8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) June 22, 2009

Merck & Co., Inc.

(Exact Name of Registrant as Specified in Its Charter)

New Jersey

(State or Other Jurisdiction of Incorporation)

1-3305	22-1109110
(Commission File Number)	(I.R.S. Employer Identification No.)
One Merck Drive, PO Box 100, Whitehouse Station, NJ	08889-0100
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code (908) 423-1000

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01. Other Events.

As previously announced, Merck & Co., Inc. (“Merck”) and Schering-Plough Corporation (“Schering-Plough”) have entered into a definitive merger agreement under which Merck and Schering-Plough will combine in a stock and cash transaction. The transaction is expected to close in the fourth quarter of 2009, subject to certain closing conditions.

Merck is filing this Current Report on Form 8-K in order to provide certain supplemental information regarding Schering-Plough and the combined company for potential investors in Merck’s debt securities.

Schering-Plough’s audited historical consolidated financial statements and related notes as of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006 and Schering-Plough’s unaudited condensed consolidated financial statements as of March 31, 2009 and for the three months ended March 31, 2009 and 2008 are attached hereto as Exhibits 99.1 and 99.2, respectively, and incorporated by reference herein. In addition, the unaudited pro forma condensed combined financial statements as of and for the three months ended March 31, 2009 and for the year ended December 31, 2008, which give effect to the merger and related transactions, are attached hereto as Exhibit 99.3 and incorporated by reference herein. Finally, certain risk factors related to the combined company are attached hereto as Exhibit 99.4 and incorporated by reference herein.

Forward-Looking Statements

This Current Report on Form 8-K (including information included or incorporated by reference herein) includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, statements about the benefits of the proposed merger between Merck and Schering-Plough, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Merck’s and Schering-Plough’s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the possibility that the expected synergies from the proposed merger of Merck and Schering-Plough will not be realized, or will not be realized within the expected time period, due to, among other things, the impact of pharmaceutical industry regulation and pending legislation that could affect the pharmaceutical industry; the ability to obtain governmental and self-regulatory organization approvals of the merger on the proposed terms and schedule; the actual terms of the financing required for the merger and/or the failure to obtain such financing; the failure of Schering-Plough or Merck stockholders to approve the merger; the risk that the businesses will not be integrated successfully; disruption from the merger making it more difficult to maintain business and operational relationships; the possibility that the merger does not close, including, but not limited to, due to the failure to satisfy the closing conditions; Merck’s and Schering-Plough’s ability to accurately predict future market conditions; dependence on the effectiveness of Merck’s and Schering-Plough’s patents and other protections for innovative products; the risk of new and changing regulation and health policies in the U.S. and internationally and the exposure to litigation and/or regulatory actions. Merck and Schering-Plough undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in Merck’s 2008 Annual Report on Form 10-K, Merck’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009, Schering-Plough’s Annual Report on Form 10-K, Schering-Plough’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009, the registration statement filed by Schering-Plough on June 16, 2009, the preliminary merger proxy statement filed by Merck on June 16, 2009 and each company’s other filings with the Securities and Exchange Commission (the “SEC”) available at the SEC’s Internet site (www.sec.gov).

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

15	Awareness Letter of Deloitte & Touche LLP regarding Schering-Plough unaudited interim financial information
23	Consent of Deloitte & Touche LLP, independent registered public accounting firm for Schering-Plough
99.1	Schering-Plough audited historical consolidated financial statements and related notes as of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006
99.2	Schering-Plough unaudited historical condensed consolidated financial statements and related notes as of March 31, 2009 and for the three months ended March 31, 2009 and 2008
99.3	Unaudited pro forma condensed combined financial information and related notes as of and for the three months ended March 31, 2009 and for the year ended December 31, 2008
99.4	Risk factors

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 hereunto duly authorized.

	Merck & Co., Inc.
Date: June 22, 2009	By:	/s/ Debra A. Bollwage
		Debra A. Bollwage Senior Assistant Secretary

EXHIBIT INDEX

Exhibit Number	Description
15	Awareness Letter of Deloitte & Touche LLP regarding Schering-Plough unaudited interim financial information
23	Consent of Deloitte & Touche LLP, independent registered public accounting firm for Schering-Plough
99.1	Schering-Plough audited historical consolidated financial statements and related notes as of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006
99.2	Schering-Plough unaudited historical condensed consolidated financial statements and related notes as of March 31, 2009 and for the three months ended March 31, 2009 and 2008
99.3	Unaudited pro forma condensed combined financial information and related notes as of and for the three months ended March 31, 2009 and for the year ended December 31, 2008
99.4	Risk factors

