30, 2011	$	(36)	$	20	$	(1,984)	$	(713)	$	(2,713)
Balance January 1, 2012	$	4	$	21	$	(2,346)	$	(811)	$	(3,132)
Other comprehensive (loss) income		(99)		62		45		84		92
Balance at September 30, 2012	$	(95)	$	83	$	(2,301)	$	(727)	$	(3,040)

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Joint Ventures and Other Equity Method Affiliates (Tables)

9 Months Ended

Sep. 30, 2012

Equity Income from Affiliates

Equity income from affiliates reflects the performance of the Company’s joint ventures and other equity method affiliates and was comprised of the following:

	Three Months Ended     September 30,				Nine Months Ended     September 30,
($ in millions)	2012		2011		2012		2011
AstraZeneca LP	$	134	$	141	$	387	$	318
Other (1)		24		20		23		36
	$	158	$	161	$	410	$	354

⁽¹⁾  Includes results from Sanofi Pasteur MSD.

Summarized Financial Information for Azlp

Summarized financial information for AZLP is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2012		2011		2012		2011
Sales	$	1,232	$	1,124	$	3,424	$	3,460
Materials and production costs		561		464		1,520		1,524
Other expense, net		204		357		936		1,004
Income before taxes (1)	$	467	$	303	$	968	$	932

⁽¹⁾  Merck’s partnership returns from AZLP are generally contractually determined and are not based on a percentage of income from AZLP, other than with respect to Merck’s 1% limited partnership interest.

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Contingencies and Environmental Liabilities - Vytorin/Zetia Litigation - Textual (Detail) (USD $)	May 24, 2012 Vytorin ERISA Lawsuits	Sep. 30, 2012 Vytorin Shareholder Lawsuits
Loss Contingencies [Line Items]
Settlement agreement amount	$ 10,400,000
Upper limit of directors and officers insurance coverage		$ 250,000,000

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Financial Instruments - Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Assets
Fair Value	$ 6,503	$ 5,069
Derivative assets	586	755
Liabilities
Derivative liabilities	180	108
Commercial paper [Member]
Assets
Fair Value	168	1,029
Corporate notes and bonds [Member]
Assets
Fair Value	3,705	2,032
U.S. government and agency securities [Member]
Assets
Fair Value	1,156	1,021
Asset-backed securities [Member]
Assets
Fair Value	648	292
Mortgage-backed securities [Member]
Assets
Fair Value	334	223
Foreign government bonds [Member]
Assets
Fair Value	72	72
Equity securities [Member]
Assets
Fair Value	420	397
Other debt securities [Member]
Assets
Fair Value		3
Fair Value, Measurements, Recurring [Member]
Assets
Investments	6,317	4,899
Securities held for employee compensation	186	170
Purchased currency options	541	613
Derivative assets	586	755
Total assets	7,089	5,824
Liabilities
Total liabilities	180	108
Fair Value, Measurements, Recurring [Member] | Commercial paper [Member]
Assets
Fair Value	168	1,029
Fair Value, Measurements, Recurring [Member] | Foreign exchange contract [Member]
Assets
Derivative assets	45	142
Liabilities
Derivative liabilities	176	107
Fair Value, Measurements, Recurring [Member] | Written currency options [Member]
Liabilities
Derivative liabilities	4	1
Fair Value, Measurements, Recurring [Member] | Quoted Prices In Active Markets for Identical Assets (Level 1) [Member]
Assets
Investments	209	205
Securities held for employee compensation	186	170
Total assets	395	375
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Investments	6,108	4,694
Purchased currency options	541	613
Derivative assets	586	755
Total assets	6,694	5,449
Liabilities
Total liabilities	180	108
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Commercial paper [Member]
Assets
Fair Value	168	1,029
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Foreign exchange contract [Member]
Assets
Derivative assets	45	142
Liabilities
Derivative liabilities	176	107
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member] | Written currency options [Member]
Liabilities
Derivative liabilities	4	1
Fair Value, Measurements, Recurring [Member] | Corporate notes and bonds [Member]
Assets
Fair Value	3,705	2,032
Fair Value, Measurements, Recurring [Member] | Corporate notes and bonds [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Fair Value	3,705	2,032
Fair Value, Measurements, Recurring [Member] | U.S. government and agency securities [Member]
Assets
Fair Value	1,156	1,021
Fair Value, Measurements, Recurring [Member] | U.S. government and agency securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Fair Value	1,156	1,021
Fair Value, Measurements, Recurring [Member] | Asset-backed securities [Member]
Assets
Fair Value	648	292
Fair Value, Measurements, Recurring [Member] | Asset-backed securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Fair Value	648	292
Fair Value, Measurements, Recurring [Member] | Mortgage-backed securities [Member]
Assets
Fair Value	334	223
Fair Value, Measurements, Recurring [Member] | Mortgage-backed securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Fair Value	334	223
Fair Value, Measurements, Recurring [Member] | Foreign government bonds [Member]
Assets
Fair Value	72	72
Fair Value, Measurements, Recurring [Member] | Foreign government bonds [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Fair Value	72	72
Fair Value, Measurements, Recurring [Member] | Equity securities [Member]
Assets
Fair Value	234	227
Fair Value, Measurements, Recurring [Member] | Equity securities [Member] | Quoted Prices In Active Markets for Identical Assets (Level 1) [Member]
Assets
Fair Value	209	205
Fair Value, Measurements, Recurring [Member] | Equity securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Fair Value	25	22
Fair Value, Measurements, Recurring [Member] | Other debt securities [Member]
Assets
Fair Value		3
Fair Value, Measurements, Recurring [Member] | Other debt securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Fair Value		$ 3

XML

Share-Based Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2012

Amounts of Share-Based Compensation Cost Recorded in Consolidated Statement of Income

	Three Months Ended     September 30,				Nine Months Ended     September 30,
($ in millions)	2012		2011		2012		2011
Pretax share-based compensation expense	$	88	$	86	$	257	$	287
Income tax benefit		(28)		(30)		(81)		(99)
Total share-based compensation expense, net of taxes	$	60	$	56	$	176	$	188

Assumptions Used to Determine Weighted-Average Fair Value of Options Granted

	Nine Months Ended     September 30,
	2012		2011
Expected dividend yield		4.4%		4.3%
Risk-free interest rate		1.3%		2.6%
Expected volatility		25.3%		23.2%
Expected life (years)		7.0		7.0

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Pension and Other Postretirement Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2012

Components of Net Cost of Defined Benefit Plans

The Company has defined benefit pension plans covering eligible employees in the United States and in certain of its international subsidiaries. The net cost of such plans consisted of the following components:

	Three Months Ended       September 30,				Nine Months Ended       September 30,
($ in millions)	2012		2011		2012		2011
Service cost	$	133	$	158	$	416	$	461
Interest cost		162		182		494		541
Expected return on plan assets		(239)		(243)		(727)		(728)
Net amortization		48		58		144		149
Termination benefits		4		15		13		32
Curtailments		(4)		(6)		(5)		(16)
Settlements		-		-		-		(1)
	$	104	$	164	$	335	$	438

The Company provides medical, dental and life insurance benefits, principally to its eligible U.S. retirees and similar benefits to their dependents, through its other postretirement benefit plans. The net cost of such plans consisted of the following components:

	Three Months Ended       September 30,				Nine Months Ended       September 30,
($ in millions)	2012		2011		2012		2011
Service cost	$	22	$	27	$	64	$	83
Interest cost		31		35		93		106
Expected return on plan assets		(34)		(35)		(102)		(106)
Net amortization		(9)		(4)		(25)		(13)
Termination benefits		5		5		10		11
Curtailments		(2)		(1)		(6)		-
	$	13	$	27	$	34	$	81

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Restructuring

9 Months Ended

Sep. 30, 2012

Restructuring

2. Restructuring

Merger Restructuring Program

In February 2010, subsequent to the Merck and Schering-Plough Corporation (“Schering-Plough”) merger (the “Merger”), the Company commenced actions under a global restructuring program (the “Merger Restructuring Program”) in conjunction with the integration of the legacy Merck and legacy Schering-Plough businesses. This Merger Restructuring Program is intended to optimize the cost structure of the combined company. In July 2011, the Company announced the latest phase of the Merger Restructuring Program during which the Company expects to reduce its workforce measured at the time of the Merger by an additional 12% to 13% across the Company worldwide. A majority of the workforce reductions in this phase of the Merger Restructuring Program relate to manufacturing (including Animal Health), administrative and headquarters organizations. Previously announced workforce reductions of approximately 17% in earlier phases of the program primarily reflect the elimination of positions in sales, administrative and headquarters organizations, as well as from the sale or closure of certain manufacturing and research and development sites and the consolidation of office facilities. The Company will continue to hire employees in strategic growth areas of the business as necessary. The Company will also continue to pursue productivity efficiencies and evaluate its manufacturing supply chain capabilities on an ongoing basis which may result in future restructuring actions.

The Company recorded total pretax restructuring costs of $150 million and $255 million in the third quarter of 2012 and 2011, respectively, and $718 million and $1.2 billion in the first nine months of 2012 and 2011, respectively, related to this program. Since inception of the Merger Restructuring Program through September 30, 2012, Merck has recorded total pretax accumulated costs of approximately $5.8 billion and eliminated approximately 20,750 positions comprised of employee separations, as well as the elimination of contractors and vacant positions. The restructuring actions under the Merger Restructuring Program are expected to be substantially completed by the end of 2013, with the exception of certain actions, principally manufacturing-related, which are expected to be substantially completed by 2016. The Company now expects the estimated total cumulative pretax costs for this program to be approximately $7.2 billion to $7.5 billion. The increase from original estimates primarily reflects accelerated depreciation related to additional facility closures identified during the Company’s ongoing assessment of worldwide capacity requirements for its manufacturing, research and administrative facilities subsequent to the Merger, including the recently announced move of the Company’s worldwide headquarters to Summit, New Jersey. The Company estimates that approximately two-thirds of the cumulative pretax costs relate to cash outlays, primarily related to employee separation expense. Approximately one-third of the cumulative pretax costs are non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested.

2008 Global Restructuring Program

In October 2008, Merck announced a global restructuring program (the “2008 Restructuring Program”) to reduce its cost structure, increase efficiency, and enhance competitiveness. As part of the 2008 Restructuring Program, the Company expects to eliminate approximately 7,200 positions — 6,800 active employees and 400 vacancies — across the Company worldwide. Pretax restructuring costs of $13 million and $20 million were recorded in the third quarter of 2012 and 2011, respectively, and $23 million and $25 million were recorded in the first nine months of 2012 and 2011, respectively, related to the 2008 Restructuring Program. Since inception of the 2008 Restructuring Program through September 30, 2012, Merck has recorded total pretax accumulated costs of $1.6 billion and eliminated approximately 6,400 positions comprised of employee separations and the elimination of contractors and vacant positions. The 2008 Restructuring Program was substantially completed in 2011, with the exception of certain manufacturing-related actions, which are expected to be completed by 2015, with the total cumulative pretax costs estimated to be up to $2.0 billion. The Company estimates that two-thirds of the cumulative pretax costs relate to cash outlays, primarily from employee separation expense. Approximately one-third of the cumulative pretax costs are non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested.

For segment reporting, restructuring charges are unallocated expenses.

The following tables summarize the charges related to Merger Restructuring Program and 2008 Restructuring Program activities by type of cost:

	Three Months Ended September 30, 2012										Nine Months Ended September 30, 2012
($ in millions)	Separation Costs			Accelerated Depreciation			Other		Total		Separation Costs			Accelerated Depreciation		Other		Total
Merger Restructuring Program
Materials and production	$	-		$	42		$	13	$	55	$	-		$	75	$	50	$	125
Marketing and administrative		-			16			3		19		-			59		5		64
Research and development		-			(33	) (1)		1		(32)		-			49		5		54
Restructuring costs		59			-			49		108		363			-		112		475
		59			25			66		150		363			183		172		718
2008 Restructuring Program
Materials and production		-			1			4		5		-			4		15		19
Marketing and administrative		-			6			-		6		-			6		-		6
Restructuring costs		(1	)		-			3		2		(12	)		-		10		(2)
		(1	)		7			7		13		(12	)		10		25		23
	$	58		$	32		$	73	$	163	$	351		$	193	$	197	$	741

	Three Months Ended September 30, 2011									Nine Months Ended September 30, 2011
($ in millions)	Separation Costs		Accelerated Depreciation		Other			Total		Separation Costs			Accelerated Depreciation		Other			Total
Merger Restructuring Program
Materials and production	$	-	$	81	$	7		$	88	$	-		$	233	$	12		$	245
Marketing and administrative		-		22		9			31		-			67		10			77
Research and development		-		27		1			28		-			107		(18	)		89
Restructuring costs		63		-		45			108		670			-		95			765
		63		130		62			255		670			407		99			1,176
2008 Restructuring Program
Materials and production		-		10		(1	)		9		-			16		1			17
Restructuring costs		5		-		6			11		(3	)		-		11			8
		5		10		5			20		(3	)		16		12			25
	$	68	$	140	$	67		$	275	$	667		$	423	$	111		$	1,201

⁽¹⁾  In the third quarter of 2012, the Company recorded an adjustment to accelerated depreciation costs included in research and development expenses revising previously recorded amounts for certain facilities.

Separation costs are associated with actual headcount reductions, as well as those headcount reductions which were probable and could be reasonably estimated. In the third quarter of 2012 and 2011, approximately 525 positions and 1,300 positions, respectively, were eliminated under the Merger Restructuring Program and approximately 10 and 110 positions, respectively, were eliminated under the 2008 Restructuring Program. In the first nine months of 2012 and 2011, approximately 2,325 positions and 2,635 positions, respectively, were eliminated under the Merger Restructuring Program and approximately 150 positions and 290 positions, respectively, were eliminated under the 2008 Restructuring Program. These position eliminations were comprised of actual headcount reductions and the elimination of contractors and vacant positions.

Accelerated depreciation costs primarily relate to manufacturing, research and administrative facilities and equipment to be sold or closed as part of the programs. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the revised useful life of the site, based upon the anticipated date the site will be closed or divested, and depreciation expense as determined utilizing the useful life prior to the restructuring actions. All of the sites have and will continue to operate up through the respective closure dates, and since future cash flows were sufficient to recover the respective book values, Merck was required to accelerate depreciation of the site assets rather than write them off immediately. Anticipated site closure dates, particularly related to manufacturing locations, have been and may continue to be adjusted to reflect changes resulting from regulatory or other factors.

Other activity in 2012 and 2011 includes asset abandonment, shut-down and other related costs. Additionally, other activity includes employee-related costs such as curtailment, settlement and termination charges associated with pension and other postretirement benefit plans (see Note 13) and share-based compensation costs.

The following table summarizes the charges and spending relating to Merger Restructuring Program and 2008 Restructuring Program activities for the nine months ended September 30, 2012:

($ in millions)	Separation Costs		Accelerated Depreciation		Other		Total
Merger Restructuring Program
Restructuring reserves January 1, 2012	$	1,144	$	-	$	51	$	1,195
Expense		363		183		172		718
(Payments) receipts, net		(742)		-		(131)		(873)
Non-cash activity		-		(183)		(74)		(257)
Restructuring reserves September 30, 2012 (1)	$	765	$	-	$	18	$	783
2008 Restructuring Program
Restructuring reserves January 1, 2012	$	126	$	-	$	-	$	126
Expense		(12)		10		25		23
(Payments) receipts, net		(19)		-		(8)		(27)
Non-cash activity		-		(10)		(17)		(27)
Restructuring reserves September 30, 2012 (1)	$	95	$	-	$	-	$	95

⁽¹⁾  The cash outlays associated with the Merger Restructuring Program are expected to be substantially completed by the end of 2013 with the exception of certain actions, principally manufacturing-related, which are expected to be substantially completed by 2016. The cash outlays associated with the remaining restructuring reserves for the 2008 Restructuring Program are primarily manufacturing-related and are expected to be completed by the end of 2015.

Legacy Schering-Plough Program

Prior to the Merger, Schering-Plough commenced a Productivity Transformation Program which was designed to reduce and avoid costs and increase productivity. The Company recorded accelerated depreciation costs included in Materials and production costs of $2 million for the third quarter of 2011 and $4 million and $18 million for the first nine months of 2012 and 2011, respectively. The remaining reserve associated with this program, which is substantially complete, was $17 million at September 30, 2012.

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Other (Income) Expense, Net (Tables)

9 Months Ended

Sep. 30, 2012

Other (Income) Expense, Net

Other (income) expense, net, consisted of:

	Three Months Ended     September 30,				Nine Months Ended     September 30,
($ in millions)	2012		2011		2012		2011
Interest income	$	(47)	$	(32)	$	(177)	$	(102)
Interest expense		178		176		524		522
Exchange losses		50		59		130		102
Other, net		19		(137)		(31)		287
	$	200	$	66	$	446	$	809

XML

Financial Instruments - Textual (Detail) (USD $)	3 Months Ended		9 Months Ended					3 Months Ended					3 Months Ended
	Sep. 30, 2011 Contract	Jun. 30, 2011 Contract	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Dec. 31, 2010	Sep. 30, 2012 Greece	Jun. 30, 2012 Italy	Mar. 31, 2012 Italy	Sep. 30, 2012 Italy	Sep. 30, 2012 Spain	Sep. 30, 2012 Portugal [Member]	Sep. 30, 2012 Accounts receivable collected from the government of Portugal related to 2011 and prior [Member]	Jun. 30, 2012 Spanish government's debt stabilization/stimulus plan [Member]
Derivative [Line Items]
Maximum planning cycle of third-party sales hedges			3 years
Maximum average period of maturities of contracts in years			1 year
Pretax gains (losses) from euro-denominated notes included in cumulative translation adjustments			$ 35,000,000	$ (84,000,000)
Number of swap contracts terminated	11	9
Notional amount of swap contracts terminated	1,600,000,000	3,500,000,000
Hedged fixed rate notes related to terminated interest rate swaps	1,600,000,000	3,500,000,000
Cash received from interest rate swap termination	113,000,000	175,000,000		288,000,000
Accrued interest received on termination of swap contracts	7,000,000	36,000,000
Deferred basis adjustment of debt associated with terminated interest rate swap contract	106,000,000	139,000,000		106,000,000
Aggregate notional amount for pay-floating, receive-fixed interest rate swap contracts, designated as fair value hedges for fixed-rate notes	250,000,000			250,000,000
Pre tax net unrealized loss on derivatives maturing within next 12 months estimated to be reclassified from AOCI to sales			103,000,000
Available-for-sale debt securities included in Short-term investments			757,000,000
Available-for-sale debt securities maturing after one year through five years			4,700,000,000
Cash and cash equivalents	14,253,000,000		17,360,000,000	14,253,000,000	13,531,000,000	10,900,000,000
Cash equivalents			16,600,000,000
Fair value of loans payable and long-term debt, including current portion			22,100,000,000		19,500,000,000
Carrying value of Loans payable and long-term debt, including current portion			19,600,000,000		17,500,000,000
Cash and cash equivalents invested in highly rated money market funds			50.00%
Total accounts receivable in Greece, Italy, Spain and Portugal			1,000,000,000
Hospital and public sector receivables in Greece, Italy, Spain and Portugal			700,000,000
Percentage of aggregate total hospital and public sector accounts receivable related to Greece, Italy, Spain and Portugal							19.00%			41.00%	30.00%	10.00%
Percentage of accounts receivables outstanding for more than one year that relate to Greece, Italy, Spain and Portugal			60.00%
Accounts receivable outstanding for more than one year			300,000,000
Accounts receivable collected													60,000,000	500,000,000
Receivables factored during period								120,000,000	110,000,000
Cash collateral received from counterparties			$ 313,000,000		$ 327,000,000

XML

Contingencies and Environmental Liabilities - Fosamax Product Liability Litigation - Textual (Detail) (USD $) In Millions, unless otherwise specified							1 Months Ended
	Sep. 30, 2012 Fosamax Bellwether Trials LegalMatter	Feb. 28, 2011 Fosamax Bellwether Trials LegalMatter	Sep. 30, 2012 Fosamax [Member] Plaintiff LegalMatter	Sep. 30, 2012 Fosamax [Member] Femur Fracture [Member] LegalMatter	Sep. 30, 2012 Fosamax [Member] Cases Alleging ONJ [Member] LegalMatter	Sep. 30, 2012 Other State Court [Member] Fosamax [Member] Femur Fracture [Member] LegalMatter	Oct. 31, 2010 Federal [Member] Fosamax [Member] ONJ MDL [Member]	Jun. 30, 2010 Federal [Member] Fosamax [Member] ONJ MDL [Member]	Sep. 30, 2012 Federal [Member] Fosamax [Member] ONJ MDL [Member] LegalMatter	Sep. 30, 2012 New Jersey state court [Member] Fosamax [Member] Femur Fracture [Member] LegalMatter	Sep. 30, 2012 New Jersey state court [Member] Fosamax [Member] Cases Alleging ONJ [Member] LegalMatter	Sep. 30, 2012 California State Court [Member] Fosamax [Member] Femur Fracture [Member] LegalMatter	Sep. 30, 2012 Federal MDL [Member] Fosamax [Member] Femur Fracture [Member] LegalMatter
Loss Contingencies [Line Items]
Loss contingency, pending claims number	4	2	4,005	2,785	1,215	9			955	1,740	255	380	640
Number of plaintiff groups			4,580
Verdict amount in favor of the plaintiff								$ 8
Reduced verdict amount							$ 1.5
Initial number of cases selected for review										30			40
Subsequent number of cases selected for review													33

XML

Segment Reporting - Textual (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segment Reporting Information [Line Items]
Number of operating segments			4
AZLP [Member]
Segment Reporting Information [Line Items]
Revenue from AstraZeneca LP	$ 255	$ 299	$ 664	$ 928

XML

INTERIM CONSOLIDATED STATEMENT OF INCOME (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Sales	$ 11,488	$ 12,022	$ 35,530	$ 35,753
Costs, Expenses and Other
Materials and production	4,137	4,352	12,286	12,695
Marketing and administrative	3,063	3,340	9,386	10,029
Research and development	1,918	1,954	5,944	6,048
Restructuring costs	110	119	473	773
Equity income from affiliates	(158)	(161)	(410)	(354)
Other (income) expense, net	200	66	446	809
Total Costs, Expenses and Other	9,270	9,670	28,125	30,000
Income Before Taxes	2,218	2,352	7,405	5,753
Taxes on Income	455	628	2,055	904
Net Income	1,763	1,724	5,350	4,849
Less: Net Income Attributable to Noncontrolling Interests	34	32	89	89
Net Income Attributable to Merck & Co., Inc.	$ 1,729	$ 1,692	$ 5,261	$ 4,760
Basic Earnings per Common Share Attributable to Merck & Co., Inc. Common Shareholders	$ 0.57	$ 0.55	$ 1.73	$ 1.54
Earnings per Common Share Assuming Dilution Attributable to Merck & Co., Inc. Common Shareholders	$ 0.56	$ 0.55	$ 1.71	$ 1.53
Dividends Declared per Common Share	$ 0.42	$ 0.38	$ 1.26	$ 1.14

XML

Inventories - Schedule of Inventories (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Inventories [Line Items]
Finished goods	$ 1,952	$ 1,983
Raw materials and work in process	5,971	5,396
Supplies	264	297
Total (approximates current cost)	8,187	7,676
Reduction to LIFO costs	(10)	(43)
Total current and noncurrent inventories	8,177	7,633
Recognized as:
Inventories	6,731	6,254
Other assets	$ 1,446	$ 1,379

XML

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash Flows from Operating Activities
Net income	$ 5,350	$ 4,849
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,317	5,566
Intangible asset impairment charges	176	461
Equity income from affiliates	(410)	(354)
Dividends and distributions from equity affiliates	181	186
Deferred income taxes	(283)	(974)
Share-based compensation	257	287
Other	(34)	(207)
Net changes in assets and liabilities	(2,341)	(664)
Net Cash Provided by Operating Activities	8,213	9,150
Cash Flows from Investing Activities
Capital expenditures	(1,176)	(1,120)
Purchases of securities and other investments	(6,891)	(4,686)
Proceeds from sales of securities and other investments	5,607	4,740
Dispositions of businesses, net of cash divested		323
Acquisitions of businesses, net of cash acquired		(373)
Other	53	(90)
Net Cash Used in Investing Activities	(2,407)	(1,206)
Cash Flows from Financing Activities
Net change in short-term borrowings	(280)	1,356
Proceeds from issuance of debt	2,504
Payments on debt	(4)	(1,277)
Purchases of treasury stock	(1,439)	(1,359)
Dividends paid to stockholders	(3,836)	(3,526)
Proceeds from exercise of stock options	1,060	194
Other	(54)	(61)
Net Cash Used in Financing Activities	(2,049)	(4,673)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	72	82
Net Increase in Cash and Cash Equivalents	3,829	3,353
Cash and Cash Equivalents at Beginning of Year	13,531	10,900
Cash and Cash Equivalents at End of Period	$ 17,360	$ 14,253

XML

Equity - Shareholders' Equity (Detail) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended						9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Common Stock [Member]	Dec. 31, 2011 Common Stock [Member]	Sep. 30, 2011 Common Stock [Member]	Dec. 31, 2010 Common Stock [Member]	Sep. 30, 2012 Other Paid-in Capital [Member]	Sep. 30, 2011 Other Paid-in Capital [Member]	Sep. 30, 2012 Retained Earnings [Member]	Sep. 30, 2011 Retained Earnings [Member]	Sep. 30, 2012 Accumulated Other Comprehensive Income (Loss) [Member]	Sep. 30, 2011 Accumulated Other Comprehensive Income (Loss) [Member]	Sep. 30, 2012 Treasury Stock [Member]	Sep. 30, 2011 Treasury Stock [Member]	Sep. 30, 2012 Noncontrolling Interest [Member]	Sep. 30, 2011 Noncontrolling Interest [Member]
Equity, Beginning Balance			$ 56,943	$ 56,805	$ 1,788	$ 1,788	$ 1,788	$ 1,788	$ 40,663	$ 40,701	$ 38,990	$ 37,536	$ (3,132)	$ (3,216)	$ (23,792)	$ (22,433)	$ 2,426	$ 2,429
Shares, Beginning Balance			3,577,103,522		3,577,000,000	3,577,000,000	3,577,000,000	3,577,000,000							536,000,000	495,000,000
Net Income Attributable to Merck & Co., Inc.	1,729	1,692	5,261	4,760							5,261	4,760
Cash dividends declared on common stock			(3,861)	(3,533)							(3,861)	(3,533)
Treasury stock shares purchased, shares															36,000,000	41,000,000
Treasury stock shares purchased			(1,439)	(1,359)											(1,439)	(1,359)
Share-based compensation plans and other, Shares															(39,000,000)	(11,000,000)
Share-based compensation plans and other			1,177	393					(192)	16					1,369	377
Other comprehensive income	86	63	92	503									92	503
Net income attributable to noncontrolling interests	34	32	89	89													89	89
Distributions attributable to noncontrolling interests			(50)	(62)													(50)	(62)
Equity, Ending Balance	$ 58,212	$ 57,596	$ 58,212	$ 57,596	$ 1,788	$ 1,788	$ 1,788	$ 1,788	$ 40,471	$ 40,717	$ 40,390	$ 38,763	$ (3,040)	$ (2,713)	$ (23,862)	$ (23,415)	$ 2,465	$ 2,456
Shares, Ending balance	3,577,103,522		3,577,103,522		3,577,000,000	3,577,000,000	3,577,000,000	3,577,000,000							533,000,000	525,000,000

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Restructuring - Textual (Detail) (USD $)	3 Months Ended		9 Months Ended		3 Months Ended	9 Months Ended		3 Months Ended		9 Months Ended			3 Months Ended		9 Months Ended			1 Months Ended	9 Months Ended	1 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2011 Legacy Schering-Plough Program [Member]	Sep. 30, 2012 Legacy Schering-Plough Program [Member]	Sep. 30, 2011 Legacy Schering-Plough Program [Member]	Sep. 30, 2012 Merger Restructuring Program [Member] Positions	Sep. 30, 2011 Merger Restructuring Program [Member] Positions	Sep. 30, 2012 Merger Restructuring Program [Member] Positions	Sep. 30, 2011 Merger Restructuring Program [Member] Positions	Dec. 31, 2011 Merger Restructuring Program [Member]	Sep. 30, 2012 2008 Global Restructuring Program [Member] Positions	Sep. 30, 2011 2008 Global Restructuring Program [Member] Positions	Sep. 30, 2012 2008 Global Restructuring Program [Member] Positions Employees	Sep. 30, 2011 2008 Global Restructuring Program [Member] Positions	Dec. 31, 2011 2008 Global Restructuring Program [Member]	Jul. 31, 2011 Minimum [Member] Merger Restructuring Program [Member]	Sep. 30, 2012 Minimum [Member] Merger Restructuring Program [Member]	Jul. 31, 2011 Maximum [Member] Merger Restructuring Program [Member]	Sep. 30, 2012 Maximum [Member] Merger Restructuring Program [Member]	Sep. 30, 2012 Maximum [Member] 2008 Global Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Additional expected percentage of reduction in total workforce related to Merger Restructuring Program																		12.00%		13.00%
Initial expected percentage of reduction in total workforce related to Merger Restructuring Program										17.00%
Total pretax restructuring costs	$ 163,000,000	$ 275,000,000	$ 741,000,000	$ 1,201,000,000				$ 150,000,000	$ 255,000,000	$ 718,000,000	$ 1,176,000,000		$ 13,000,000	$ 20,000,000	$ 23,000,000	$ 25,000,000
Cumulative restructuring costs incurred to date since program inception										5,800,000,000					1,600,000,000
Positions eliminated since inception of program								20,750		20,750			6,400		6,400
Expected cumulative restructuring costs, pretax																			7,200,000,000		7,500,000,000	2,000,000,000
Percentage estimate of cumulative pre tax costs that will result in cash outlays (primarily from employee separation expense)										Two-thirds					Two-thirds
Percentage estimate of cumulative pretax costs that will be non-cash (primarily from accelerated depreciation of facilities)										One-thirds					One-third
Total number of positions expected to be eliminated															7,200
Number of active employees expected to be eliminated															6,800
Vacant positions eliminated															400
Number of positions eliminated								525	1,300	2,325	2,635		10	110	150	290
Accelerated depreciation for Legacy Schering-Plough Program					2,000,000	4,000,000	18,000,000
Restructuring Reserve						$ 17,000,000		$ 783,000,000		$ 783,000,000		$ 1,195,000,000	$ 95,000,000		$ 95,000,000		$ 126,000,000

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Pension and Other Postretirement Benefit Plans - Components of Net Cost of Defined Benefit Plans (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Pension Plans, Defined Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 133	$ 158	$ 416	$ 461
Interest cost	162	182	494	541
Expected return on plan assets	(239)	(243)	(727)	(728)
Net amortization	48	58	144	149
Termination benefits	4	15	13	32
Curtailments	(4)	(6)	(5)	(16)
Settlements				(1)
Net periodic benefit cost	104	164	335	438
Other Postretirement Benefit Plans, Defined Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	22	27	64	83
Interest cost	31	35	93	106
Expected return on plan assets	(34)	(35)	(102)	(106)
Net amortization	(9)	(4)	(25)	(13)
Termination benefits	5	5	10	11
Curtailments	(2)	(1)	(6)
Net periodic benefit cost	$ 13	$ 27	$ 34	$ 81

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Earnings Per Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share

16. Earnings Per Share

The Company calculates earnings per share pursuant to the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to common shares and participating securities based on their respective rights to receive dividends. RSUs and certain PSUs granted before December 31, 2009 to certain management level employees participate in dividends on the same basis as common shares and such dividends are nonforfeitable by the holder. As a result, these RSUs and PSUs meet the definition of a participating security. For RSUs and PSUs issued on or after January 1, 2010, dividends declared during the vesting period are payable to the employees only upon vesting and therefore such RSUs and PSUs do not meet the definition of a participating security.

The calculations of earnings per share under the two-class method are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ and shares in millions except per share amounts)	2012		2011		2012		2011
Basic Earnings per Common Share
Net income attributable to Merck & Co., Inc.	$	1,729	$	1,692	$	5,261	$	4,760
Less: Income allocated to participating securities		-		3		4		12
Net income allocated to common shareholders	$	1,729	$	1,689	$	5,257	$	4,748
Average common shares outstanding		3,045		3,070		3,043		3,079
	$	0.57	$	0.55	$	1.73	$	1.54
Earnings per Common Share Assuming Dilution
Net income attributable to Merck & Co., Inc.	$	1,729	$	1,692	$	5,261	$	4,760
Less: Income allocated to participating securities		-		3		4		12
Net income allocated to common shareholders	$	1,729	$	1,689	$	5,257	$	4,748
Average common shares outstanding		3,045		3,070		3,043		3,079
Common shares issuable (1)		34		21		34		23
Average common shares outstanding assuming dilution		3,079		3,091		3,077		3,102
	$	0.56	$	0.55	$	1.71	$	1.53

⁽¹⁾  Issuable primarily under share-based compensation plans.

For the three months ended September 30, 2012 and 2011, 97 million and 170 million, respectively, and for the first nine months of 2012 and 2011, 111 million and 170 million, respectively, of common shares issuable under share-based compensation plans were excluded from the computation of earnings per common share assuming dilution because the effect would have been antidilutive.

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Restructuring - Charges Related to Merger Restructuring Program and 2008 Restructuring Program Activities by Type of Cost (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Restructuring Cost and Reserve [Line Items]
Materials and production	$ 4,137	$ 4,352	$ 12,286	$ 12,695
Marketing and administrative	3,063	3,340	9,386	10,029
Research and development	1,918	1,954	5,944	6,048
Restructuring costs	110	119	473	773
Charges	163	275	741	1,201
Merger Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Materials and production	55	88	125	245
Marketing and administrative	19	31	64	77
Research and development	(32)	28	54	89
Restructuring costs	108	108	475	765
Charges	150	255	718	1,176
2008 Global Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Materials and production	5	9	19	17
Marketing and administrative	6		6
Restructuring costs	2	11	(2)	8
Charges	13	20	23	25
Separation Costs [Member]
Restructuring Cost and Reserve [Line Items]
Charges	58	68	351	667
Separation Costs [Member] | Merger Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring costs	59	63	363	670
Charges	59	63	363	670
Separation Costs [Member] | 2008 Global Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring costs	(1)	5	(12)	(3)
Charges	(1)	5	(12)	(3)
Accelerated Depreciation [Member]
Restructuring Cost and Reserve [Line Items]
Charges	32	140	193	423
Accelerated Depreciation [Member] | Merger Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Materials and production	42	81	75	233
Marketing and administrative	16	22	59	67
Research and development	(33)	27	49	107
Charges	25	130	183	407
Accelerated Depreciation [Member] | 2008 Global Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Materials and production	1	10	4	16
Marketing and administrative	6		6
Charges	7	10	10	16
Other [Member]
Restructuring Cost and Reserve [Line Items]
Charges	73	67	197	111
Other [Member] | Merger Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Materials and production	13	7	50	12
Marketing and administrative	3	9	5	10
Research and development	1	1	5	(18)
Restructuring costs	49	45	112	95
Charges	66	62	172	99
Other [Member] | 2008 Global Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Materials and production	4	(1)	15	1
Restructuring costs	3	6	10	11
Charges	$ 7	$ 5	$ 25	$ 12

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Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2012

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

In the first quarter of 2012, the Company retrospectively adopted amended guidance issued by the Financial Accounting Standards Board (the “FASB”) on the presentation of comprehensive income in financial statements. As a result of adopting this standard, the Company has presented a separate Statement of Comprehensive Income. The adoption of this new guidance did not impact the Company’s financial position, results of operations or cash flows.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In July 2012, the FASB issued amended guidance that simplifies how an entity tests indefinite-lived intangibles for impairment. The amended guidance will allow companies to first assess qualitative factors to determine whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. The updated guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is currently evaluating the impact of adoption on its financial position and results of operations.