EX-15

Exhibit 15

June 19, 2009

Schering-Plough Corporation

2000 Galloping Hill Road

Kenilworth, New Jersey 07033

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of Schering-Plough Corporation and subsidiaries for the three-month periods ended March 31, 2009 and 2008, as indicated in our report dated May 1, 2009 (which report includes an explanatory paragraph relating to the impact of the adoption of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, and Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” on the December 31, 2008 balance sheet). As indicated in such report, because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, appearing as an exhibit to this Current Report on Form 8-K of Merck & Co., Inc., is incorporated by reference in Registration Statement No. 333-146356 on Form S-3 and Registration Statement Nos. 33-21087, 33-21088, 33-51235, 33-53463, 33-64273, 33-64665, 333-91769, 333-30526, 333-31762, 333-53246, 333-56696, 333-72206, 333-65796, 333-101519, 333-109296, 333-117737, 333-117738, 333-139561 and 333-139562 on Form S-8 of Merck & Co., Inc.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statements prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-146356 on Form S-3 and Registration Statement Nos. 33-21087, 33-21088, 33-51235, 33-53463, 33-64273, 33-64665, 333-91769, 333-30526, 333-31762, 333-53246, 333-56696, 333-72206, 333-65796, 333-101519, 333-109296, 333-117737, 333-117738, 333-139561 and 333-139562 on Form S-8 of Merck & Co., Inc. of our report dated February 27, 2009, relating to the consolidated financial statements and financial statement schedule of Schering-Plough Corporation and subsidiaries (which report expressed an unqualified opinion and included an explanatory paragraph regarding the Schering-Plough Corporation and subsidiaries’ adoption of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, and Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes) which appears in this Current Report on Form 8-K.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

June 19, 2009

EX-99.1

Exhibit 99.1

Statements of Consolidated Operations for the Years Ended December 31, 2008, 2007 and 2006	1
Statements of Consolidated Cash Flows for the Years Ended December 31, 2008, 2007 and 2006	2
Consolidated Balance Sheets at December 31, 2008 and 2007	3
Statements of Consolidated Shareholders’ Equity for the Years Ended December 31, 2008, 2007 and 2006	4
Notes to Consolidated Financial Statements	5
Report of Independent Registered Public Accounting Firm	49

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED OPERATIONS

(Amounts in millions, except per share figures)

	for The Years Ended December 31,
	2008			2007			2006
Net sales	$	18,502		$	12,690		$	10,594
Cost of sales		7,307			4,405			3,697
Selling, general and administrative		6,823			5,468			4,718
Research and development		3,529			2,926			2,188
Acquired in-process research and development		—			3,754			—
Other expense/(income), net		335			(683	)		(135	)
Special and acquisition-related charges		329			84			102
Equity income		(1,870	)		(2,049	)		(1,459	)
Income/(loss) before income taxes and cumulative effect of a change in accounting principle		2,049			(1,215	)		1,483
Income tax expense		146			258			362
Net income/(loss) before cumulative effect of a change in accounting principle		1,903			(1,473	)		1,121
Cumulative effect of a change in accounting principle, net of tax		—			—			(22	)
Net income/(loss)		1,903			(1,473	)		1,143
Preferred stock dividends		150			118			86
Net income/(loss) available to common shareholders	$	1,753		$	(1,591	)	$	1,057
Diluted earnings/(loss) per common share:
Earnings/(loss) available to common shareholders before cumulative effect of a change in accounting principle	$	1.07		$	(1.04	)	$	0.69
Cumulative effect of a change in accounting principle, net of tax		—			—			0.02
Diluted earnings/(loss) per common share	$	1.07		$	(1.04	)	$	0.71
Basic earnings/(loss) per common share:
Earnings/(loss) available to common shareholders before cumulative effect of a change in accounting principle	$	1.08		$	(1.04	)	$	0.69
Cumulative effect of a change in accounting principle		—			—			0.02
Basic earnings/(loss) per common share	$	1.08		$	(1.04	)	$	0.71
Dividends per common share	$	0.26		$	0.26		$	0.22

The accompanying notes are an integral part of these Consolidated Financial Statements.

1

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

(Amounts in millions)

	For the Years Ended December 31,
	2008			2007			2006
Operating Activities:
Net income/(loss)	$	1,903		$	(1,473	)	$	1,143
Cumulative effect of a change in accounting principle, net of tax		—			—			22
Net income/(loss) before cumulative effect of a change in accounting principle, net of tax	$	1,903		$	(1,473	)	$	1,121
Adjustments to reconcile net income/(loss) before cumulative effect of change in accounting principle, net of tax to net cash provided by operating activities:
Depreciation and amortization		2,175			861			568
Accrued share-based compensation		219			211			168
Special and acquisition-related charges and payments		127			(430	)		65
Gain on sale of divested products		(160	)		—			—
Purchases of derivative currency options		—			(165	)		—
Change in fair value of currency options		—			(510	)		—
Proceeds from derivative instruments		—			675			—
Acquired in-process research and development		—			3,754			—
Payment to U.S. taxing authorities		—			(98	)		—
Changes in assets and liabilities:
Accounts receivable		(83	)		21			(241	)
Inventories		(262	)		(132	)		(25	)
Prepaid expenses and other assets		(74	)		(1	)		16
Accounts payable		170			(141	)		138
Other liabilities		(569	)		(118	)		257
Income taxes payable		(82	)		94			94
Foreign currency transaction exchange loss		—			101			—
Other, net		—			(19	)		—
Net cash provided by operating activities		3,364			2,630			2,161
Investing Activities:
Capital expenditures		(747	)		(618	)		(458	)
Dispositions of property and equipment		44			2			9
Proceeds from divested products, net		241			—			—
Acquisition, net of cash acquired		—			(15,789	)		—
Purchases of short-term investments		—			(1,136	)		(6,648	)
Maturities of short-term investments		27			4,444			4,199
Other, net		(97	)		(59	)		(10	)
Net cash used for investing activities		(532	)		(13,156	)		(2,908	)
Financing Activities:
Cash dividends paid to common shareholders		(422	)		(382	)		(326	)
Cash dividends paid to preferred shareholders		(150	)		(99	)		(86	)
Proceeds from preferred stock issuance, net		—			2,438			—
Proceeds from common stock issuance, net		—			1,537			—
(Payments)/Issuance of long-term debt, net of issuance costs in 2007		(929	)		6,430			—
Payments of short-term borrowings		(169	)		(29	)		(1,035	)
Stock option exercises		15			225			83
Other, net		(5	)		(31	)		(3	)
Net cash (used for)/provided by financing activities		(1,660	)		10,089			(1,361	)
Effect of exchange rates on cash and cash equivalents		(78	)		50			7
Net increase/(decrease) in cash and cash equivalents		1,094			(387	)		(2,101	)
Cash and cash equivalents, beginning of year		2,279			2,666			4,767
Cash and cash equivalents, end of year	$	3,373		$	2,279		$	2,666
Supplemental Disclosure:
Cash paid for interest, net of amounts capitalized	$	552		$	157		$	170
Cash paid for income taxes (see Note 8)		444			389			234