Contingencies and Legal Defense Costs

Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.

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Other (Income) Expense, Net - Textual (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Jun. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Other Income Expense [Line Items]
Gain on sale of manufacturing facilities and related assets				$ 127
Litigation charges				500
Interest paid			583	261
Cash received from interest rate swap termination	113	175		288
Accelerated accretion of time value of money discounts			35
Gain on disposition of interest in equity method investment	$ 136			$ 136

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Basis of Presentation

9 Months Ended

Sep. 30, 2012

Basis of Presentation

1. Basis of Presentation

The accompanying unaudited interim consolidated financial statements of Merck & Co., Inc. (“Merck” or the “Company”) have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements are not included herein. These interim statements should be read in conjunction with the audited financial statements and notes thereto included in Merck’s Form 10-K filed on February 28, 2012.

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. In the Company’s opinion, all adjustments necessary for a fair presentation of these interim statements have been included and are of a normal and recurring nature.

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Recently Adopted Accounting Standards

In the first quarter of 2012, the Company retrospectively adopted amended guidance issued by the Financial Accounting Standards Board (the “FASB”) on the presentation of comprehensive income in financial statements. As a result of adopting this standard, the Company has presented a separate Statement of Comprehensive Income. The adoption of this new guidance did not impact the Company’s financial position, results of operations or cash flows.

Recently Issued Accounting Standards

In July 2012, the FASB issued amended guidance that simplifies how an entity tests indefinite-lived intangibles for impairment. The amended guidance will allow companies to first assess qualitative factors to determine whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. The updated guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company is currently evaluating the impact of adoption on its financial position and results of operations.

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INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net Income Attributable to Merck & Co., Inc.	$ 1,729	$ 1,692	$ 5,261	$ 4,760
Other Comprehensive Income Net of Taxes:
Net unrealized (loss) gain on derivatives, net of reclassifications	(143)	60	(99)	(77)
Net unrealized gain (loss) on investments, net of reclassifications	32	(6)	62	(11)
Benefit plan net gain and prior service cost, net of amortization	27	31	45	59
Cumulative translation adjustment	170	(22)	84	532
Total Other Comprehensive Income Net of Taxes	86	63	92	503
Comprehensive Income Attributable to Merck & Co., Inc.	$ 1,815	$ 1,755	$ 5,353	$ 5,263

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Equity

9 Months Ended

Sep. 30, 2012

Equity

11. Equity

											Accumulated
					Other						Other								Non-
	Common Stock				Paid-In			Retained			Comprehensive			Treasury Stock					Controlling
($ and shares in millions)	Shares		Par Value		Capital			Earnings			Loss			Shares			Cost		Interests			Total
Balance January 1, 2011		3,577	$	1,788	$	40,701		$	37,536		$	(3,216	)		495		$	(22,433)	$	2,429		$	56,805
Net income attributable to Merck & Co., Inc.		-		-		-			4,760			-			-			-		-			4,760
Cash dividends declared on common stock		-		-		-			(3,533	)		-			-			-		-			(3,533)
Treasury stock shares purchased		-		-		-			-			-			41			(1,359)		-			(1,359)
Share-based compensation plans and other		-		-		16			-			-			(11	)		377		-			393
Other comprehensive income		-		-		-			-			503			-			-		-			503
Net income attributable to noncontrolling interests		-		-		-			-			-			-			-		89			89
Distributions attributable to noncontrolling interests		-		-		-			-			-			-			-		(62	)		(62)
Balance September 30, 2011		3,577	$	1,788	$	40,717		$	38,763		$	(2,713	)		525		$	(23,415)	$	2,456		$	57,596
Balance January 1, 2012		3,577	$	1,788	$	40,663		$	38,990		$	(3,132	)		536		$	(23,792)	$	2,426		$	56,943
Net income attributable to Merck & Co., Inc.		-		-		-			5,261			-			-			-		-			5,261
Cash dividends declared on common stock		-		-		-			(3,861	)		-			-			-		-			(3,861)
Treasury stock shares purchased		-		-		-			-			-			36			(1,439)		-			(1,439)
Share-based compensation plans and other		-		-		(192	)		-			-			(39	)		1,369		-			1,177
Other comprehensive income		-		-		-			-			92			-			-		-			92
Net income attributable to noncontrolling interests		-		-		-			-			-			-			-		89			89
Distributions attributable to noncontrolling interests		-		-		-			-			-			-			-		(50	)		(50)
Balance September 30, 2012		3,577	$	1,788	$	40,471		$	40,390		$	(3,040	)		533		$	(23,862)	$	2,465		$	58,212

In connection with the 1998 restructuring of Astra Merck Inc., the Company assumed $2.4 billion par value preferred stock with a dividend rate of 5% per annum, which is carried by KBI and included in Noncontrolling interests on the Consolidated Balance Sheet. If AstraZeneca exercises its option to acquire Merck’s interest in AZLP (see Note 8), this preferred stock obligation will be retired.

The accumulated balances related to each component of other comprehensive income (loss), net of taxes, were as follows:

($ in millions)	Derivatives		Investments		Employee Benefit Plans		Cumulative Translation    Adjustment		Accumulated  Other  Comprehensive  Loss
Balance January 1, 2011	$	41	$	31	$	(2,043)	$	(1,245)	$	(3,216)
Other comprehensive (loss) income		(77)		(11)		59		532		503
Balance at September 30, 2011	$	(36)	$	20	$	(1,984)	$	(713)	$	(2,713)
Balance January 1, 2012	$	4	$	21	$	(2,346)	$	(811)	$	(3,132)
Other comprehensive (loss) income		(99)		62		45		84		92
Balance at September 30, 2012	$	(95)	$	83	$	(2,301)	$	(727)	$	(3,040)

Included in cumulative translation adjustment are pretax gains of approximately $393 million for the first nine months of 2011 relating to translation impacts of intangible assets recorded in conjunction with the Merger.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 31, 2012
Entity Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Trading Symbol	MRK
Entity Registrant Name	Merck & Co. Inc.
Entity Central Index Key	0000310158
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		3,040,071,937

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Share-Based Compensation Plans

9 Months Ended

Sep. 30, 2012

Share-Based Compensation Plans

12. Share-Based Compensation Plans

The Company has share-based compensation plans under which employees and non-employee directors may be granted restricted stock units (“RSUs”). In addition, the Company grants options to purchase shares of Company common stock at the fair market value at the time of grant and performance share units (“PSUs”) to certain management-level employees. The Company recognizes the fair value of share-based compensation in net income on a straight-line basis over the requisite service period.

The following table provides amounts of share-based compensation cost recorded in the Consolidated Statement of Income:

	Three Months Ended     September 30,				Nine Months Ended     September 30,
($ in millions)	2012		2011		2012		2011
Pretax share-based compensation expense	$	88	$	86	$	257	$	287
Income tax benefit		(28)		(30)		(81)		(99)
Total share-based compensation expense, net of taxes	$	60	$	56	$	176	$	188

During the first nine months of 2012 and 2011, the Company granted 7 million RSUs with a weighted-average grant date fair value of $39.38 per RSU and 8 million RSUs with a weighted-average grant date fair value of $36.44 per RSU, respectively.

During the first nine months of 2012 and 2011, the Company granted 7 million options with a weighted-average exercise price of $39.39 per option and 8 million options with a weighted-average exercise price of $36.55 per option, respectively. The weighted-average fair value of options granted for the first nine months of 2012 and 2011 was $5.47 and $5.37 per option, respectively, and was determined using the following assumptions:

	Nine Months Ended     September 30,
	2012		2011
Expected dividend yield		4.4%		4.3%
Risk-free interest rate		1.3%		2.6%
Expected volatility		25.3%		23.2%
Expected life (years)		7.0		7.0

At September 30, 2012, there was $449 million of total pretax unrecognized compensation expense related to nonvested stock options, RSU and PSU awards which will be recognized over a weighted-average period of 1.8 years. For segment reporting, share-based compensation costs are unallocated expenses.

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CONSOLIDATED BALANCE SHEET (Unaudited) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current Assets
Cash and cash equivalents	$ 17,360	$ 13,531
Short-term investments	757	1,441
Accounts receivable (net of allowance for doubtful accounts of $163 in 2012 and $131 in 2011)	7,952	8,261
Inventories (excludes inventories of $1,446 in 2012 and $1,379 in 2011 classified in Other assets - see Note 6)	6,731	6,254
Deferred income taxes and other current assets	3,429	3,694
Total current assets	36,229	33,181
Investments	5,560	3,458
Property, Plant and Equipment, at cost, net of accumulated depreciation of $17,475 in 2012 and $16,176 in 2011	15,884	16,297
Goodwill	12,168	12,155
Other Intangibles, Net	30,325	34,302
Other Assets	6,135	5,735
Total Assets	106,301	105,128
Current Liabilities
Loans payable and current portion of long-term debt	2,029	1,990
Trade accounts payable	1,804	2,023
Accrued and other current liabilities	8,923	10,170
Income taxes payable	1,512	781
Dividends payable	1,315	1,281
Total current liabilities	15,583	16,245
Long-Term Debt	17,571	15,525
Deferred Income Taxes and Noncurrent Liabilities	14,935	16,415
Merck & Co., Inc. Stockholders' Equity
Common stock, $0.50 par value, Authorized - 6,500,000,000 shares, Issued - 3,577,103,522 shares in 2012 and 2011	1,788	1,788
Other paid-in capital	40,471	40,663
Retained earnings	40,390	38,990
Accumulated other comprehensive loss	(3,040)	(3,132)
Stockholders' equity before deduction for treasury stock	79,609	78,309
Less treasury stock, at cost: 532,699,267 shares in 2012 and 536,109,713 shares in 2011	23,862	23,792
Total Merck & Co., Inc. stockholders' equity	55,747	54,517
Noncontrolling Interests	2,465	2,426
Total equity	58,212	56,943
Total Liabilities and Stockholders' Equity	$ 106,301	$ 105,128

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Inventories

9 Months Ended

Sep. 30, 2012

Inventories

6. Inventories

Inventories consisted of:

($ in millions)	September 30,   2012			December 31,     2011
Finished goods	$	1,952		$	1,983
Raw materials and work in process		5,971			5,396
Supplies		264			297
Total (approximates current cost)		8,187			7,676
Reduction to LIFO costs		(10	)		(43)
	$	8,177		$	7,633
Recognized as:
Inventories	$	6,731		$	6,254
Other assets		1,446			1,379

Amounts recognized as Other assets are comprised almost entirely of raw materials and work in process inventories. At both September 30, 2012 and December 31, 2011, these amounts included $1.3 billion of inventories not expected to be sold within one year. In addition, these amounts included $191 million and $127 million at September 30, 2012 and December 31, 2011, respectively, of inventories produced in preparation for product launches.

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Financial Instruments

9 Months Ended

Sep. 30, 2012

Financial Instruments

5. Financial Instruments

Derivative Instruments and Hedging Activities

The Company manages the impact of foreign exchange rate movements and interest rate movements on its earnings, cash flows and fair values of assets and liabilities through operational means and through the use of various financial instruments, including derivative instruments.

A significant portion of the Company’s revenues and earnings in foreign affiliates is exposed to changes in foreign exchange rates. The objectives and accounting related to the Company’s foreign currency risk management program, as well as its interest rate risk management activities are discussed below.

Foreign Currency Risk Management

The Company has established revenue hedging, balance sheet risk management and net investment hedging programs to protect against volatility of future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange rates.

The objective of the revenue hedging program is to reduce the potential for longer-term unfavorable changes in foreign exchange rates to decrease the U.S. dollar value of future cash flows derived from foreign currency denominated sales, primarily the euro and Japanese yen. To achieve this objective, the Company will hedge a portion of its forecasted foreign currency denominated third-party and intercompany distributor entity sales that are expected to occur over its planning cycle, typically no more than three years into the future. The Company will layer in hedges over time, increasing the portion of third-party and intercompany distributor entity sales hedged as it gets closer to the expected date of the forecasted foreign currency denominated sales, such that it is probable the hedged transaction will occur. The portion of sales hedged is based on assessments of cost-benefit profiles that consider natural offsetting exposures, revenue and exchange rate volatilities and correlations, and the cost of hedging instruments. The hedged anticipated sales are a specified component of a portfolio of similarly denominated foreign currency-based sales transactions, each of which responds to the hedged currency risk in the same manner. The Company manages its anticipated transaction exposure principally with purchased local currency put options, which provide the Company with a right, but not an obligation, to sell foreign currencies in the future at a predetermined price. If the U.S. dollar strengthens relative to the currency of the hedged anticipated sales, total changes in the options’ cash flows offset the decline in the expected future U.S. dollar equivalent cash flows of the hedged foreign currency sales. Conversely, if the U.S. dollar weakens, the options’ value reduces to zero, but the Company benefits from the increase in the U.S. dollar equivalent value of the anticipated foreign currency cash flows.

In connection with the Company’s revenue hedging program, a purchased collar option strategy may be utilized. With a purchased collar option strategy, the Company writes a local currency call option and purchases a local currency put option. As compared to a purchased put option strategy alone, a purchased collar strategy reduces the upfront costs associated with purchasing puts through the collection of premium by writing call options. If the U.S. dollar weakens relative to the currency of the hedged anticipated sales, the purchased put option value of the collar strategy reduces to zero and the Company benefits from the increase in the U.S. dollar equivalent value of its anticipated foreign currency cash flows, however this benefit would be capped at the strike level of the written call. If the U.S. dollar strengthens relative to the currency of the hedged anticipated sales, the written call option value of the collar strategy reduces to zero and the changes in the purchased put cash flows of the collar strategy would offset the decline in the expected future U.S. dollar equivalent cash flows of the hedged foreign currency sales.

The Company may also utilize forward contracts in its revenue hedging program. If the U.S. dollar strengthens relative to the currency of the hedged anticipated sales, the increase in the fair value of the forward contracts offsets the decrease in the expected future U.S. dollar cash flows of the hedged foreign currency sales. Conversely, if the U.S. dollar weakens, the decrease in the fair value of the forward contracts offsets the increase in the value of the anticipated foreign currency cash flows.

The fair values of these derivative contracts are recorded as either assets (gain positions) or liabilities (loss positions) in the Consolidated Balance Sheet. Changes in the fair value of derivative contracts are recorded each period in either current earnings or Other comprehensive income (“OCI”), depending on whether the derivative is designated as part of a hedge transaction and, if so, the type of hedge transaction. For derivatives that are designated as cash flow hedges, the effective portion of the unrealized gains or losses on these contracts is recorded in Accumulated other comprehensive income (“AOCI”) and reclassified into Sales when the hedged anticipated revenue is recognized. The hedge relationship is highly effective and hedge ineffectiveness has been de minimis. For those derivatives which are not designated as cash flow hedges, unrealized gains or losses are recorded in Sales each period. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows. The Company does not enter into derivatives for trading or speculative purposes.

The primary objective of the balance sheet risk management program is to mitigate the exposure of foreign currency denominated net monetary assets of foreign subsidiaries where the U.S. dollar is the functional currency from the effects of volatility in foreign exchange. In these instances, Merck principally utilizes forward exchange contracts, which enable the Company to buy and sell foreign currencies in the future at fixed exchange rates and economically offset the consequences of changes in foreign exchange from the monetary assets. Merck routinely enters into contracts to offset the effects of exchange on exposures denominated in developed country currencies, primarily the euro and Japanese yen. For exposures in developing country currencies, the Company will enter into forward contracts to partially offset the effects of exchange on exposures when it is deemed economical to do so based on a cost-benefit analysis that considers the magnitude of the exposure, the volatility of the exchange rate and the cost of the hedging instrument. The Company will also minimize the effect of exchange on monetary assets and liabilities by managing operating activities and net asset positions at the local level.

Monetary assets and liabilities denominated in a currency other than the functional currency of a given subsidiary are remeasured at spot rates in effect on the balance sheet date with the effects of changes in spot rates reported in Other (income) expense, net. The forward contracts are not designated as hedges and are marked to market through Other (income) expense, net. Accordingly, fair value changes in the forward contracts help mitigate the changes in the value of the remeasured assets and liabilities attributable to changes in foreign currency exchange rates, except to the extent of the spot-forward differences. These differences are not significant due to the short-term nature of the contracts, which typically have average maturities at inception of less than one year.

The Company also uses forward exchange contracts to hedge its net investment in foreign operations against movements in exchange rates. The forward contracts are designated as hedges of the net investment in a foreign operation. The Company hedges a portion of the net investment in certain of its foreign operations and measures ineffectiveness based upon changes in spot foreign exchange rates. The effective portion of the unrealized gains or losses on these contracts is recorded in foreign currency translation adjustment within OCI, and remains in AOCI until either the sale or complete or substantially complete liquidation of the subsidiary. The cash flows from these contracts are reported as investing activities in the Consolidated Statement of Cash Flows.

Foreign exchange risk is also managed through the use of foreign currency debt. The Company’s senior unsecured euro-denominated notes have been designated as, and are effective as, economic hedges of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in foreign currency translation adjustment within OCI. Included in the cumulative translation adjustment are pretax gains (losses) of $35 million and $(84) million for the first nine months of 2012 and 2011, respectively, from the euro-denominated notes.

Interest Rate Risk Management

The Company may use interest rate swap contracts on certain investing and borrowing transactions to manage its net exposure to interest rate changes and to reduce its overall cost of borrowing. The Company does not use leveraged swaps and, in general, does not leverage any of its investment activities that would put principal capital at risk.