The accompanying notes are an integral part of these Consolidated Financial Statements.

2

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except per share figures)

	At December 31,
	2008			2007
ASSETS
Current Assets:
Cash and cash equivalents	$	3,373		$	2,279
Short-term investments		5			32
Accounts receivable, less allowances: 2008, $296; 2007, $261		2,816			2,841
Inventories		3,114			4,073
Deferred income taxes		435			349
Prepaid expenses and other current assets		1,228			1,272
Total current assets		10,971			10,846
Property, at cost:
Land		377			326
Buildings and improvements		4,551			4,634
Equipment		4,504			4,503
Construction in progress		1,008			891
Total		10,440			10,354
Less accumulated depreciation		3,607			3,338
Property, net		6,833			7,016
Goodwill		2,778			2,937
Other intangible assets, net		6,154			7,004
Other assets		1,381			1,353
Total assets	$	28,117		$	29,156
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,677		$	1,762
Short-term borrowings and current portion of long-term debt		245			461
Income taxes		183			617
Accrued compensation		1,010			995
Other accrued liabilities		2,078			2,208
Total current liabilities		5,193			6,043
Long-term Liabilities:
Long-term debt, net of current portion		7,931			9,019
Deferred income taxes		1,551			1,701
Other long-term liabilities		2,913			2,008
Total long-term liabilities		12,395			12,728
Commitments and contingent liabilities (Note 21)
Shareholders’ Equity:
2007 mandatory convertible preferred shares — $1 par value; $250 per share face value issued 10 at December 31, 2008 and December 31, 2007		2,500			2,500
Common shares — authorized shares: 2,400, $.50 par value; issued: 2,118 at December 31, 2008 and 2,111 at December 31, 2007		1,059			1,055
Paid-in capital		5,045			4,815
Retained earnings		9,181			7,856
Accumulated other comprehensive loss		(1,913	)		(534	)
Total		15,872			15,692
Less treasury shares: 2008, 492; 2007, 490; at cost		5,343			5,307
Total shareholders’ equity		10,529			10,385
Total liabilities and shareholders’ equity	$	28,117		$	29,156

The accompanying notes are an integral part of these Consolidated Financial Statements.

3

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY

(Amounts in millions)

	2004 Mandatory Convertible Preferred Shares			2007 Mandatory Convertible Preferred Shares		Common Shares		Paid-in Capital			Retained Earnings			Treasury Shares			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance January 1, 2006	$	1,438		$	—	$	1,015	$	1,416		$	9,472		$	(5,438	)	$	(516	)	$	7,387
Comprehensive income:
Net income												1,143									1,143
Foreign currency translation																		94			94
Minimum pension liability, net of tax, per SFAS No. 87/88																		67			67
Unrealized gain on investments available for sale, net of tax																		4			4
Total comprehensive income																					1,308
Cash dividends on common shares												(326	)								(326	)
Dividends on preferred shares												(86	)								(86	)
Accrued dividends on common shares												(81	)								(81	)
Adjustment of pension and other post-retirement liabilities upon the adoption of SFAS No. 158, net of tax of $25																		(521	)		(521	)
Stock incentive plans and other							2		245			(3	)		(17	)					227
Balance December 31, 2006	$	1,438		$	—	$	1,017	$	1,661		$	10,119		$	(5,455	)	$	(872	)	$	7,908
Adoption of FIN 48												(259	)								(259	)
Net loss												(1,473	)								(1,473	)
Foreign currency translation																		210			210
Pension and other-post retirement liabilities, net of tax																		138			138
Derivative interest rate instruments																		(12	)		(12	)
Unrealized gain on investments available for sale, net of tax																		1			1
Total comprehensive loss																					(1,136	)
Issuance of preferred stock					2,500				(62	)											2,438
Issuance of common stock									1,380						157						1,537
Conversion of preferred stock		(1,438	)				32		1,406												—
SFAS No. 158 measurement date provisions, net of tax												(2	)					1			(1	)
Cash dividends on common shares												(382	)								(382	)
Dividends on preferred shares												(118	)								(118	)
Accrued dividends on common shares												(20	)								(20	)
Stock incentive plans and other							6		430			(9	)		(9	)					418
Balance December 31, 2007	$	—		$	2,500	$	1,055	$	4,815		$	7,856		$	(5,307	)	$	(534	)	$	10,385
Net income												1,903									1,903
Foreign currency translation																		(576	)		(576	)
Pension and other post-retirement liabilities, net of tax																		(768	)		(768	)
Derivative interest rate instruments																		2			2
Unrealized loss on investments available for sale																		(37	)		(37	)
Total comprehensive income																					524
Dividends on common shares												(423	)								(423	)
Dividends on preferred shares												(150	)								(150	)
Stock incentive plans and other							4		230			(5	)		(36	)					193
Balance December 31, 2008	$	—		$	2,500	$	1,059	$	5,045		$	9,181		$	(5,343	)	$	(1,913	)	$	10,529

The accompanying notes are an integral part of these Consolidated Financial Statements.

4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

Schering-Plough is an innovation-driven, science-centered global health care company. Through its own biopharmaceutical research and collaborations with partners, Schering-Plough creates therapies that help save and improve lives around the world. Schering-Plough applies its research and development platform to prescription pharmaceutical and consumer health care products as well as to animal health products.

In November 2007, Schering-Plough acquired Organon BioSciences N.V. (OBS), a company that discovers, develops and manufactures human prescription and animal health products. See Note 2, “Acquisitions,” for additional information.

Principles of Consolidation

The consolidated financial statements include Schering-Plough Corporation and its subsidiaries (Schering-Plough). Intercompany balances and transactions are eliminated. The accounts of OBS have been included as part of Schering-Plough’s results from the date of acquisition (November 19, 2007). See Note 2, “Acquisition,” for additional information.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, Schering-Plough evaluates its estimates which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Equity Method of Accounting

Schering-Plough accounts for its share of activity from the Merck/Schering-Plough joint venture (the joint venture) with Merck & Co., Inc. (Merck) using the equity method of accounting as Schering-Plough has significant influence over the joint venture’s operating and financial policies. Accordingly, Schering-Plough’s net sales do not include sales from the joint venture, and Schering-Plough’s share of earnings in the joint venture is included in equity income in determining consolidated net income/(loss). Equity income from the joint venture is included in the Prescription Pharmaceuticals segment.

Revenue from the sales of VYTORIN and ZETIA are recognized by the joint venture when title and risk of loss has passed to the customer and there is reasonable assurance of collection of sales proceeds. Equity income from the joint venture excludes any profit arising from transactions between Schering-Plough and the joint venture until such time as there is an underlying profit realized by the joint venture in a transaction with a party other than Schering-Plough or Merck. See Note 5, “Equity Income,” for additional information regarding this joint venture.

Cash and Cash Equivalents

Cash and cash equivalents include operating cash and highly liquid investments with original maturities of three months or less, including highly rated money market accounts.

Short-term Investments

Short-term investments are carried at their fair value and are classified as available-for-sale. These investments consist of certificates of deposit and commercial paper with maturities of less than a year.

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Inventories

Inventories are valued at the lower of cost or market. Cost is determined by using the last-in, first-out (LIFO) method for a substantial portion of inventories located in the U.S. The cost of all other inventories is determined by the first-in, first-out method (FIFO).

Depreciation of Property and Equipment

Depreciation is provided over the estimated useful lives of the properties, generally by use of the straight-line method.

Useful lives of property acquisitions are generally as follows:

Asset Category	Years
Buildings	40
Building Improvements	25
Equipment	3-15

Schering-Plough reviews the carrying value of property and equipment for indications of impairment in accordance with Statement of Financial Accounting Standard (SFAS) 144, “Accounting for the Impairment and Disposal of Long-Lived Assets.”

Depreciation expense was $603 million in 2008, $404 million in 2007 and $443 million in 2006. Depreciation expense in 2006 included accelerated depreciation related to the manufacturing streamlining of $93 million.

Foreign Currency Translation

The net assets of most of Schering-Plough’s international subsidiaries are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation account, which is included in other comprehensive income/(loss) and reflected as a separate component of Shareholders’ Equity. For the remaining international subsidiaries, non-monetary assets and liabilities are translated using historical rates, while monetary assets and liabilities are translated at current rates, with the U.S. dollar effects of rate changes included in the statements of consolidated operations.

Exchange gains and losses arising from translating intercompany balances of a long-term investment nature are recorded in the foreign currency translation account. Transactional exchange gains and losses are included in other expense/(income), net.

Revenue Recognition

Schering-Plough’s pharmaceutical products are sold to direct purchasers which include wholesalers, retailers and certain health maintenance organizations. Price discounts and rebates on such sales are paid to federal and state agencies, other indirect purchasers and other market participants such as managed care organizations that indemnify beneficiaries of health plans for their pharmaceutical costs and pharmacy benefit managers.

Schering-Plough recognizes revenue when title and risk of loss pass to the purchaser and when reliable estimates of the following can be determined:

i. commercial discount and rebate arrangements;

ii. rebate obligations under certain federal and state governmental programs; and

iii. sales returns in the normal course of business.

Revenue recognition also requires that there is reasonable assurance of collection of sales process.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

When recognizing revenue, Schering-Plough estimates and records the applicable commercial and governmental discounts and rebates as well as sales returns that have been or are expected to be granted or made for products sold during the period. These amounts are deducted from sales for that period. If reliable estimates of these items cannot be made, Schering-Plough defers the recognition of revenue. Estimates recorded in prior periods are re-evaluated as part of this process.

Earnings Per Common Share

Diluted earnings/(loss) per common share is computed by dividing net income/(loss) available to common shareholders plus preferred stock dividends for the dilutive effect of any mandatory convertible preferred stock by the sum of the weighted average number of common shares outstanding plus the dilutive effect of shares issuable through deferred stock units and the exercise of stock options and any dilutive effect of shares issuable upon conversion of Schering-Plough’s mandatory convertible preferred stock. Basic earnings/(loss) per common share is computed by dividing net income/(loss) available to common shareholders by the weighted average number of common shares outstanding.