In the third quarter of 2011, the Company terminated 11 interest rate swap contracts with a total notional amount of $1.6 billion. These swaps effectively converted $1.6 billion of its fixed-rate notes, with maturity dates ranging from June 2015 to January 2016, to floating-rate instruments. As a result of the third quarter swap terminations, the Company received $113 million in cash, which included $7 million in accrued interest. The corresponding $106 million basis adjustment of the debt associated with the terminated swap contracts was deferred and is being amortized as a reduction of interest expense over the respective term of the notes. In the second quarter of 2011, the Company terminated nine interest rate swap contracts with a total notional amount of $3.5 billion. These swaps effectively converted $3.5 billion of its fixed-rate notes, with maturity dates ranging from March 2015 to June 2019, to floating-rate instruments. As a result of the second quarter swap terminations, the Company received $175 million in cash, which included $36 million in accrued interest. The corresponding $139 million basis adjustment of the debt associated with the terminated swap contracts was deferred and is being amortized as a reduction of interest expense over the respective term of the notes. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows.

At September 30, 2011, the Company was a party to two pay-floating, receive-fixed interest rate swap contracts with notional amounts of $250 million in the aggregate designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes. The interest rate swap contracts were designated hedges of the fair value changes in the notes attributable to changes in the benchmark London Interbank Offered Rate (“LIBOR”) swap rate. The fair value changes in the notes attributable to changes in the benchmark interest rate were recorded in interest expense and offset by the fair value changes in the swap contracts. These contracts matured in the fourth quarter of 2011. The cash flows from these contracts are reported as operating activities in the Consolidated Statement of Cash Flows.

Presented in the table below is the fair value of derivatives segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:

		September 30, 2012						December 31, 2011
		Fair Value of Derivative				U.S. Dollar		Fair Value of Derivative				U.S. Dollar
($ in millions)	Balance Sheet Caption	Asset		Liability		Notional		Asset		Liability		Notional
Derivatives Designated as Hedging Instruments
Foreign exchange contracts (current)	Deferred income taxes and other current assets	$	163	$	-	$	4,450	$	196	$	-	$	3,727
Foreign exchange contracts (non-current)	Other assets		350		-		5,637		420		-		4,956
Foreign exchange contracts (current)	Accrued and other current liabilities		-		48		1,668		-		53		1,718
Foreign exchange contracts (non-current)	Deferred income taxes and noncurrent liabilities		-		7		426		-		1		104
		$	513	$	55	$	12,181	$	616	$	54	$	10,505
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts (current)	Deferred income taxes and other current assets	$	55	$	-	$	4,256	$	139	$	-	$	5,306
Foreign exchange contracts (non-current)	Other assets		18		-		290		-		-		-
Foreign exchange contracts (current)	Accrued and other current liabilities		-		125		6,129		-		54		5,013
		$	73	$	125	$	10,675	$	139	$	54	$	10,319
		$	586	$	180	$	22,856	$	755	$	108	$	20,824

The table below provides information on the location and pretax gain or loss amounts for derivatives that are: (i) designated in a fair value hedging relationship, (ii) designated in a cash flow hedging relationship, (iii) designated in a foreign currency net investment hedging relationship and (iv) not designated in a hedging relationship:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2012		2011		2012		2011
Derivatives designated in fair value hedging relationships
Interest rate swap contracts
Amount of gain recognized in Other (income) expense, net on derivatives	$	-	$	(40)	$	-	$	(203)
Amount of loss recognized in Other (income) expense, net on hedged item		-		40		-		203
Derivatives designated in foreign currency cash flow hedging relationships
Foreign exchange contracts
Amount of (gain) loss reclassified from AOCI to Sales		(4)		30		49		57
Amount of loss (gain) recognized in OCI on derivatives		236		(70)		202		183
Derivatives designated in foreign currency net investment hedging relationships
Foreign exchange contracts
Amount of gain recognized in Other (income) expense, net on derivatives (1)		(5)		(1)		(15)		(9)
Amount of loss (gain) recognized in OCI on derivatives		54		124		(2)		158
Derivatives not designated in a hedging relationship
Foreign exchange contracts
Amount of loss (gain) recognized in Other (income) expense, net on derivatives (2)		157		(351)		131		(31)
Amounts of loss recognized in Sales on hedged item		17		-		17		-

⁽¹⁾  There was no ineffectiveness on the hedge. Represents the amount excluded from hedge effectiveness testing.

⁽²⁾  These derivative contracts mitigate changes in the value of remeasured foreign currency denominated monetary assets and liabilities attributable to changes in foreign currency exchange rates.

At September 30, 2012, the Company estimates $103 million of pretax net unrealized losses on derivatives maturing within the next 12 months that hedge foreign currency denominated sales over that same period will be reclassified from AOCI to Sales. The amount ultimately reclassified to Sales may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual exchange rates at maturity.

Investments in Debt and Equity Securities

Information on available-for-sale investments is as follows:

	September 30, 2012								December 31, 2011
	Fair		Amortized		Gross Unrealized				Fair		Amortized		Gross Unrealized
($ in millions)	Value		Cost		Gains		Losses		Value		Cost		Gains		Losses
Corporate notes and bonds	$	3,705	$	3,650	$	56	$	(1)	$	2,032	$	2,024	$	16	$	(8)
U.S. government and agency securities		1,156		1,154		2		-		1,021		1,018		3		-
Asset-backed securities		648		644		4		-		292		292		1		(1)
Mortgage-backed securities		334		334		2		(2)		223		223		1		(1)
Commercial paper		168		168		-		-		1,029		1,029		-		-
Foreign government bonds		72		71		1		-		72		72		-		-
Other debt securities		-		-		-		-		3		1		2		-
Equity securities		420		384		36		-		397		383		14		-
	$	6,503	$	6,405	$	101	$	(3)	$	5,069	$	5,042	$	37	$	(10)

Available-for-sale debt securities included in Short-term investments totaled $757 million at September 30, 2012. Of the remaining debt securities, $4.7 billion mature within five years. At September 30, 2012, there were no debt securities pledged as collateral.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value with Level 1 having the highest priority and Level 3 having the lowest:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity. Level 3 assets are those whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques with significant unobservable inputs, as well as instruments for which the determination of fair value requires significant judgment or estimation. The Company had no Level 3 assets at September 30, 2012 or December 31, 2011.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices In Active Markets for  Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices In Active Markets for  Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
($ in millions)	September 30, 2012								December 31, 2011
Assets
Investments
Corporate notes and bonds	$	-	$	3,705	$	-	$	3,705	$	-	$	2,032	$	-	$	2,032
U.S. government and agency securities		-		1,156		-		1,156		-		1,021		-		1,021
Asset-backed securities (1)		-		648		-		648		-		292		-		292
Mortgage-backed securities (1)		-		334		-		334		-		223		-		223
Commercial paper		-		168		-		168		-		1,029		-		1,029
Foreign government bonds		-		72		-		72		-		72		-		72
Equity securities		209		25		-		234		205		22		-		227
Other debt securities		-		-		-		-		-		3		-		3
		209		6,108		-		6,317		205		4,694		-		4,899
Other assets
Securities held for employee compensation		186		-		-		186		170		-		-		170
Derivative assets (2)
Purchased currency options		-		541		-		541		-		613		-		613
Forward exchange contracts		-		45		-		45		-		142		-		142
		-		586		-		586		-		755		-		755
Total assets	$	395	$	6,694	$	-	$	7,089	$	375	$	5,449	$	-	$	5,824
Liabilities
Derivative liabilities (2)
Forward exchange contracts	$	-	$	176	$	-	$	176	$	-	$	107	$	-	$	107
Written currency options		-		4		-		4		-		1		-		1
Total liabilities	$	-	$	180	$	-	$	180	$	-	$	108	$	-	$	108

⁽¹⁾  Primarily all of the asset-backed securities are highly-rated (Standard & Poor’s rating of AAA and Moody’s Investors Service rating of Aaa), secured primarily by credit card, auto loan, and home equity receivables, with weighted-average lives of primarily 5 years or less. Mortgage-backed securities represent AAA-rated securities issued or unconditionally guaranteed as to payment of principal and interest by U.S. government agencies.

⁽²⁾  The fair value determination of derivatives includes the impact of the credit risk of counterparties to the derivatives and the Company’s own credit risk, the effects of which were not significant.

There were no transfers between Level 1 and Level 2 during the first nine months of 2012. As of September 30, 2012, Cash and cash equivalents of $17.4 billion included $16.6 billion of cash equivalents (which would be considered Level 2 in the fair value hierarchy).

Other Fair Value Measurements

Some of the Company’s financial instruments, such as cash and cash equivalents, receivables and payables, are reflected in the balance sheet at carrying value, which approximates fair value due to their short-term nature.

The estimated fair value of loans payable and long-term debt (including current portion) at September 30, 2012 was $22.1 billion compared with a carrying value of $19.6 billion and at December 31, 2011 was $19.5 billion compared with a carrying value of $17.5 billion. Fair value was estimated using recent observable market prices and would be considered Level 2 in the fair value hierarchy.

Concentrations of Credit Risk

On an ongoing basis, the Company monitors concentrations of credit risk associated with corporate and government issuers of securities and financial institutions with which it conducts business. Credit exposure limits are established to limit a concentration with any single issuer or institution. Cash and investments are placed in instruments that meet high credit quality standards, as specified in the Company’s investment policy guidelines. Approximately 50% of the Company’s cash and cash equivalents are invested in five highly rated money market funds.

The majority of the Company’s accounts receivable arise from product sales in the United States and Europe and are primarily due from drug wholesalers and retailers, hospitals, government agencies, managed health care providers and pharmacy benefit managers. The Company monitors the financial performance and credit worthiness of its customers so that it can properly assess and respond to changes in their credit profile. The Company also continues to monitor economic conditions, including the volatility associated with international sovereign economies, and associated impacts on the financial markets and its business, taking into consideration the global economic downturn and the sovereign debt issues in certain European countries. The Company continues to monitor the credit and economic conditions within Greece, Spain, Italy and Portugal, among other members of the EU. These economic conditions, as well as inherent variability of timing of cash receipts, have resulted in, and may continue to result in, an increase in the average length of time that it takes to collect accounts receivable outstanding. As such, time value of money discounts have been recorded for those customers for which collection of accounts receivable is expected to be in excess of one year. The Company does not expect to have write-offs or adjustments to accounts receivable which would have a material adverse effect on its financial position, liquidity or results of operations.

At September 30, 2012, the Company’s accounts receivable in Greece, Italy, Spain and Portugal totaled approximately $1.0 billion. Of this amount, hospital and public sector receivables were approximately $700 million in the aggregate, of which approximately 19%, 41%, 30% and 10% related to Greece, Italy, Spain and Portugal, respectively. As of September 30, 2012, the Company’s total accounts receivable outstanding for more than one year were approximately $300 million, of which approximately 60% related to accounts receivable in Greece, Italy, Spain and Portugal, mostly comprised of hospital and public sector receivables.

During the third quarter of 2012, the Company collected approximately $60 million of accounts receivable from the government of Portugal, which pertained to accounts receivable outstanding from 2011 and prior. During the second quarter of 2012, the Company collected approximately $500 million of accounts receivable in connection with the Spanish government’s debt stabilization/stimulus plan. In addition, in the second and first quarters of 2012, the Company completed non-recourse factorings of approximately $120 million and $110 million, respectively, of hospital and public sector accounts receivable in Italy.

As previously disclosed, the Company received zero coupon bonds from the Greek government in settlement of 2007-2009 receivables related to certain government sponsored institutions. The Company had recorded impairment charges to reduce the bonds to fair value. During 2011, the Company sold a portion of these bonds and the remainder was sold during the first quarter of 2012.

Derivative financial instruments are executed under International Swaps and Derivatives Association master agreements. The master agreements with several of the Company’s financial institution counterparties also include credit support annexes. These annexes contain provisions that require collateral to be exchanged depending on the value of the derivative assets and liabilities, the Company’s credit rating, and the credit rating of the counterparty. As of September 30, 2012 and December 31, 2011, the Company had received cash collateral of $313 million and $327 million, respectively, from various counterparties and the obligation to return such collateral is recorded in Accrued  and other current liabilities. The Company had not advanced any cash collateral to counterparties as of September 30, 2012 or December 31, 2011.

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Segment Reporting

9 Months Ended

Sep. 30, 2012

Segment Reporting

17. Segment Reporting

The Company’s operations are principally managed on a products basis and are comprised of four operating segments – Pharmaceutical, Animal Health, Consumer Care and Alliances (which includes revenue and equity income from the Company’s relationship with AZLP). The Animal Health, Consumer Care and Alliances segments are not material for separate reporting. The Pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly by the Company or through joint ventures. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. Vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices. The Company sells these human health vaccines primarily to physicians, wholesalers, physician distributors and government entities. A large component of pediatric and adolescent vaccines is sold to the U.S. Centers for Disease Control and Prevention Vaccines for Children program, which is funded by the U.S. government. Additionally, the Company sells vaccines to the Federal government for placement into vaccine stockpiles. The Company also has animal health operations that discover, develop, manufacture and market animal health products, including vaccines, which the Company sells to veterinarians, distributors and animal producers. Additionally, the Company has consumer care operations that develop, manufacture and market over-the-counter, foot care and sun care products, which are sold through wholesale and retail drug, food chain and mass merchandiser outlets.

Sales of the Company’s products were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in millions)	2012		2011		2012		2011
Primary Care and Women’s Health
Cardiovascular
Zetia	$	645	$	614	$	1,891	$	1,788
Vytorin		423		469		1,312		1,407
Diabetes and Obesity
Januvia		975		846		2,952		2,364
Janumet		405		350		1,207		977
Respiratory
Singulair		602		1,336		3,373		4,018
Nasonex		292		266		960		962
Clarinex		64		128		337		492
Asmanex		42		42		141		149
Dulera		52		22		140		59
Women’s Health and Endocrine
Fosamax		152		215		522		644
NuvaRing		156		159		459		455
Follistim AQ		111		129		352		404
Implanon		93		80		254		220
Cerazette		64		74		202		199
Other
Maxalt		166		156		476		460
Arcoxia		109		108		338		321
Avelox		30		59		146		227
Hospital and Specialty
Immunology
Remicade		490		561		1,527		2,156
Simponi		86		74		236		203
Infectious Disease
Isentress		399		343		1,133		972
PegIntron		165		163		510		482
Cancidas		163		150		474		476
Victrelis		149		31		387		53
Invanz		118		107		329		296
Primaxin		109		124		301		397
Noxafil		66		61		191		171
Oncology
Temodar		227		223		688		704
Emend		111		98		358		305
Other
Cosopt/Trusopt		102		124		331		360
Bridion		68		52		186		141
Integrilin		48		53		160		172
Diversified Brands
Cozaar/Hyzaar		295		404		969		1,236
Propecia		104		112		312		330
Zocor		86		110		285		345
Claritin Rx		47		55		181		240
Remeron		52		65		175		181
Proscar		55		58		160		171
Vasotec/Vaseretic		42		57		144		173
Vaccines (1)
Gardasil		581		445		1,189		935
ProQuad/M-M-R II/Varivax		396		391		967		927
RotaTeq		150		184		433		457
Zostavax		202		108		426		254
Pneumovax		160		133		372		276
Other pharmaceutical (2)		1,023		1,015		3,031		2,975
Total Pharmaceutical segment sales		9,875		10,354		30,517		30,534
Other segment sales (3)		1,556		1,586		4,830		4,908
Total segment sales		11,431		11,940		35,347		35,442
Other (4)		57		82		183		311
	$	11,488	$	12,022	$	35,530	$	35,753

⁽¹⁾  These amounts do not reflect sales of vaccines sold in most major European markets through the Company’s joint venture, Sanofi Pasteur MSD, the results of which are reflected in Equity income from affiliates. These amounts do, however, reflect supply sales to Sanofi Pasteur MSD.

⁽²⁾  Other pharmaceutical primarily includes sales of other human health pharmaceutical products not listed separately.

⁽³⁾ Reflects other non-reportable segments, including Animal Health and Consumer Care, and revenue from the Company’s relationship with AZLP primarily relating to sales of Nexium. Revenue from AZLP was $255 million and $299 million for the third quarter of 2012 and 2011, respectively, and $664 million and $928 million for the first nine months of 2012 and 2011, respectively.

⁽⁴⁾ Other revenues are primarily comprised of miscellaneous corporate revenues, third-party manufacturing sales, sales related to divested products or businesses and supply sales not included in segment results. The declines in other revenues in the third quarter and first nine months of 2012 as compared with the same periods of 2011 reflect lower third-party manufacturing sales, which for the year-to-date period were attributable in part to the divestiture of certain manufacturing facilities in the first quarter of 2011.

A reconciliation of segment profits to Income before taxes is as follows:

	Three Months Ended            September 30,				Nine Months Ended            September 30,
($ in millions)	2012		2011		2012		2011
Segment profits:
Pharmaceutical segment	$	6,265	$	6,355	$	19,767	$	19,014
Other segments		819		783		2,397		2,300
Total segment profits		7,084		7,138		22,164		21,314
Other (losses) profits		(4)		5		(32)		(9)
Unallocated:
Interest income		47		32		177		102
Interest expense		(178)		(176)		(524)		(522)
Equity income from affiliates		(5)		(1)		(14)		(82)
Depreciation and amortization		(486)		(619)		(1,620)		(1,814)
Research and development		(1,689)		(1,712)		(5,263)		(5,330)
Amortization of purchase accounting adjustments		(1,232)		(1,284)		(3,687)		(3,788)
Restructuring costs		(110)		(119)		(473)		(773)
Arbitration settlement charge		-		-		-		(500)
Other unallocated, net		(1,209)		(912)		(3,323)		(2,845)
	$	2,218	$	2,352	$	7,405	$	5,753

Segment profits are comprised of segment sales less standard costs and certain operating expenses directly incurred by the segments. For internal management reporting presented to the chief operating decision maker, Merck does not allocate materials and production costs, other than standard costs, the majority of research and development expenses or general and administrative expenses, nor the cost of financing these activities. Separate divisions maintain responsibility for monitoring and managing these costs, including depreciation related to fixed assets utilized by these divisions and, therefore, they are not included in segment profits. In addition, costs related to restructuring activities, as well as the amortization of purchase accounting adjustments are not allocated to segments.

Other (losses) profits are primarily comprised of miscellaneous corporate profits (losses), as well as operating profits (losses) related to third-party manufacturing sales, divested products or businesses and other supply sales.

Other unallocated, net includes expenses from corporate and manufacturing cost centers, product intangible asset impairment charges, gains or losses on sales of businesses and assets and other miscellaneous income or expense items.

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Pension and Other Postretirement Benefit Plans

9 Months Ended

Sep. 30, 2012

Pension and Other Postretirement Benefit Plans

13. Pension and Other Postretirement Benefit Plans

The Company has defined benefit pension plans covering eligible employees in the United States and in certain of its international subsidiaries. The net cost of such plans consisted of the following components:

	Three Months Ended       September 30,				Nine Months Ended       September 30,
($ in millions)	2012		2011		2012		2011
Service cost	$	133	$	158	$	416	$	461
Interest cost		162		182		494		541
Expected return on plan assets		(239)		(243)		(727)		(728)
Net amortization		48		58		144		149
Termination benefits		4		15		13		32
Curtailments		(4)		(6)		(5)		(16)
Settlements		-		-		-		(1)
	$	104	$	164	$	335	$	438

The Company provides medical, dental and life insurance benefits, principally to its eligible U.S. retirees and similar benefits to their dependents, through its other postretirement benefit plans. The net cost of such plans consisted of the following components:

	Three Months Ended       September 30,				Nine Months Ended       September 30,
($ in millions)	2012		2011		2012		2011
Service cost	$	22	$	27	$	64	$	83
Interest cost		31		35		93		106
Expected return on plan assets		(34)		(35)		(102)		(106)
Net amortization		(9)		(4)		(25)		(13)
Termination benefits		5		5		10		11
Curtailments		(2)		(1)		(6)		-
	$	13	$	27	$	34	$	81

In connection with restructuring actions (see Note 2), termination charges for the three and nine months ended September 30, 2012 and 2011 were recorded on pension and other postretirement benefit plans related to expanded eligibility for certain employees exiting Merck. Also, in connection with these restructuring actions, curtailments were recorded on pension and other postretirement benefit plans and settlements were recorded on pension plans as reflected in the tables above.

The Company expects to contribute approximately $1.75 billion to its defined benefit pension plans during 2012.

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Long-Term Debt

9 Months Ended

Sep. 30, 2012

Long-Term Debt

9. Long-Term Debt

In September 2012, the Company closed an underwritten public offering of $2.5 billion senior unsecured notes consisting of $1.0 billion aggregate principle amount of 1.1% notes due 2018, $1.0 billion aggregate principle amount of 2.4% notes due 2022 and $500 million aggregate principle amount of 3.6% notes due 2042. Interest on the notes is payable semi-annually. The notes of each series are redeemable in whole or in part at any time, at the Company’s option at varying redemption prices. Proceeds from the notes will be used for general corporate purposes, including making contributions to the Company’s pension plans and the repayment of outstanding commercial paper and upcoming debt maturities.

In May 2012, the Company terminated its existing credit facilities and entered into a new $4.0 billion, five-year credit facility maturing in May 2017. The facility provides backup liquidity for the Company’s commercial paper borrowing facility and is to be used for general corporate purposes. The Company has not drawn funding from this facility.

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Equity - Textual (Detail) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Shareholders Equity [Line Items]
Par value preferred stock obligation assumed in connection with the 1998 restructuring of Astra Merck Inc	$ 2,400,000,000
Preferred stock assumed with Astra Merck Inc. dividend per annum	5.00%
Cumulative translation gains (losses) relating to translation impact of intangible assets		$ 393,000,000

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Other Intangibles

9 Months Ended

Sep. 30, 2012

Other Intangibles

7. Other Intangibles

In connection with mergers and acquisitions, the Company measures the fair value of marketed products and research and development pipeline programs and capitalizes these amounts. During the third quarter of 2012 and 2011, the Company recorded $40 million and $22 million, respectively, and during the first nine months of 2012 and 2011, recorded $176 million and $343 million, respectively, of in-process research and development (“IPR&D”) impairment charges within Research and development expenses primarily for pipeline programs that had previously been deprioritized and were subsequently deemed to have no alternative use in the period. Certain of the charges in 2011 were also attributable to compounds that were out-licensed to a third party for consideration that was less than the related asset’s carrying value. Also, during the first nine months of 2011, the Company recorded an intangible asset impairment charge of $118 million within Materials and production costs related to a marketed product. The Company may recognize additional non-cash impairment charges in the future related to other pipeline programs or marketed products and such charges could be material.

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Joint Ventures and Other Equity Method Affiliates

9 Months Ended

Sep. 30, 2012

Joint Ventures and Other Equity Method Affiliates

8. Joint Ventures and Other Equity Method Affiliates

Equity income from affiliates reflects the performance of the Company’s joint ventures and other equity method affiliates and was comprised of the following:

	Three Months Ended     September 30,				Nine Months Ended     September 30,
($ in millions)	2012		2011		2012		2011
AstraZeneca LP	$	134	$	141	$	387	$	318
Other (1)		24		20		23		36
	$	158	$	161	$	410	$	354

⁽¹⁾  Includes results from Sanofi Pasteur MSD.

 AstraZeneca LP

In 1998, Merck and Astra completed the restructuring of the ownership and operations of their existing joint venture whereby Merck acquired Astra’s interest in KBI Inc. (“KBI”) and contributed KBI’s operating assets to a new U.S. limited partnership, Astra Pharmaceuticals L.P. (the “Partnership”), in exchange for a 1% limited partner interest. Astra contributed the net assets of its wholly owned subsidiary, Astra USA, Inc., to the Partnership in exchange for a 99% general partner interest. The Partnership, renamed AstraZeneca LP (“AZLP”) upon Astra’s 1999 merger with Zeneca Group Plc, became the exclusive distributor of the products for which KBI retained rights.

In June 2012, Merck and AstraZeneca amended the 1998 option agreement which gave AstraZeneca the option to buy Merck’s common stock interest in KBI and, through it, Merck’s interest in Nexium and Prilosec as well as AZLP. The updated agreement eliminates AstraZeneca’s option to acquire Merck’s interest in KBI in 2012 and provides AstraZeneca a new option to acquire Merck’s interest in KBI in June 2014. As a result of the amended agreement, Merck will continue to record supply sales and equity income from the partnership for the remainder of 2012 and 2013. In 2014, AstraZeneca has the option to purchase Merck’s interest in KBI based in part on the value of Merck’s interest in Nexium and Prilosec. AstraZeneca’s option is exercisable between March 1, 2014 and April 30, 2014. If AstraZeneca chooses to exercise this option, the closing date is expected to be June 30, 2014. Under the amended agreement, AstraZeneca will make a payment to Merck upon closing of $327 million, reflecting an estimate of the fair value of Merck’s interest in Nexium and Prilosec. This portion of the exercise price is subject to a true-up in 2018 based on actual sales from closing in 2014 to June 2018. The exercise price will also include an additional amount equal to a multiple of ten times Merck’s average 1% annual profit allocation in the partnership for the three years prior to exercise. The Company believes that it is likely that AstraZeneca will exercise its option in 2014.

Summarized financial information for AZLP is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2012		2011		2012		2011
Sales	$	1,232	$	1,124	$	3,424	$	3,460
Materials and production costs		561		464		1,520		1,524
Other expense, net		204		357		936		1,004
Income before taxes (1)	$	467	$	303	$	968	$	932

⁽¹⁾  Merck’s partnership returns from AZLP are generally contractually determined and are not based on a percentage of income from AZLP, other than with respect to Merck’s 1% limited partnership interest.

Johnson & Johnson°Merck Consumer Pharmaceuticals Company

In September 2011, Merck sold its 50% interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company (“JJMCP”) joint venture to J&J. The venture between Merck and J&J was formed in 1989 to develop, manufacture, market and distribute certain over-the-counter consumer products in the United States and Canada. Merck received a one-time payment of $175 million and recognized a pretax gain of $136 million in the third quarter of 2011 reflected in Other (income) expense, net. The partnership assets also included a manufacturing facility.

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Contingencies and Environmental Liabilities

9 Months Ended

Sep. 30, 2012

Contingencies and Environmental Liabilities

10. Contingencies and Environmental Liabilities

The Company is involved in various claims and legal proceedings of a nature considered normal to its business, including product liability, intellectual property, and commercial litigation, as well as additional matters such as antitrust actions and environmental matters. Except for the Vioxx Litigation and the ENHANCE Litigation (each as defined below) for which separate assessments are provided in this Note, in the opinion of the Company, it is unlikely that the resolution of these matters will be material to the Company’s financial position, results of operations or cash flows.

Given the preliminary nature of the litigation discussed below, including the Vioxx Litigation and the ENHANCE Litigation, and the complexities involved in these matters, the Company is unable to reasonably estimate a possible loss or range of possible loss for such matters until the Company knows, among other factors, (i) what claims, if any, will survive dispositive motion practice, (ii) the extent of the claims, including the size of any potential class, particularly when damages are not specified or are indeterminate, (iii) how the discovery process will affect the litigation, (iv) the settlement posture of the other parties to the litigation and (v) any other factors that may have a material effect on the litigation.

The Company records accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. For product liability claims, a portion of the overall accrual is actuarially determined and considers such factors as past experience, number of claims reported and estimates of claims incurred but not yet reported. Individually significant contingent losses are accrued when probable and reasonably estimable. Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable.

The Company’s decision to obtain insurance coverage is dependent on market conditions, including cost and availability, existing at the time such decisions are made. The Company has evaluated its risks and has determined that the cost of obtaining product liability insurance outweighs the likely benefits of the coverage that is available and as such, has no insurance for certain product liabilities effective August 1, 2004.

Vioxx Litigation

Product Liability Lawsuits

As previously disclosed, Merck is a defendant in approximately 100 federal and state lawsuits (the “Vioxx Product Liability Lawsuits”) alleging personal injury or economic loss as a result of the purchase or use of Vioxx. Most of the remaining cases are coordinated in a multidistrict litigation in the U.S. District Court for the Eastern District of Louisiana (the “Vioxx MDL”) before Judge Eldon E. Fallon.

There are no U.S. Vioxx Product Liability Lawsuits currently scheduled for trial in 2012, and none scheduled for 2013. Merck has previously disclosed the outcomes of several Vioxx Product Liability Lawsuits that were tried prior to 2012. All post-trial appeals have been resolved.

There are pending in various U.S. courts putative class actions purportedly brought on behalf of individual purchasers or users of Vioxx seeking reimbursement for alleged economic loss. In the Vioxx MDL proceeding, approximately 30 such class actions remain. In June 2010, Merck moved to strike the class claims or for judgment on the pleadings regarding the master complaint, which includes the above-referenced cases, and briefing on that motion was completed in September 2010. The Vioxx MDL court heard oral argument on Merck’s motion in October 2010 and took it under advisement.

In 2008, a Missouri state court certified a class of Missouri plaintiffs seeking reimbursement for out-of-pocket costs relating to Vioxx. On October 15, 2012, the parties executed a settlement agreement to resolve the litigation. The Company established a reserve of $39 million in the third quarter of 2012, in connection with that settlement agreement, which is the minimum amount that the Company is required to pay under the agreement. The agreement is subject to court approval and certain other conditions.

In Indiana, plaintiffs filed a motion to certify a class of Indiana Vioxx purchasers in a case pending before the Circuit Court of Marion County, Indiana. That case has been dormant for several years. In April 2010, a Kentucky state court denied Merck’s motion for summary judgment and certified a class of Kentucky plaintiffs seeking reimbursement for out-of-pocket costs relating to Vioxx. The trial court subsequently entered an amended class certification order in January 2011. Merck appealed that order to the Kentucky Court of Appeals and, on February 10, 2012, the Kentucky Court of Appeals reversed the trial court’s amended class certification order and denied certification. The plaintiff has petitioned the Kentucky Supreme Court to review the Court of Appeals’ order. Merck opposed the petition, and the Kentucky Supreme Court has not yet ruled.

Merck has also been named as a defendant in several lawsuits brought by state Attorneys General. All of these actions except for an action brought by the Kentucky Attorney General are in the Vioxx MDL proceeding. These actions allege that Merck misrepresented the safety of Vioxx. These suits seek recovery for expenditures on Vioxx by government-funded health care programs, such as Medicaid, and/or penalties for alleged Consumer Fraud Act violations. Judge Fallon remanded the Kentucky case to state court on January 3, 2012. Merck’s petition to appeal that decision to the U.S. Court of Appeals for the Fifth Circuit was denied.

Shareholder Lawsuits

As previously disclosed, in addition to the Vioxx Product Liability Lawsuits, various putative class actions and individual lawsuits under federal securities laws and state laws have been filed against Merck and various current and former officers and directors (the “Vioxx Securities Lawsuits”). The Vioxx Securities Lawsuits are coordinated in a multidistrict litigation in the U.S. District Court for the District of New Jersey before Judge Stanley R. Chesler, and have been consolidated for all purposes. In August 2011, Judge Chesler granted in part and denied in part Merck’s motion to dismiss the Fifth Amended Class Action Complaint in the consolidated securities action. Among other things, the claims based on statements made on or after the voluntary withdrawal of Vioxx on September 30, 2004 have been dismissed. In October 2011, defendants answered the Fifth Amended Class Action Complaint. On April 10, 2012, plaintiffs filed a motion for class certification. Briefing is ongoing. Discovery is currently proceeding in accordance with the court’s scheduling order.

As previously disclosed, several individual securities lawsuits filed by foreign institutional investors also are consolidated with the Vioxx Securities Lawsuits. In October 2011, plaintiffs filed amended complaints in each of the pending individual securities lawsuits. Also in October 2011, a new individual securities lawsuit (the “KBC Lawsuit”) was filed in the District of New Jersey by several foreign institutional investors; that case is also consolidated with the Vioxx Securities Lawsuits. On January 20, 2012, defendants filed motions to dismiss in one of the individual lawsuits (the “ABP Lawsuit”). Briefing on the motions to dismiss was completed on March 26, 2012. On August 1, 2012, Judge Chesler granted in part and denied in part the motions to dismiss the ABP Lawsuit. Among other things, certain alleged misstatements and omissions were dismissed as inactionable and all state law claims were dismissed in full. On September 15, 2012, defendants answered the complaints in all individual actions other than the KBC Lawsuit; on the same day, defendants moved to dismiss the complaint in the KBC Lawsuit on statute of limitations grounds. The motion to dismiss in the KBC Lawsuit is fully briefed and pending before the court. Discovery is currently proceeding in the individual securities lawsuits together with discovery in the class action.

Insurance

The Company has Directors and Officers insurance coverage applicable to the Vioxx Securities Lawsuits with remaining stated upper limits of approximately $175 million. As a result of the previously disclosed insurance arbitration, additional insurance coverage for these claims should also be available, if needed, under upper-level excess policies that provide coverage for a variety of risks. There are disputes with the insurers about the availability of some or all of the Company’s insurance coverage for these claims and there are likely to be additional disputes. The amounts actually recovered under the policies discussed in this paragraph may be less than the stated upper limits.

International Lawsuits

As previously disclosed, in addition to the lawsuits discussed above, Merck has been named as a defendant in litigation relating to Vioxx in Australia, Brazil, Canada, Europe and Israel (collectively, the “Vioxx Foreign Lawsuits”). As previously disclosed, the Company has entered into an agreement to resolve all claims related to Vioxx in Canada. The agreement is pending approval by courts in Canada’s provinces.

Investigations

As previously disclosed, Merck received subpoenas from the Department of Justice (the “DOJ”) requesting information related to Merck’s research, marketing and selling activities with respect to Vioxx in a federal health care investigation under criminal statutes and in March 2009, Merck received a letter from the U.S. Attorney’s Office for the District of Massachusetts identifying it as a target of the grand jury investigation regarding Vioxx. In 2010, the Company established a $950 million reserve (the “Vioxx Liability Reserve”) in connection with the anticipated resolution of the DOJ’s investigation.

In November 2011, the Company announced that it had reached a resolution with federal and state authorities regarding this matter, pending court approval. On April 19, 2012, the U.S. District Court for the District of Massachusetts accepted the resolution and thereafter the Company made the payments noted above.

Reserves

The Company believes that it has meritorious defenses to the remaining Vioxx Product Liability Lawsuits, Vioxx Securities Lawsuits and Vioxx Foreign Lawsuits (collectively, the “Vioxx Lawsuits”) and will vigorously defend against them. In view of the inherent difficulty of predicting the outcome of litigation, particularly where there are many claimants and the claimants seek indeterminate damages, the Company is unable to predict the outcome of these matters and, at this time, cannot reasonably estimate the possible loss or range of loss with respect to the remaining Vioxx Lawsuits. The Company has established a reserve with respect to the Canada Settlement Agreement and with respect to certain other Vioxx Product Liability Lawsuits, including the Missouri matter discussed above. The Company also has an immaterial remaining reserve relating to the Vioxx investigation discussed above for the non-participating states with which litigation is continuing. The Company has established no other liability reserves with respect to the Vioxx Litigation. Unfavorable outcomes in the Vioxx Litigation could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Other Product Liability Litigation

Fosamax

As previously disclosed, Merck is a defendant in product liability lawsuits in the United States involving Fosamax (the “Fosamax Litigation”). As of September 30, 2012, approximately 4,005 cases, which include approximately 4,580 plaintiff groups, had been filed and were pending against Merck in either federal or state court, including one case which seeks class action certification, as well as damages and/or medical monitoring. In approximately 1,215 of these actions, plaintiffs allege, among other things, that they have suffered osteonecrosis of the jaw (“ONJ”), generally subsequent to invasive dental procedures, such as tooth extraction or dental implants and/or delayed healing, in association with the use of Fosamax. In addition, plaintiffs in approximately 2,785 of these actions generally allege that they sustained femur fractures and/or other bone injuries (“Femur Fractures”) in association with the use of Fosamax.