Goodwill and Other Intangible Assets

Financial Accounting Standards Board (FASB) SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that intangible assets acquired either individually or with a group of other assets be initially recognized and measured based on fair value. An intangible with a finite life is amortized over its useful life, while an intangible with an indefinite life, including goodwill, is not amortized.

The Company assesses the recoverability of the carrying value of its goodwill and other intangible assets with indefinite useful lives annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable. Recoverability of goodwill is measured at the reporting unit level based on a two-step approach. First, the carrying amount of the reporting unit is compared to the fair value as estimated by the future net discounted cash flows expected to be generated by the reporting unit. To the extent that the carrying value of the reporting unit exceeds the fair value of the reporting unit, a second step would be performed, whereby the reporting unit’s assets and liabilities are fair valued. To the extent that the reporting unit’s carrying value of goodwill exceeds its implied fair value of goodwill, an impairment exists and would be recognized.

Recoverability of other intangible assets with indefinite useful lives is measured by a comparison of the carrying amount of the intangible assets to the fair value of the respective intangible assets. Any excess of the carrying value of the intangible assets over the fair value of the intangible assets would be recognized as an impairment loss.

Schering-Plough conducts its annual impairment testing of goodwill at October 1 each year. Based on the impairment tests performed, there was no impairment of goodwill in 2008, 2007 or 2006.

In 2007, Schering-Plough’s goodwill and other intangible asset balances increased significantly due to the acquisition of OBS. See Note 2, “Acquisition,” and Note 13, “Goodwill and Other Intangible Assets,” for additional information.

Other Assets

Included in other assets is capitalized software of $246 million and $278 million at December 31, 2008 and 2007, respectively. Amortization expense were $101 million, $89 million and $76 million in 2008, 2007 and 2006, respectively. Other Assets at December 31, 2008 included $80 million of restricted cash primarily for a letter of credit related to certain international tax matters.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Income Taxes

Schering-Plough implemented the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (FIN 48) as of January 1, 2007. Under FIN 48, in order to recognize an uncertain tax benefit, the taxpayer must be more likely than not of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the position. Schering-Plough includes interest expense or income as well as potential penalties on uncertain tax positions as a component of income tax expense in the Statement of Consolidated Operations.

Deferred income taxes are recognized for the future tax effects of temporary differences between the financial and income tax reporting basis of Schering-Plough’s assets and liabilities based on enacted tax laws and rates.

Accounting for Share-Based Compensation

Prior to January 1, 2006, Schering-Plough accounted for its stock-based compensation arrangements using the intrinsic value method. No share-based employee compensation cost was reflected in the statements of consolidated operations, other than for Schering-Plough’s deferred stock units and performance plans, as stock options granted under all other plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

Effective January 1, 2006, Schering-Plough accounts for all share-based compensation in accordance with SFAS No. 123 (Revised 2004) “Share-Based Payment” (SFAS 123R). See Note 6, “Share-Based Compensation,” for additional information.

Shipping and Handling Expenses

Shipping expenses are classified as selling, general and administrative expenses in the Consolidated Statement of Operations.

Impact of Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” The standard defines fair value, establishes a framework for measuring fair value in accordance with U.S. Generally Accepted Accounting Principles, and expands disclosures about fair value measurements. The standard codifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. For calendar-year companies, the standard became effective January 1, 2008 (see Note 17, “Fair Value Measurements”) except for non-financial items measured on a non-recurring basis for which it is effective beginning January 1, 2009. The implementation of this standard did not have a material impact on Schering-Plough’s financial statements. Based on Schering-Plough’s current financial position, the impact of the provisions of this standard that was effective January 1, 2009 is not expected to be material.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB Statement No. 115” (SFAS 159), which permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 also includes an amendment to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” which applies to all entities with available-for-sale and trading securities. For calendar-year companies, the standard became effective January 1, 2008. Schering-Plough chose not to elect the fair value option prescribed by SFAS 159. As a result, the implementation of this standard did not have a material impact on Schering-Plough’s financial statements.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In December 2007, the FASB issued EITF Issue No. 07-1, “Accounting for Collaborative Arrangements,” which is effective for calendar-year companies beginning January 1, 2009. The Task Force clarified the manner in which costs, revenues and sharing payments made to, or received by, a partner in a collaborative arrangement should be presented in the income statement and set forth certain disclosures that should be required in the partners’ financial statements. The impact of this standard on the consolidated financial statements is not expected to be material.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” (SFAS 141R). For calendar-year companies, the standard is applicable to new business combinations occurring on or after January 1, 2009. SFAS 141R requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Most significantly, SFAS 141R will require that acquisition costs generally be expensed as incurred, certain acquired contingent liabilities be recorded at fair value, and acquired in-process research and development be recorded at fair value as an indefinite-lived intangible asset at the acquisition date. The standard will also impact certain unresolved matters related to purchase transactions consummated prior to the effective date of the standard. The impact of this standard on the consolidated financial statements is not expected to be material, but this standard may have an effect on accounting for future business combinations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51,” which is effective for calendar-year companies beginning January 1, 2009. The standard establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The impact of this standard on the consolidated financial statements is not expected to be material.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an Amendment of FASB Statement No. 133,” which is effective for calendar-year companies beginning January 1, 2009. The standard enhances required disclosures regarding derivatives and hedging activities. The impact of this standard on the consolidated financial statements is not expected to be material.