Cases Alleging ONJ and/or Other Jaw Related Injuries

In August 2006, the Judicial Panel on Multidistrict Litigation (the “JPML”) ordered that certain Fosamax product liability cases pending in federal courts nationwide should be transferred and consolidated into one multidistrict litigation (the “Fosamax ONJ MDL”) for coordinated pre-trial proceedings. The Fosamax ONJ MDL has been transferred to Judge John Keenan in the U.S. District Court for the Southern District of New York. As a result of the JPML order, approximately 955 of the cases are before Judge Keenan. In the first Fosamax ONJ MDL trial, Boles v. Merck, the Fosamax ONJ MDL court declared a mistrial because the eight person jury could not reach a unanimous verdict. The Boles case was retried in June 2010 and resulted in a verdict in favor of the plaintiff in the amount of $8 million. Merck filed post-trial motions seeking judgment as a matter of law or, in the alternative, a new trial. In October 2010, the court denied Merck’s post-trial motions but sua sponte ordered a remittitur reducing the verdict to $1.5 million. Plaintiff rejected the remittitur ordered by the court and requested a new trial on damages. Plaintiff and Merck subsequently entered into a confidential stipulation as to the amount of plaintiff’s damages that enabled Merck to appeal the underlying judgment, and Merck filed its appeal in the Boles case on October, 18,  2012. Three other cases have been tried to verdict in the Fosamax ONJ MDL. Defense verdicts in favor of Merck were returned in each of those three cases. Plaintiffs have filed an appeal in two of the cases – Graves v. Merck and Secrest v. Merck.

In February 2011, Judge Keenan ordered that there will be two further bellwether trials conducted in the Fosamax ONJ MDL. Spano v. Merck and Jellema v. Merck were selected by the court to be tried in 2012, but each case was dismissed by the plaintiffs. On March 28, 2012, the court selected Scheinberg v. Merck as the next case to be tried and set the trial date for January 14, 2013.

Outside the Fosamax ONJ MDL, in Florida, Carballo v. Merck was set for trial on October 15, 2012, but plaintiff dismissed the case and refiled it in the Fosamax ONJ MDL. Anderson v. Merck has been set for trial on January 14, 2013.

In addition, in July 2008, an application was made by the Atlantic County Superior Court of New Jersey requesting that all of the Fosamax cases pending in New Jersey be considered for mass tort designation and centralized management before one judge in New Jersey. In October 2008, the New Jersey Supreme Court ordered that all pending and future actions filed in New Jersey arising out of the use of Fosamax and seeking damages for existing dental and jaw-related injuries, including ONJ, but not solely seeking medical monitoring, be designated as a mass tort for centralized management purposes before Judge Carol E. Higbee in Atlantic County Superior Court. As of September 30, 2012, approximately 255 ONJ cases were pending against Merck in Atlantic County, New Jersey. In July 2009, Judge Higbee entered a Case Management Order (and various amendments thereto) setting forth a schedule that contemplates completing fact and expert discovery in an initial group of cases to be reviewed for trial. In February 2011, the jury in Rosenberg v. Merck, the first trial in the New Jersey coordinated proceeding, returned a verdict in Merck’s favor. In April 2012, the jury in Sessner v. Merck, the second case tried in New Jersey, also returned a verdict in Merck’s favor. Plaintiffs have filed an appeal in both cases.

In California, the parties are reviewing the claims of two plaintiffs in the Carrie Smith, et al. v. Merck case and the claims in Pedrojetti v. Merck. The cases of one or more of these plaintiffs are expected to be tried in 2013.

Discovery is ongoing in the Fosamax ONJ MDL litigation, the New Jersey coordinated proceeding, and the remaining jurisdictions where Fosamax cases are pending. The Company intends to defend against these lawsuits.

Cases Alleging Femur Fractures

In March 2011, Merck submitted a Motion to Transfer to the JPML seeking to have all federal cases alleging Femur Fractures consolidated into one multidistrict litigation for coordinated pre-trial proceedings. The Motion to Transfer was granted in May 2011, and all federal cases involving allegations of Femur Fracture have been or will be transferred to a multidistrict litigation in the District of New Jersey (the “Fosamax Femur Fracture MDL”). As a result of the JPML order, approximately 640 cases were pending in the Fosamax Femur Fracture MDL as of September 30, 2012. A Case Management Order has been entered that requires the parties to review 40 cases (later reduced to 33 cases). Judge Joel Pisano has selected four cases from that group to be tried as the initial bellwether cases in the Fosamax Femur Fracture MDL and has set an April 8, 2013 trial date for the first bellwether case, which will be Glynn v. Merck.

As of September 30, 2012, approximately 1,740 cases alleging Femur Fractures have been filed in New Jersey state court and are pending before Judge Higbee in Atlantic County Superior Court. The parties have selected an initial group of 30 cases to be reviewed through fact discovery. Judge Higbee has set March 4, 2013 as the date for the first trial of the New Jersey state Femur Fracture cases. On September 27, 2012, Judge Higbee selected the Unanski v. Merck and Su v. Merck cases to be tried jointly beginning on the March 4, 2013 trial date.

As of September 30, 2012, approximately 380 cases alleging Femur Fractures have been filed in California state court. A petition was filed seeking to coordinate all Femur Fracture cases filed in California state court before a single judge in Orange County, California. The petition was granted and Judge Steven Perk is now presiding over the coordinated proceedings. No scheduling order has yet been entered.

Additionally, there are nine Femur Fracture cases pending in other state courts. A trial date has been set for August 12, 2013 for the Barnes case pending in Alabama state court.

Discovery is ongoing in the Fosamax Femur Fracture MDL and in state courts where Femur Fracture cases are pending and the Company intends to defend against these lawsuits.

NuvaRing

As previously disclosed, beginning in May 2007, a number of complaints were filed in various jurisdictions asserting claims against the Company’s subsidiaries Organon USA, Inc., Organon Pharmaceuticals USA, Inc., Organon International (collectively, “Organon”), and the Company arising from Organon’s marketing and sale of NuvaRing, a combined hormonal contraceptive vaginal ring. The plaintiffs contend that Organon and Schering-Plough, among other things, failed to adequately design and manufacture NuvaRing and failed to adequately warn of the alleged increased risk of venous thromboembolism (“VTE”) posed by NuvaRing, and/or downplayed the risk of VTE. The plaintiffs seek damages for injuries allegedly sustained from their product use, including some alleged deaths, heart attacks and strokes. The majority of the cases are currently pending in a federal multidistrict litigation (the “NuvaRing MDL”) venued in Missouri and in a coordinated proceeding in New Jersey state court.

As of September 30, 2012, there were approximately 1,220 NuvaRing cases. Of these cases, approximately 1,030 are or will be pending in the NuvaRing MDL in the U.S. District Court for the Eastern District of Missouri before Judge Rodney Sippel, and approximately 185 are pending in coordinated discovery proceedings in the Bergen County Superior Court of New Jersey before Judge Brian R. Martinotti. Five additional cases are pending in various other state courts.

Pursuant to orders of Judge Sippel in the NuvaRing MDL, the parties originally selected a pool of more than 20 cases to prepare for trial and that pool has since been narrowed to eight cases from which the first trials in the NuvaRing MDL will be selected. Pursuant to Judge Martinotti’s order in the New Jersey proceeding, the parties selected 20 trial pool cases to be prepared for trial and the first trial is expected to commence in February 2013. The parties have completed fact discovery in the originally selected trial pool cases in each jurisdiction and expert discovery has been completed in those first trial pool cases. Certain replacement trial pool cases remain in fact discovery.

The Company has filed motions related to the admissibility of expert testimony and motions for summary judgment. Following the completion of briefing, the Company expects substantive hearings on those motions to take place in late 2012 or early 2013. The Company anticipates that status conferences will be held in each coordinated proceeding following rulings on the substantive evidentiary motions to determine a methodology for selecting the first cases to be tried. The Company intends to defend against these lawsuits.

Propecia/Proscar

As previously disclosed, Merck is a defendant in product liability lawsuits in the United States involving Propecia and/or Proscar. As of September 30, 2012, approximately 265 lawsuits involving a total of approximately 415 plaintiffs (in a few instances spouses are joined in the suits) who allege that they have experienced persistent sexual side effects following cessation of treatment with Propecia and/or Proscar have been filed against Merck. The lawsuits, which are in their early stages, are pending in various federal courts and in state court in New Jersey. The federal lawsuits have been consolidated for pretrial purposes in a federal MDL before Judge John Gleeson of the Eastern District of New York. The matters pending in state court in New Jersey have been consolidated before Judge Jessica Mayer in Middlesex County. The Company intends to defend against these lawsuits.

Vytorin/Zetia Litigation

As previously disclosed, in April 2008, a Merck shareholder filed a putative class action lawsuit in federal court which has been consolidated in the District of New Jersey with another federal securities lawsuit under the caption In re Merck & Co., Inc. Vytorin Securities Litigation. An amended consolidated complaint was filed in October 2008 and named as defendants Merck; Merck/Schering-Plough Pharmaceuticals, LLC; and certain of the Company’s current and former officers and directors. The complaint alleges that Merck delayed releasing unfavorable results of the ENHANCE clinical trial regarding the efficacy of Vytorin and that Merck made false and misleading statements about expected earnings, knowing that once the results of the ENHANCE study were released, sales of Vytorin would decline and Merck’s earnings would suffer. In December 2008, Merck and the other defendants moved to dismiss this lawsuit on the grounds that the plaintiffs failed to state a claim for which relief can be granted. In September 2009, the court denied defendants’ motion to dismiss. In June 2011, lead plaintiffs filed a motion for leave to further amend the consolidated complaint, which was granted on February 7, 2012. On February 9, 2012, plaintiffs filed a second amended consolidated complaint, which defendants answered on February 23, 2012. In February 2012, the parties completed briefing on lead plaintiffs’ motion for class certification, as amended. On March 1, 2012, defendants filed a motion for summary judgment. On September 25, 2012, the court granted lead plaintiffs’ amended motion for class certification and denied defendants’ motion for summary judgment. On October 9, 2012, Merck filed a petition for leave to appeal the class certification decision to the Third Circuit Court of Appeals, which lead plaintiffs opposed on October 19, 2012. The petition for interlocutory review is pending before the Third Circuit. A trial date has been set by the district court for March 4, 2013.

There is a similar consolidated, putative class action securities lawsuit pending in the District of New Jersey, filed by a Schering-Plough shareholder against Schering-Plough and its former Chairman, President and Chief Executive Officer, Fred Hassan, under the caption In re Schering-Plough Corporation/ENHANCE Securities Litigation. The amended consolidated complaint was filed in September 2008 and names as defendants Schering-Plough; Merck/Schering-Plough Pharmaceuticals; certain of the Company’s current and former officers and directors; and underwriters who participated in an August 2007 public offering of Schering-Plough’s common and preferred stock. In December 2008, Schering-Plough and the other defendants filed motions to dismiss this lawsuit on the grounds that the plaintiffs failed to state a claim for which relief can be granted. In September 2009, the court denied defendants’ motions to dismiss. In February 2012, the parties completed briefing on lead plaintiffs’ motion for class certification, as amended. On March 1, 2012, the Schering-Plough defendants filed a motion for partial summary judgment and the underwriter defendants filed a motion for summary judgment. On September 25, 2012, the court granted lead plaintiffs’ amended motion for class certification and denied defendants’ motions for summary judgment. On October 9, 2012, Schering-Plough and the underwriter defendants filed separate petitions for leave to appeal the class certification decision to the Third Circuit Court of Appeals, which lead plaintiffs opposed on October 19, 2012. The petitions for interlocutory review are pending before the Third Circuit. A trial date has been set by the district court for March 4, 2013.

As previously disclosed, in April 2008, a member of a Merck ERISA plan filed a putative class action lawsuit against Merck and certain of the Company’s current and former officers and directors alleging they breached their fiduciary duties under ERISA. Since that time, there have been other similar ERISA lawsuits filed against Merck in the District of New Jersey, and all of those lawsuits were consolidated under the caption In re Merck & Co., Inc. Vytorin ERISA Litigation. A consolidated amended complaint was filed in February 2009, and named as defendants Merck and various current and former members of the Company’s Board of Directors. The plaintiffs alleged that the ERISA plans’ investment in Merck stock was imprudent because Merck’s earnings were dependent on the commercial success of its cholesterol drug Vytorin, and defendants knew or should have known that the results of a scientific study would cause the medical community to turn to less expensive drugs for cholesterol management. On May 24, 2012, the plaintiffs filed an unopposed motion for preliminary approval of settlement, conditional certification of a settlement class, approval of the class notice, and scheduling of a final fairness hearing. The court granted that motion on June 22, 2012 and scheduled a fairness hearing on final approval of the settlement for September 25, 2012. Following the fairness hearing, the court granted plaintiffs’ motion for final approval of the settlement agreement on September 28, 2012. On October 26, 2012, the court entered an order and final judgment which, among other things, provides broad releases with prejudice. Merck’s insurers have paid $10.4 million into a settlement fund which (after enumerated costs, fees, and awards are withdrawn) will be allocated to members of the settlement class according to the plan of allocation approved by the court.

Discovery in the lawsuits referred to in this section (collectively, the “ENHANCE Litigation”) has concluded. The Company believes that it has meritorious defenses to the ENHANCE Litigation and intends to vigorously defend against these lawsuits. The Company is unable to predict the outcome of these matters and at this time cannot reasonably estimate the possible loss or range of loss with respect to the ENHANCE Litigation. Unfavorable outcomes resulting from the ENHANCE Litigation could have a material adverse effect on the Company’s financial position, liquidity and results of operations.

Insurance

The Company has Directors and Officers insurance coverage applicable to the Vytorin shareholder lawsuits brought by legacy Schering-Plough shareholders with stated upper limits of approximately $250 million, which is currently being used to partially fund the Company’s legal fees. There are disputes with the insurers about the availability of some or all of the Company’s insurance coverage for these claims and there are likely to be additional disputes. The amounts actually recovered under the policies discussed in this paragraph may be less than the stated limits.

Commercial Litigation

AWP Litigation

As previously disclosed, the Company and/or certain of its subsidiaries remain defendants in cases brought by various states alleging manipulation by pharmaceutical manufacturers of Average Wholesale Prices (“AWP”), which are sometimes used by public and private payors in calculating provider reimbursement levels. The outcome of these lawsuits could include substantial damages, the imposition of substantial fines and penalties and injunctive or administrative remedies.

Since the start of 2012, the Company has settled certain AWP cases brought by the states of Alabama, Alaska, Kansas, Kentucky, Louisiana, Oklahoma, and Mississippi. The Company and/or certain of its subsidiaries continue to be defendants in cases brought by six states.

The Company is also appealing the recommendation of a court-appointed Special Master that Merck be reinstated as a defendant in a putative class action in New Jersey State court which alleges on behalf of third-party payers and individuals that manufacturers inflated drug prices by manipulation of AWPs and other means. This case was dismissed against the Company without prejudice in 2007.

K-DUR Antitrust Litigation

As previously disclosed, in June 1997 and January 1998, Schering-Plough settled patent litigation with Upsher-Smith, Inc. (“Upsher-Smith”) and ESI Lederle, Inc. (“Lederle”), respectively, relating to generic versions of K-DUR, Schering-Plough’s long-acting potassium chloride product supplement used by cardiac patients, for which Lederle and Upsher-Smith had filed Abbreviated New Drug Applications (“ANDAs”). Following the commencement of an administrative proceeding by the U.S. Federal Trade Commission (the “FTC”) in 2001 alleging anti-competitive effects from those settlements (which has been resolved in Schering-Plough’s favor), putative class and non-class action suits were filed on behalf of direct and indirect purchasers of K-DUR against Schering-Plough, Upsher-Smith and Lederle and were consolidated in a multi-district litigation in the U.S. District Court for the District of New Jersey. These suits claimed violations of federal and state antitrust laws, as well as other state statutory and common law causes of action, and sought unspecified damages. In April 2008, the indirect purchasers voluntarily dismissed their case. In March 2010, the District Court granted summary judgment to the defendants on the remaining lawsuits and dismissed the matter in its entirety. However, in July 2012, the Third Circuit Court of Appeals reversed the District Court’s judgment and remanded the case for further proceedings. At the same time, the Third Circuit upheld a December 2008 decision by the District Court to certify certain direct purchaser plaintiffs’ claims as a class action. The Company has filed a petition for certiorari with the U.S. Supreme Court seeking review of the Third Circuit’s reversal of summary judgment.

Nexium Anti-Trust Litigation

In September 2012, the Company and certain of its subsidiaries were among the defendants named in a putative class action lawsuit brought on behalf of direct purchasers of Nexium in federal court in New Jersey. The lawsuit alleges violations of federal antitrust law arising from settlements reached by and among the defendants to resolve certain patent litigation relating to the entry of generic esomeprazole on the U.S. market. Specifically, the plaintiffs contend that these settlements had the effect of impermissibly delaying the entry of generic esomeprazole in the United States and extending the monopoly power of Nexium, leading to higher average market prices. The Company denies any wrongdoing and intends to defend the lawsuit, which bears the caption Value Drug Company and Burlington Drug Co. Inc., et al. v. AstraZeneca PLC, et al.

Patent Litigation

From time to time, generic manufacturers of pharmaceutical products file ANDAs with the FDA seeking to market generic forms of the Company’s products prior to the expiration of relevant patents owned by the Company. To protect its patent rights, the Company may file patent infringement lawsuits against such generic companies. Certain products of the Company (or marketed via agreements with other companies) currently involved in such patent infringement litigation in the United States include: AzaSite, Emend for Injection, Nasonex, Nexium, Vytorin and Zetia. Similar lawsuits defending the Company’s patent rights may exist in other countries. The Company intends to vigorously defend its patents, which it believes are valid, against infringement by generic companies attempting to market products prior to the expiration of such patents. As with any litigation, there can be no assurance of the outcomes, which, if adverse, could result in significantly shortened periods of exclusivity for these products and, with respect to products acquired through mergers and acquisitions, potentially significant intangible asset impairment charges.

AzaSite — In May 2011, a patent infringement suit was filed in the United States against Sandoz Inc. (“Sandoz”) in respect of Sandoz’s application to the FDA seeking pre-patent expiry approval to market a generic version of AzaSite. The lawsuit automatically stays FDA approval of Sandoz’s ANDA until October 2013 or until an adverse court decision, if any, whichever may occur earlier.

Emend for Injection — In May 2012, a patent infringement lawsuit was filed in the United States against Sandoz in respect of Sandoz’s application to the FDA seeking pre-patent expiry approval to market a generic version of Emend for Injection. The lawsuit automatically stays FDA approval of Sandoz’s ANDA until July 2015 or until an adverse court decision, if any, whichever may occur earlier. In June 2012, a patent infringement lawsuit was filed in the United States against Accord Healthcare, Inc. US, Accord Healthcare, Inc. and Intas Pharmaceuticals Ltd (collectively, “Intas”) in respect of Intas’ application to the FDA seeking pre-patent expiry approval to market a generic version of Emend for Injection. The lawsuit automatically stays FDA approval of Intas’ ANDA until July 2015 or until an adverse court decision, if any, whichever may occur earlier.

Integrilin — In February 2009, a patent infringement lawsuit was filed (jointly with Millennium Pharmaceuticals, Inc.) in the United States against Teva Parenteral Medicines, Inc. (“TPM”) in respect of TPM’s application to the FDA seeking approval to sell a generic version of Integrilin prior to the expiry of the last to expire listed patent. In October 2011, the parties entered a settlement agreement allowing TPM to sell a generic version of Integrilin beginning June 2, 2015.

Nasonex — In December 2009, a patent infringement suit was filed in the United States against Apotex Corp. (“Apotex”) in respect of Apotex’s application to the FDA seeking pre-patent expiry approval to market a generic version of Nasonex. A trial in this matter was held in April 2012. A decision was issued on June 15, 2012, holding that the Merck patent covering mometasone furoate monohydrate was valid, but that it was not infringed by Apotex’s proposed product. The finding of non-infringement is under appeal.

Nexium — Patent infringement lawsuits were brought (jointly with AstraZeneca) in the United States against the following generic companies: Ranbaxy Laboratories Ltd., IVAX Pharmaceuticals, Inc. (later acquired by Teva Pharmaceuticals, Inc. (“Teva”)), Dr. Reddy’s Laboratories, Sandoz, Lupin Ltd., Hetero Drugs Limited Unit III (“Hetero”) and Torrent Pharmaceuticals Ltd. in response to each generic company’s application seeking pre-patent expiry approval to sell a generic version of Nexium. Settlements have been reached in each of these lawsuits, the terms of which provide that the respective generic company may bring a generic version of esomeprazole product to market on May 27, 2014. In addition, a patent infringement lawsuit was also filed (jointly with AstraZeneca) in February 2010 in the United States against Sun Pharma Global Fze (“Sun Pharma”) in respect of its application to the FDA seeking pre-patent expiry approval to sell a generic version of Nexium IV, which lawsuit was settled with an agreement which provides that Sun Pharma will be entitled to bring its generic esomeprazole IV product to market in the United States on January 1, 2014. Finally, additional patent infringement lawsuits have been filed (jointly with AstraZeneca) in the United States against Hamni USA, Inc. (“Hamni”) and Mylan Laboratories Limited (“Mylan Labs”) related to their applications to the FDA seeking pre-patent expiry approval to sell generic versions of Nexium. The Hamni and Mylan Labs applications to the FDA remain stayed until May 2013 and August 2014, respectively, or until earlier adverse court decisions, if any, whichever may occur earlier.

Vytorin — In December 2009, a patent infringement lawsuit was filed in the United States against Mylan Pharmaceuticals, Inc. (“Mylan”) in respect of Mylan’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Vytorin. A trial against Mylan jointly in respect of Zetia and Vytorin was conducted in December 2011. In April 2012, the court issued a decision finding the patent valid and enforceable. Accordingly, Mylan’s ANDA will not be approvable until April 25, 2017. Mylan has appealed that decision. In February 2010, a patent infringement lawsuit was filed in the United States against Teva in respect of Teva’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Vytorin. In July 2011, the patent infringement lawsuit was dismissed and Teva agreed not to sell generic versions of Zetia or Vytorin until the Company’s exclusivity rights expire on April 25, 2017, except in certain circumstances. In August 2010, a patent infringement lawsuit was filed in the United States against Impax Laboratories Inc. (“Impax”) in respect of Impax’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Vytorin. An agreement was reached with Impax to stay the lawsuit pending the outcome of the lawsuit with Mylan. In October 2011, a patent infringement lawsuit was filed in the United States against Actavis Inc. (“Actavis”) in respect to Actavis’ application to the FDA seeking pre-patent expiry approval to sell a generic version of Vytorin. An agreement was reached with Actavis to stay the lawsuit pending the outcome of the lawsuit with Mylan.

Zetia — In March 2007, a patent infringement lawsuit was filed in the United States against Glenmark Pharmaceuticals Inc., USA and its parent corporation (collectively, “Glenmark”) in respect of Glenmark’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Zetia. In May 2010, Glenmark agreed to a settlement by virtue of which Glenmark will be permitted to launch its generic product in the United States on December 12, 2016, subject to receiving final FDA approval. In June 2010, a patent infringement lawsuit was filed in the United States against Mylan in respect of Mylan’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Zetia. A trial against Mylan jointly in respect of Zetia and Vytorin was conducted in December 2011. In April 2012, the court issued a decision finding the patent valid and enforceable. Accordingly, Mylan’s ANDA will not be approvable until April 25, 2017. Mylan has appealed that decision. In September 2010, a patent infringement lawsuit was filed in the United States against Teva in respect of Teva’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Zetia. In July 2011, the patent infringement lawsuit was dismissed without any rights granted to Teva. In September 2012, a patent infringement suit was filed in the United States against Sandoz in respect of Sandoz’s application to the FDA seeking pre-patent expiry approval to market a generic version of Zetia. The lawsuit automatically stays FDA approval of Sandoz’s ANDA until February 2015 or until an adverse court decision, if any, whichever may occur earlier.

Other Litigation

There are various other pending legal proceedings involving the Company, principally product liability and intellectual property lawsuits. While it is not feasible to predict the outcome of such proceedings, in the opinion of the Company, either the likelihood of loss is remote or any reasonably possible loss associated with the resolution of such proceedings is not expected to be material to the Company’s financial position, results of operations or cash flows either individually or in the aggregate.

Legal Defense Reserves

Legal defense costs expected to be incurred in connection with a loss contingency are accrued when probable and reasonably estimable. Some of the significant factors considered in the review of these legal defense reserves are as follows: the actual costs incurred by the Company; the development of the Company’s legal defense strategy and structure in light of the scope of its litigation; the number of cases being brought against the Company; the costs and outcomes of completed trials and the most current information regarding anticipated timing, progression, and related costs of pre-trial activities and trials in the associated litigation. The amount of legal defense reserves as of September 30, 2012 and December 31, 2011 of approximately $240 million represents the Company’s best estimate of the minimum amount of defense costs to be incurred in connection with its outstanding litigation; however, events such as additional trials and other events that could arise in the course of its litigation could affect the ultimate amount of legal defense costs to be incurred by the Company. The Company will continue to monitor its legal defense costs and review the adequacy of the associated reserves and may determine to increase the reserves at any time in the future if, based upon the factors set forth, it believes it would be appropriate to do so.

Environmental Matters

The Company and its subsidiaries are parties to a number of proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, and other federal and state equivalents. These proceedings seek to require the operators of hazardous waste disposal facilities, transporters of waste to the sites and generators of hazardous waste disposed of at the sites to clean up the sites or to reimburse the government for cleanup costs. The Company has been made a party to these proceedings as an alleged generator of waste disposed of at the sites. In each case, the government alleges that the defendants are jointly and severally liable for the cleanup costs. Although joint and several liability is alleged, these proceedings are frequently resolved so that the allocation of cleanup costs among the parties more nearly reflects the relative contributions of the parties to the site situation. The Company’s potential liability varies greatly from site to site. For some sites the potential liability is de minimis and for others the final costs of cleanup have not yet been determined. While it is not feasible to predict the outcome of many of these proceedings brought by federal or state agencies or private litigants, in the opinion of the Company, such proceedings should not ultimately result in any liability which would have a material adverse effect on the financial position, results of operations, liquidity or capital resources of the Company. The Company has taken an active role in identifying and providing for these costs and such amounts do not include any reduction for anticipated recoveries of cleanup costs from former site owners or operators or other recalcitrant potentially responsible parties.

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Share-Based Compensation Plans - Assumptions Used to Determine Weighted-Average Fair Value of Options Granted (Detail)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Assumptions used to determine weighted-average fair value of options granted
Expected dividend yield	4.40%	4.30%
Risk-free interest rate	1.30%	2.60%
Expected volatility	25.30%	23.20%
Expected life (years)	7 years	7 years

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Pension and Other Postretirement Benefit Plans - Textual (Detail) (USD $) In Billions, unless otherwise specified	Sep. 30, 2012
Defined Benefit Plan Disclosure [Line Items]
Expected contribution to the defined benefit pension plans during 2012	$ 1.75

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Share-Based Compensation Plans - Textual (Detail) (USD $) In Millions, except Per Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of RSUs granted during the period	7	8
Weighted-average grant date fair value of RSUs issued during the period	$ 39.38	$ 36.44
Options granted by company	7	8
Weighted- average exercise price of options granted in period	$ 39.39	$ 36.55
Weighted- average fair value per option granted	$ 5.47	$ 5.37
Total pre tax unrecognized compensation expense related to nonvested stock options, RSU and PSU awards	$ 449
Weighted average period in years of recognition for nonvested stock options, RSU and PSU awards	1 year 9 months 18 days

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Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2012

Sales of Company's Products

Sales of the Company’s products were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in millions)	2012		2011		2012		2011
Primary Care and Women’s Health
Cardiovascular
Zetia	$	645	$	614	$	1,891	$	1,788
Vytorin		423		469		1,312		1,407
Diabetes and Obesity
Januvia		975		846		2,952		2,364
Janumet		405		350		1,207		977
Respiratory
Singulair		602		1,336		3,373		4,018
Nasonex		292		266		960		962
Clarinex		64		128		337		492
Asmanex		42		42		141		149
Dulera		52		22		140		59
Women’s Health and Endocrine
Fosamax		152		215		522		644
NuvaRing		156		159		459		455
Follistim AQ		111		129		352		404
Implanon		93		80		254		220
Cerazette		64		74		202		199
Other
Maxalt		166		156		476		460
Arcoxia		109		108		338		321
Avelox		30		59		146		227
Hospital and Specialty
Immunology
Remicade		490		561		1,527		2,156
Simponi		86		74		236		203
Infectious Disease
Isentress		399		343		1,133		972
PegIntron		165		163		510		482
Cancidas		163		150		474		476
Victrelis		149		31		387		53
Invanz		118		107		329		296
Primaxin		109		124		301		397
Noxafil		66		61		191		171
Oncology
Temodar		227		223		688		704
Emend		111		98		358		305
Other
Cosopt/Trusopt		102		124		331		360
Bridion		68		52		186		141
Integrilin		48		53		160		172
Diversified Brands
Cozaar/Hyzaar		295		404		969		1,236
Propecia		104		112		312		330
Zocor		86		110		285		345
Claritin Rx		47		55		181		240
Remeron		52		65		175		181
Proscar		55		58		160		171
Vasotec/Vaseretic		42		57		144		173
Vaccines (1)
Gardasil		581		445		1,189		935
ProQuad/M-M-R II/Varivax		396		391		967		927
RotaTeq		150		184		433		457
Zostavax		202		108		426		254
Pneumovax		160		133		372		276
Other pharmaceutical (2)		1,023		1,015		3,031		2,975
Total Pharmaceutical segment sales		9,875		10,354		30,517		30,534
Other segment sales (3)		1,556		1,586		4,830		4,908
Total segment sales		11,431		11,940		35,347		35,442
Other (4)		57		82		183		311
	$	11,488	$	12,022	$	35,530	$	35,753

⁽¹⁾  These amounts do not reflect sales of vaccines sold in most major European markets through the Company’s joint venture, Sanofi Pasteur MSD, the results of which are reflected in Equity income from affiliates. These amounts do, however, reflect supply sales to Sanofi Pasteur MSD.

⁽²⁾  Other pharmaceutical primarily includes sales of other human health pharmaceutical products not listed separately.

⁽³⁾ Reflects other non-reportable segments, including Animal Health and Consumer Care, and revenue from the Company’s relationship with AZLP primarily relating to sales of Nexium. Revenue from AZLP was $255 million and $299 million for the third quarter of 2012 and 2011, respectively, and $664 million and $928 million for the first nine months of 2012 and 2011, respectively.

⁽⁴⁾ Other revenues are primarily comprised of miscellaneous corporate revenues, third-party manufacturing sales, sales related to divested products or businesses and supply sales not included in segment results. The declines in other revenues in the third quarter and first nine months of 2012 as compared with the same periods of 2011 reflect lower third-party manufacturing sales, which for the year-to-date period were attributable in part to the divestiture of certain manufacturing facilities in the first quarter of 2011.

Reconciliation of Segment Profits to Income Before Taxes

A reconciliation of segment profits to Income before taxes is as follows:

	Three Months Ended            September 30,				Nine Months Ended            September 30,
($ in millions)	2012		2011		2012		2011
Segment profits:
Pharmaceutical segment	$	6,265	$	6,355	$	19,767	$	19,014
Other segments		819		783		2,397		2,300
Total segment profits		7,084		7,138		22,164		21,314
Other (losses) profits		(4)		5		(32)		(9)
Unallocated:
Interest income		47		32		177		102
Interest expense		(178)		(176)		(524)		(522)
Equity income from affiliates		(5)		(1)		(14)		(82)
Depreciation and amortization		(486)		(619)		(1,620)		(1,814)
Research and development		(1,689)		(1,712)		(5,263)		(5,330)
Amortization of purchase accounting adjustments		(1,232)		(1,284)		(3,687)		(3,788)
Restructuring costs		(110)		(119)		(473)		(773)
Arbitration settlement charge		-		-		-		(500)
Other unallocated, net		(1,209)		(912)		(3,323)		(2,845)
	$	2,218	$	2,352	$	7,405	$	5,753

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Long-Term Debt - Textual (Detail) (USD $)	1 Months Ended
	May 31, 2012 Y	Sep. 30, 2012	Dec. 31, 2011
Debt Instrument [Line Items]
Aggregate principle amount of senior unsecured notes		$ 17,571,000,000	$ 15,525,000,000
Available borrowing capacity under credit facility	4,000,000,000
Term of credit facility	5
Senior Unsecured Note [Member]
Debt Instrument [Line Items]
Aggregate principle amount of senior unsecured notes		2,500,000,000
Senior Unsecured Notes Due 2018 [Member]
Debt Instrument [Line Items]
Aggregate principle amount of senior unsecured notes		1,000,000,000
Stated interest rate of senior unsecured notes		1.10%
Senior Unsecured Notes Due 2022 [Member]
Debt Instrument [Line Items]
Aggregate principle amount of senior unsecured notes		1,000,000,000
Stated interest rate of senior unsecured notes		2.40%
Senior Unsecured Notes Due 2042 [Member]
Debt Instrument [Line Items]
Aggregate principle amount of senior unsecured notes		$ 500,000,000
Stated interest rate of senior unsecured notes		3.60%

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Taxes on Income

9 Months Ended

Sep. 30, 2012

Taxes on Income

15. Taxes on Income

The effective tax rates of 20.5% and 27.8% for the third quarter and first nine months of 2012 and 26.7% and 15.7% for the third quarter and first nine months of 2011 reflect the impacts of acquisition-related costs and restructuring costs, partially offset by the beneficial impact of foreign earnings. In addition, the effective tax rates for the third quarter and first nine months of 2012 also reflect the favorable impacts of a tax settlement with the Canada Revenue Agency (the “CRA”) as discussed below and the realization of foreign tax credits. The effective tax rate for the first nine months of 2011 also reflects the net favorable impact relating to the settlement of Merck’s 2002-2005 federal income tax audit as discussed below, the favorable impact of certain foreign and state tax rate changes that resulted in a net $230 million reduction of deferred tax liabilities on intangibles established in purchase accounting, as well as the unfavorable impact of the $500 million charge related to the resolution of the arbitration proceeding with J&J.

As previously disclosed, the Canada Revenue Agency (the “CRA”) had proposed adjustments for 1999 and 2000 relating to intercompany pricing matters and, in July 2011, the CRA issued assessments for other miscellaneous audit issues for tax years 2001-2004. In the third quarter of 2012, Merck and the CRA reached a settlement that calls for Merck to pay additional Canadian tax of approximately $65 million. The Company's unrecognized tax benefits related to these matters exceeded the settlement amount and therefore the Company recorded a net $112 million tax provision benfit in the third quarter of 2012. A portion of the taxes paid is expected to be creditable for U.S. tax purposes. The Company had previously established reserves for these matters. The resolution of these matters did not have a material effect on the Company’s results of operations, financial position or liquidity.