In April 2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142. FSP 142-3 is effective for calendar-year companies beginning January 1, 2009. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The impact of this standard on the consolidated financial statements is not expected to be material.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” This standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS No. 162 became effective on November 15, 2008. The implementation of this standard did not have a material impact on Schering-Plough’s consolidated financial statements.

In June 2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” The FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, “Earnings per Share.” The FSP requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share. The FSP is effective for calendar-year companies beginning January 1, 2009. The impact of this standard on the consolidated financial statements is not expected to be material.

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In October 2008, the FASB issued FSP 157-3 “Determining Fair Value of a Financial Asset in a Market That Is Not Active” (FSP 157-3). FSP 157-3 clarified the application of SFAS No. 157 in an inactive market. It demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The implementation of this standard did not have a material impact on Schering-Plough’s consolidated financial statements.

In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interest in Variable Interest Entities.” FSP No. FAS 140-4 and FIN 46(R)-8 requires enhanced disclosures about transfers of financial assets and interests in variable interest entities. The FSP is effective for interim and annual periods ending after December 15, 2008. Since the FSP requires only additional disclosures concerning transfers of financial assets and interest in variable interest entities, adoption of this FSP did not affect Schering-Plough’s disclosures.

2. ACQUISITION

Schering-Plough acquired OBS for a purchase price of approximately Euro 11 billion in cash, or approximately $16.1 billion (including legal and professional fees) on November 19, 2007 (the Acquisition Date). This acquisition added further diversification of marketed products, including two new therapeutic areas (Women’s Health and Central Nervous System), as well as significant strength in Animal Health products and the R&D pipeline. The purchase method of accounting was used to account for the transaction in accordance with SFAS No. 141, “Business Combinations.” The operating results of OBS are included in Schering-Plough’s consolidated financial statements for the period subsequent to the Acquisition Date.

The following table provides unaudited pro forma financial information for the years ended December 31, 2007 and 2006 as if the acquisition had occurred as of the beginning of each period presented:

	2007			2006
	(Dollars in millions except per share data) (unaudited)
Net sales	$	16,853		$	15,079
Net loss before cumulative effect of a change in accounting principle		(2,500	)		(3,987	)
Net loss available to common shareholders		(2,712	)		(4,201	)
Diluted loss per common share		(1.72	)		(2.73	)
Basic loss per common share		(1.72	)		(2.73	)

The unaudited pro forma financial information for both periods presented includes amortization of the step-up of inventory of $1.1 billion and acquired in-process research and development charge of $3.8 billion, which are non-recurring charges directly attributable to the accounting for the acquisition. The unaudited pro forma financial information also includes the effect of purchase accounting adjustments such as additional amortization expense from the acquired identifiable intangible assets and depreciation from the step-up of property. No effect has been given in the unaudited pro forma financial information for synergistic benefits that may be realized or costs related to the integration of OBS. The unaudited pro forma financial information should not be considered indicative of actual results that would have been achieved had this acquisition been consummated on the dates indicated and does not purport to indicate results of operations as of any future date or for any future period.

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A preliminary allocation of the purchase price of OBS was made as of the Acquisition Date. The final allocation of the purchase price has resulted in a net decrease to goodwill of $44 million as compared to the preliminary allocation as of the Acquisition Date. This adjustment to the preliminary purchase price allocation was primarily related to updated valuations of identifiable intangible assets, property and inventories as well as updates to acquired liabilities and deferred taxes. The final allocation of the purchase price of OBS is as follows:

	(Dollars in millions)
Cash	$	330
Current assets (excluding inventories)		1,307
Inventories		2,434
Property		2,508
Identifiable intangible assets(1)		6,839
Goodwill(2)		2,667
Other-non current assets		750
Acquired in-process research and development (IPR&D)(3)		3,754
Total assets acquired	$	20,589
Acquisition related liabilities(4)		198
Other current liabilities		1,513
Deferred tax liabilities		2,215
Other-non current liabilities		544
Total liabilities assumed	$	4,470
Net assets acquired	$	16,119

(1) The final purchase price allocation to identifiable intangible assets is as follows:

	Amount		Weighted-Average Amortization Period (years)
	(Dollars in millions)
Patents:
Women’s Health — Contraception	$	1,659	11
Women’s Health — Fertility		1,013	11
Women’s Health — Other		440	13
Central Nervous System		527	12
Other Human Prescription Pharmaceuticals		382	8
Total patents	$	4,021
Trademarks:
Animal Health	$	2,608	20
Prescription Pharmaceuticals		210	20
Total trademarks	$	2,818
Total intangible assets acquired	$	6,839

The weighted-average life of total acquired intangible assets is approximately 15 years. The intangible assets have no significant residual value. There were no acquired intangible assets that were determined to have an indefinite life.

(2) $1.8 billion of the goodwill has been assigned to the Prescription Pharmaceuticals segment and $873 million has been assigned to the Animal health segment. None of the goodwill is deductible for income tax purposes.

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(3) $3.8 billion assigned to acquired IPR&D was charged to operations in the fourth quarter of 2007. This charge was associated with research projects in animal health and research projects in the women’s health, central nervous system and anesthesia therapeutic areas of human health. The amount was determined by using discounted cash flow projections of identified research projects for which technological feasibility had not been established and for which there was no alternative future use. The discount rates used ranged from 14 percent to 18 percent. The projected launch dates following the U.S. Food and Drug Administration (FDA) or other regulatory approval are years 2008 through 2013, at which time Schering-Plough expects these projects to begin to generate cash flows. The cost to complete the research projects will depend on whether the projects are brought to their final stages of development and are ultimately submitted to the FDA or other regulatory agencies for approval. As of December 31, 2007, the estimated cost to complete projects near the final stages of development was in excess of $700 million. All of the research and development projects considered in the valuation are subject to the normal risks and uncertainties associated with demonstrating the safety and efficacy required to obtain FDA or other regulatory approvals.

(4) Included in acquisition related liabilities are costs to exit certain activities of OBS.

In conjunction with the OBS acquisition, Schering-Plough agreed to divest certain assets as part of regulatory reviews in the U.S. and Europe. See Note 7, Other Expense/(Income), net.

3. SPECIAL AND ACQUISITION RELATED CHARGES AND MANUFACTURING STREAMLINING

2008 Special and acquisition-related charges

Special and acquisition-related charges relate to the Productivity Transformation Program (PTP) activities which include the ongoing integration of the OBS business (See Note 4, “OBS Integration and Productivity Transformation Program for additional information). Special and acquisition-related charges for 2008 were $329 million. The costs for 2008 included $275 million of employee termination costs. The remaining charges related to integration activities.

2007 Special and acquisition-related charges

During the year ended December 31, 2007, Schering-Plough incurred $84 million of special and acquisition-related charges, comprised of $61 million of integration-related costs for the OBS acquisition and $23 million of employee termination costs as part of integration activities.

2006 Manufacturing Streamlining

During 2006, Schering-Plough implemented changes to its manufacturing operations in Puerto Rico and New Jersey that have streamlined its global supply chain and further enhanced Schering-Plough’s long-term competitiveness. These changes resulted in the phase-out and closure of Schering-Plough’s manufacturing operations in Manati, Puerto Rico, and additional workforce reductions in Las Piedras, Puerto Rico, and New Jersey.

Special charges

Special charges in 2006 related to the changes in Schering-Plough’s manufacturing operations totaled $102 million. These charges consisted of approximately $47 million of severance and $55 million of fixed asset impairments.

Cost of sales

Included in 2006 cost of sales was approximately $146 million consisting of $93 million of accelerated depreciation, $46 million of inventory write-offs, and $7 million of other charges related to the closure of Schering-Plough’s manufacturing facilities in Manati, Puerto Rico.

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes activities reflected in the consolidated financial statements related to changes to Schering-Plough’s manufacturing operations which were completed in 2006:

	Charges Included in Cost of Sales		Special Charges		Total Charges		Cash Payments			Non-cash Charges			Accrued Liability
	(Dollars in millions)
Accrued liability at January 1, 2006													$	—
Severance	$	—	$	47	$	47	$	(35	)	$	—			12
Asset impairments		—		55		55		—			(55	)		—
Accelerated depreciation		93		—		93		—			(93	)		—
Inventory write-offs		46		—		46		—			(46	)		—
Other		7		—		7		(2	)		(5	)		—
Total	$	146	$	102	$	248	$	(37	)	$	(199	)
Accrued liability at December 31, 2006													$	12
Severance								(12	)					(12	)
Accrued liability at December 31, 2007													$	—

4. OBS INTEGRATION AND PRODUCTIVITY TRANSFORMATION PROGRAM

As part of the purchase price allocation of the OBS acquisition as of the Acquisition Date, Schering-Plough recorded acquisition-related liabilities of $151 million related to involuntary termination benefits.

In April 2008, Schering-Plough announced a major new program, the Productivity Transformation Program (PTP), which includes the ongoing integration of OBS, and is designed to reduce and avoid costs, and increase productivity. The targeted savings envisioned by this program include those resulting from the previously announced OBS integration synergies.

The following table summarizes the charges, cash payments and liabilities related to the Productivity Transformation Program, which includes the ongoing integration of OBS, through December 31, 2008:

	Employee Termination Costs			Acquisition-Related Liabilities
				Employee Termination Costs			Other Exit Costs
	(Dollars in millions)
Accrued liability at December 31, 2007	$	23		$	151			—
Charges(a)		254			21			—
Purchase price allocation items(b)		—			(3	)		50
Cash payments		(154	)		(169	)		(18	)
Accrued liability at December 31, 2008	$	123		$	—		$	32

(a) Recorded to special and acquisition-related charges.

(b) Recorded as part of purchase accounting. Included in acquisition-related liabilities at December 31, 2008 are costs to exit certain activities of OBS.

5. EQUITY INCOME

        In May 2000, Schering-Plough and Merck entered into two separate sets of agreements to jointly develop and market certain products in the U.S. including (1) two cholesterol-lowering drugs and (2) an allergy/asthma drug.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In December 2001, the cholesterol agreements were expanded to include all countries of the world except Japan. In general, the companies agreed that the collaborative activities under these agreements would operate in a virtual joint venture to the maximum degree possible by relying on the respective infrastructures of the two companies. These agreements generally provide for equal sharing of development costs and for co-promotion of approved products by each company.

The cholesterol agreements provide for Schering-Plough and Merck to jointly develop and commercialize ezetimibe in the cholesterol management field:

i. as a once-daily monotherapy (managed as ZETIA in the U.S. and Asia and EZETROL in Europe);

ii. in co-administration with various approved statin drugs; and

iii. as a fixed-combination tablet of ezetimibe and simvastatin (Zocor), Merck’s cholesterol-modifying medicine. This combination medication (ezetimibe/simvastatin) is managed as VYTORIN in the U.S. and as INEGY in many international countries.