In April 2011, the Internal Revenue Service (the “IRS”) concluded its examination of Merck’s 2002-2005 federal income tax returns and as a result the Company was required to make net payments of approximately $465 million. The Company’s unrecognized tax benefits for the years under examination exceeded the adjustments related to this examination period and therefore the Company recorded a net $700 million tax provision benefit in the second quarter of 2011. This net benefit reflects the decrease of unrecognized tax benefits for the years under examination partially offset by increases to the unrecognized tax benefits for years subsequent to the examination period as a result of this settlement. The Company disagrees with the IRS treatment of one issue raised during this examination and is appealing the matter through the IRS administrative process.

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Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value of Derivatives Segregated Between Those Derivatives That are Designated as Hedging Instruments and Those That are not Designated as Hedging Instruments

Presented in the table below is the fair value of derivatives segregated between those derivatives that are designated as hedging instruments and those that are not designated as hedging instruments:

		September 30, 2012						December 31, 2011
		Fair Value of Derivative				U.S. Dollar		Fair Value of Derivative				U.S. Dollar
($ in millions)	Balance Sheet Caption	Asset		Liability		Notional		Asset		Liability		Notional
Derivatives Designated as Hedging Instruments
Foreign exchange contracts (current)	Deferred income taxes and other current assets	$	163	$	-	$	4,450	$	196	$	-	$	3,727
Foreign exchange contracts (non-current)	Other assets		350		-		5,637		420		-		4,956
Foreign exchange contracts (current)	Accrued and other current liabilities		-		48		1,668		-		53		1,718
Foreign exchange contracts (non-current)	Deferred income taxes and noncurrent liabilities		-		7		426		-		1		104
		$	513	$	55	$	12,181	$	616	$	54	$	10,505
Derivatives Not Designated as Hedging Instruments
Foreign exchange contracts (current)	Deferred income taxes and other current assets	$	55	$	-	$	4,256	$	139	$	-	$	5,306
Foreign exchange contracts (non-current)	Other assets		18		-		290		-		-		-
Foreign exchange contracts (current)	Accrued and other current liabilities		-		125		6,129		-		54		5,013
		$	73	$	125	$	10,675	$	139	$	54	$	10,319
		$	586	$	180	$	22,856	$	755	$	108	$	20,824

Location and Pretax Gain or Loss Amounts for Derivatives

The table below provides information on the location and pretax gain or loss amounts for derivatives that are: (i) designated in a fair value hedging relationship, (ii) designated in a cash flow hedging relationship, (iii) designated in a foreign currency net investment hedging relationship and (iv) not designated in a hedging relationship:

	Three Months Ended   September 30,				Nine Months Ended   September 30,
($ in millions)	2012		2011		2012		2011
Derivatives designated in fair value hedging relationships
Interest rate swap contracts
Amount of gain recognized in Other (income) expense, net on derivatives	$	-	$	(40)	$	-	$	(203)
Amount of loss recognized in Other (income) expense, net on hedged item		-		40		-		203
Derivatives designated in foreign currency cash flow hedging relationships
Foreign exchange contracts
Amount of (gain) loss reclassified from AOCI to Sales		(4)		30		49		57
Amount of loss (gain) recognized in OCI on derivatives		236		(70)		202		183
Derivatives designated in foreign currency net investment hedging relationships
Foreign exchange contracts
Amount of gain recognized in Other (income) expense, net on derivatives (1)		(5)		(1)		(15)		(9)
Amount of loss (gain) recognized in OCI on derivatives		54		124		(2)		158
Derivatives not designated in a hedging relationship
Foreign exchange contracts
Amount of loss (gain) recognized in Other (income) expense, net on derivatives (2)		157		(351)		131		(31)
Amounts of loss recognized in Sales on hedged item		17		-		17		-

⁽¹⁾  There was no ineffectiveness on the hedge. Represents the amount excluded from hedge effectiveness testing.

⁽²⁾  These derivative contracts mitigate changes in the value of remeasured foreign currency denominated monetary assets and liabilities attributable to changes in foreign currency exchange rates.

Gross Unrealized Gains and Losses on Available-For-Sale Investments

Information on available-for-sale investments is as follows:

	September 30, 2012								December 31, 2011
	Fair		Amortized		Gross Unrealized				Fair		Amortized		Gross Unrealized
($ in millions)	Value		Cost		Gains		Losses		Value		Cost		Gains		Losses
Corporate notes and bonds	$	3,705	$	3,650	$	56	$	(1)	$	2,032	$	2,024	$	16	$	(8)
U.S. government and agency securities		1,156		1,154		2		-		1,021		1,018		3		-
Asset-backed securities		648		644		4		-		292		292		1		(1)
Mortgage-backed securities		334		334		2		(2)		223		223		1		(1)
Commercial paper		168		168		-		-		1,029		1,029		-		-
Foreign government bonds		72		71		1		-		72		72		-		-
Other debt securities		-		-		-		-		3		1		2		-
Equity securities		420		384		36		-		397		383		14		-
	$	6,503	$	6,405	$	101	$	(3)	$	5,069	$	5,042	$	37	$	(10)

Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements Using								Fair Value Measurements Using
	Quoted Prices In Active Markets for  Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Quoted Prices In Active Markets for  Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
($ in millions)	September 30, 2012								December 31, 2011
Assets
Investments
Corporate notes and bonds	$	-	$	3,705	$	-	$	3,705	$	-	$	2,032	$	-	$	2,032
U.S. government and agency securities		-		1,156		-		1,156		-		1,021		-		1,021
Asset-backed securities (1)		-		648		-		648		-		292		-		292
Mortgage-backed securities (1)		-		334		-		334		-		223		-		223
Commercial paper		-		168		-		168		-		1,029		-		1,029
Foreign government bonds		-		72		-		72		-		72		-		72
Equity securities		209		25		-		234		205		22		-		227
Other debt securities		-		-		-		-		-		3		-		3
		209		6,108		-		6,317		205		4,694		-		4,899
Other assets
Securities held for employee compensation		186		-		-		186		170		-		-		170
Derivative assets (2)
Purchased currency options		-		541		-		541		-		613		-		613
Forward exchange contracts		-		45		-		45		-		142		-		142
		-		586		-		586		-		755		-		755
Total assets	$	395	$	6,694	$	-	$	7,089	$	375	$	5,449	$	-	$	5,824
Liabilities
Derivative liabilities (2)
Forward exchange contracts	$	-	$	176	$	-	$	176	$	-	$	107	$	-	$	107
Written currency options		-		4		-		4		-		1		-		1
Total liabilities	$	-	$	180	$	-	$	180	$	-	$	108	$	-	$	108

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Joint Ventures and Other Equity Method Affiliates - Textual (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended	9 Months Ended	3 Months Ended	9 Months Ended	1 Months Ended	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2011	Sep. 30, 2011 Johnson & Johnson Merck Consumer Pharmaceuticals Company [Member]	Sep. 30, 2011 Johnson & Johnson Merck Consumer Pharmaceuticals Company [Member]	Sep. 30, 2012 AstraZeneca LP [Member]	Dec. 31, 2008 AstraZeneca LP [Member]
Equity Income from Affiliates [Line Items]
Limited partner interest in AZLP						1.00%
General partner interest in AZLP						99.00%
Agreed-upon payment to be made by AstraZeneca at closing for exercise of option					$ 327
Multiple of average annual profit allocation to be included in option exercise price					10
Years prior to option exercise to be included in average annual profit allocation portion of exercise price					3 years
Percentage of ownership interest in equity method investment sold by Merck			50.00%	50.00%
Proceeds from sale of interest in equity method investment			175	175
Gain on disposition of interest in equity method investment	$ 136	$ 136		$ 136

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Financial Instruments - Fair Value of Derivatives Segregated Between Those Derivatives That are Designated as Hedging Instruments and Those That are not Designated as Hedging Instruments (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	$ 586	$ 755
Fair value of Derivative, Liability	180	108
U.S. Dollar Notional	22,856	20,824
Derivatives Designated as Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	513	616
Fair value of Derivative, Liability	55	54
U.S. Dollar Notional	12,181	10,505
Derivatives Not Designated as Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	73	139
Fair value of Derivative, Liability	125	54
U.S. Dollar Notional	10,675	10,319
Foreign exchange contract [Member] | Derivatives Designated as Hedging Instruments [Member] | Deferred income taxes and other current assets [Member]
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	163	196
U.S. Dollar Notional	4,450	3,727
Foreign exchange contract [Member] | Derivatives Designated as Hedging Instruments [Member] | Other assets [Member]
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	350	420
U.S. Dollar Notional	5,637	4,956
Foreign exchange contract [Member] | Derivatives Designated as Hedging Instruments [Member] | Accrued And other current liabilities [Member]
Derivatives, Fair Value [Line Items]
Fair value of Derivative, Liability	48	53
U.S. Dollar Notional	1,668	1,718
Foreign exchange contract [Member] | Derivatives Designated as Hedging Instruments [Member] | Deferred income taxes and noncurrent liabilities [Member]
Derivatives, Fair Value [Line Items]
Fair value of Derivative, Liability	7	1
U.S. Dollar Notional	426	104
Foreign exchange contract [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Deferred income taxes and other current assets [Member]
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	55	139
U.S. Dollar Notional	4,256	5,306
Foreign exchange contract [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Other assets [Member]
Derivatives, Fair Value [Line Items]
Fair Value of Derivative, Asset	18
U.S. Dollar Notional	290
Foreign exchange contract [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Accrued And other current liabilities [Member]
Derivatives, Fair Value [Line Items]
Fair value of Derivative, Liability	125	54
U.S. Dollar Notional	$ 6,129	$ 5,013

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CONSOLIDATED BALANCE SHEET (Unaudited) (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Allowance for doubtful accounts	$ 163	$ 131
Inventories classified in Other assets	1,446	1,379
Accumulated depreciation	$ 17,475	$ 16,176
Common stock, par value	$ 0.50	$ 0.50
Common stock, shares authorized	6,500,000,000	6,500,000,000
Common stock, shares issued	3,577,103,522	3,577,103,522
Treasury stock, shares	532,699,267	536,109,713

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Collaborative Arrangements

9 Months Ended

Sep. 30, 2012

Collaborative Arrangements

4. Collaborative Arrangements

The Company continues its strategy of establishing external alliances to complement its substantial internal research capabilities, including research collaborations, licensing preclinical and clinical compounds and technology platforms to drive both near- and long-term growth. The Company supplements its internal research with a licensing and external alliance strategy focused on the entire spectrum of collaborations from early research to late-stage compounds, as well as new technologies across a broad range of therapeutic areas. These arrangements often include upfront payments and royalty or profit share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development, as well as expense reimbursements or payments to the third party.

Cozaar/Hyzaar

In 1989, Merck and E.I. duPont de Nemours and Company (“DuPont”) agreed to form a long-term research and marketing collaboration to develop a class of therapeutic agents for high blood pressure and heart disease, discovered by DuPont, called angiotensin II receptor antagonists, which include Cozaar and Hyzaar. In return, Merck provided DuPont marketing rights in the United States and Canada to its prescription medicines, Sinemet and Sinemet CR (the Company has since regained global marketing rights to Sinemet and Sinemet CR). Pursuant to a 1994 agreement with DuPont, the Company has an exclusive licensing agreement to market Cozaar and Hyzaar in return for royalties and profit share payments to DuPont. The patents that provided market exclusivity in the United States and in a number of major European markets for Cozaar and Hyzaar expired in 2010.

Remicade/Simponi

In 1998, a subsidiary of Schering-Plough entered into a licensing agreement with Centocor Ortho Biotech Inc. (“Centocor”), a Johnson & Johnson (“J&J”) company, to market Remicade, which is prescribed for the treatment of inflammatory diseases. In 2005, Schering-Plough’s subsidiary exercised an option under its contract with Centocor for license rights to develop and commercialize Simponi, a fully human monoclonal antibody. The Company had exclusive marketing rights to both products outside the United States, Japan and certain other Asian markets. In December 2007, Schering-Plough and Centocor revised their distribution agreement regarding the development, commercialization and distribution of both Remicade and Simponi, extending the Company’s rights to exclusively market Remicade to match the duration of the Company’s exclusive marketing rights for Simponi. In addition, Schering-Plough and Centocor agreed to share certain development costs relating to Simponi’s auto-injector delivery system. On October 6, 2009, the European Commission approved Simponi as a treatment for rheumatoid arthritis and other immune system disorders in two presentations – a novel auto-injector and a prefilled syringe. As a result, the Company’s marketing rights for both products extend for 15 years from the first commercial sale of Simponi in the European Union (the “EU”) following the receipt of pricing and reimbursement approval within the EU. In April 2011, Merck and J&J reached an agreement to amend the agreement governing the distribution rights to Remicade and Simponi. Under the terms of the amended distribution agreement, Merck relinquished marketing rights for Remicade and Simponi to J&J in territories including Canada, Central and South America, the Middle East, Africa and Asia Pacific effective July 1, 2011. Merck retained exclusive marketing rights throughout Europe, Russia and Turkey (the “Retained Territories”). In addition, beginning July 1, 2011, all profits derived from Merck’s exclusive distribution of the two products in the Retained Territories are being equally divided between Merck and J&J. J&J also received a one-time payment from Merck of $500 million in April 2011, which the Company recorded as a charge to Other (income) expense, net in the first quarter of 2011.

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Contingencies and Environmental Liabilities - Legal Defense Reserves - Textual (Detail) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Loss Contingencies [Line Items]
Legal defense costs reserve	$ 240	$ 240

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Taxes on Income - Textual (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended		1 Months Ended	3 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Apr. 30, 2011 IRS [Member]	Jun. 30, 2011 IRS [Member]	Sep. 30, 2012 Canada Revenue Agency (CRA) [Member]
Income Taxes [Line Items]
Effective tax rate	20.50%	26.70%	27.80%	15.70%
Net reduction of deferred tax liabilities on intangibles established in purchase accounting due to tax rate changes				$ 230
Litigation charges				500
Net payments made to taxing authority for settlement of income tax examination					465		65
Decrease in unrecognized tax benefits resulting from prior period tax positions						$ 700	$ 112

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Inventories (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Inventories

Inventories consisted of:

($ in millions)	September 30,   2012			December 31,     2011
Finished goods	$	1,952		$	1,983
Raw materials and work in process		5,971			5,396
Supplies		264			297
Total (approximates current cost)		8,187			7,676
Reduction to LIFO costs		(10	)		(43)
	$	8,177		$	7,633
Recognized as:
Inventories	$	6,731		$	6,254
Other assets		1,446			1,379

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Segment Reporting - Reconciliation of Segment Profits to Income Before Taxes (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segment Reporting Information [Line Items]
Income Before Taxes	$ 2,218	$ 2,352	$ 7,405	$ 5,753
Interest income	47	32	177	102
Interest expense	(178)	(176)	(524)	(522)
Equity income from affiliates	158	161	410	354
Depreciation and amortization			(5,317)	(5,566)
Research and development	(1,918)	(1,954)	(5,944)	(6,048)
Restructuring costs	(110)	(119)	(473)	(773)
Arbitration settlement charge				(500)
Pharmaceutical Segment [Member]
Segment Reporting Information [Line Items]
Income Before Taxes	6,265	6,355	19,767	19,014
Other segment sales [Member]
Segment Reporting Information [Line Items]
Income Before Taxes	819	783	2,397	2,300
Total segment profits [Member]
Segment Reporting Information [Line Items]
Income Before Taxes	7,084	7,138	22,164	21,314
Other (losses) profits [Member]
Segment Reporting Information [Line Items]
Income Before Taxes	(4)	5	(32)	(9)
Unallocated [Member]
Segment Reporting Information [Line Items]
Interest income	47	32	177	102
Interest expense	(178)	(176)	(524)	(522)
Equity income from affiliates	(5)	(1)	(14)	(82)
Depreciation and amortization	(486)	(619)	(1,620)	(1,814)
Research and development	(1,689)	(1,712)	(5,263)	(5,330)
Amortization of purchase accounting adjustments	(1,232)	(1,284)	(3,687)	(3,788)
Restructuring costs	(110)	(119)	(473)	(773)
Arbitration settlement charge				(500)
Other unallocated, net	$ (1,209)	$ (912)	$ (3,323)	$ (2,845)

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Acquisitions, Divestitures, Research Collaborations and License Agreements - Textual (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended	9 Months Ended
	Jun. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	May 16, 2011
Acquisitions Divestitures Research Collaborations And License Agreements Transactions [Line Items]
Upfront payment related to licensing agreement	$ 120
Potential future milestone payments			880
Purchase price for acquisition				420
Amount of cash paid per share for acquisition				$ 5.00
Gain on sale of manufacturing facilities and related assets		$ 127

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Other (Income) Expense, Net

9 Months Ended

Sep. 30, 2012

Other (Income) Expense, Net

14. Other (Income) Expense, Net

Other (income) expense, net, consisted of:

	Three Months Ended     September 30,				Nine Months Ended     September 30,
($ in millions)	2012		2011		2012		2011
Interest income	$	(47)	$	(32)	$	(177)	$	(102)
Interest expense		178		176		524		522
Exchange losses		50		59		130		102
Other, net		19		(137)		(31)		287
	$	200	$	66	$	446	$	809

As a result of significant collections of accounts receivable in Spain (see Note 5), the Company recognized incremental interest income of approximately $35 million in the first nine months of 2012 for accelerated accretion of time value of money discounts related to these receivables. Other, net (as presented in the table above) for the third quarter and first nine months of 2011 includes a $136 million gain on the disposition of the Company’s interest in the JJMCP joint venture. In addition, Other, net for the first nine months of 2011 reflects a $500 million charge related to the resolution of the arbitration proceeding involving the Company’s rights to market Remicade and Simponi (see Note 4), as well as a $127 million gain on the sale of certain manufacturing facilities and related assets. Interest paid for the nine months ended September 30, 2012 and 2011 was $583 million and $261 million, respectively, which excludes commitment fees. Interest paid for the nine months ended September 30, 2011 is net of $288 million received by the Company from the termination of certain interest rate swap contracts during the period (see Note 5).