ZETIA/EZETROL (ezetimibe) and VYTORIN/INEGY (the combination of ezetimibe/simvastatin) are approved for use in the U.S. and have been launched in many international markets.

Schering-Plough utilizes the equity method of accounting in recording its share of activity from the Merck/Schering-Plough cholesterol joint venture. As such, Schering-Plough’s net sales do not include the sales of the joint venture. The cholesterol joint venture agreements provide for the sharing of operating income generated by the joint venture based upon percentages that vary by product, sales level and country. In the U.S. market, Schering-Plough receives a greater share of profits on the first $300 million of annual ZETIA sales. Above $300 million of annual ZETIA sales, Merck and Schering-Plough generally share profits equally. Schering-Plough’s allocation of the joint venture income is increased by milestones recognized. Further, either company’s share of the joint venture’s income from operations is subject to a reduction if that company fails to perform a specified minimum number of physician details in a particular country. The companies agree annually to the minimum number of physician details by country.

The companies bear the costs of their own general sales forces and commercial overhead in marketing joint venture products around the world. In the U.S., Canada and Puerto Rico, the cholesterol agreements provide for a reimbursement to each company for physician details that are set on an annual basis, and in Italy, a contractual amount is included in the profit sharing calculation that is not reimbursed. In the U.S., Canada and Puerto Rico this amount is equal to each company’s agreed physician details multiplied by a contractual fixed fee. Schering-Plough reports these amounts as part of equity income from the cholesterol joint venture. These amounts do not represent a reimbursement of specific, incremental and identifiable costs for Schering-Plough’s detailing of the cholesterol products in these markets. In addition, these amounts are not reflective of Schering-Plough’s sales effort related to the joint venture as Schering-Plough’s sales force and related costs associated with the joint venture are generally estimated to be higher.

Costs of the joint venture that the companies contractually share are a portion of manufacturing costs, specifically identified promotion costs (including direct-to-consumer advertising and direct and identifiable out-of-pocket promotion) and other agreed upon costs for specific services such as market support, market research, market expansion, a specialty sales force and physician education programs.

Certain specified research and development expenses are generally shared equally by Schering-Plough and Merck.

The allergy/asthma agreements provided for the joint development and marketing by the companies of a once-daily, fixed-combination tablet containing loratadine/montelukast. In April 2008, the Merck/Schering-Plough joint venture received a not-approvable letter from the FDA for the proposed fixed combination of loratadine/montelukast. During the second quarter of 2008 the respiratory joint venture was terminated in accordance with the agreements. This action has no impact on the cholesterol joint venture. As a result of the termination of the respiratory joint venture, Schering- Plough received payments totaling $105 million which Schering-Plough recognized during 2008, in equity income.

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following information provides a summary of the components of Schering-Plough’s equity income from the cholesterol joint venture for the years ended December 31:

	2008			2007			2006
	(Dollars in millions)
Schering-Plough’s share of net income (including milestones of $105 million in 2008)	$	1,665		$	1,831		$	1,273
Contractual amounts for physician details		223			242			204
Elimination of intercompany profit and other, net		(18	)		(24	)		(18	)
Total equity income from Merck/Schering-Plough joint venture	$	1,870		$	2,049		$	1,459

At December 31, 2008 and 2007, Schering-Plough had net receivables (including undistributed income) from the Merck/Schering-Plough Joint Venture of $130 million and $287 million, respectively.

Equity income from the joint venture excludes any profit arising from transactions between Schering-Plough and the joint venture until such time as there is an underlying profit realized by the joint venture in a transaction with a party other than Schering-Plough or Merck.

Due to the virtual nature of the cholesterol joint venture, Schering-Plough incurs substantial costs, such as selling, general and administrative costs, that are not reflected in equity income and are borne by the overall cost structure of Schering-Plough. These costs are reported on their respective line items in the Statements of Consolidated Operations and are not separately identifiable. The cholesterol agreements do not provide for any jointly owned facilities and, as such, products resulting from the joint venture are manufactured in facilities owned by either Schering-Plough or Merck.

Schering-Plough and Merck are developing a single-tablet combination of ezetimibe and atorvastatin as a treatment for elevated cholesterol levels.

See Note 21, “Legal, Environmental and Regulatory Matters,” — “Litigation and Investigations relating to the Merck/Schering-Plough Cholesterol Joint Venture.”

6. SHARE-BASED COMPENSATION

Prior to January 1, 2006, Schering-Plough accounted for its stock compensation arrangements using the intrinsic value method, which followed the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees” and the related Interpretations. Prior to 2006, no stock-based employee compensation cost was reflected in the Statement of Consolidated Operations, other than for Schering-Plough’s deferred stock units, as stock options granted under all other plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

Schering-Plough adopted SFAS 123R effective January 1, 2006. SFAS 123R requires companies to recognize compensation expense in an amount equal to the fair value of all share-based payments granted to employees. Schering-Plough elected the modified prospective transition method, and therefore, adjustments to prior periods were not required as a result of adopting SFAS 123R. Under this method, the provisions of SFAS 123R apply to all awards granted after the date of adoption and to any unrecognized expense of awards unvested at the date of adoption based on the grant date fair value. SFAS 123R also amended SFAS No. 95, “Statement of Cash Flows,” to require that excess tax benefits that had been reflected as operating cash flows be reflected as financing cash flows.

For grants issued to retirement-eligible employees prior to the adoption of SFAS 123R, Schering-Plough recognized compensation costs over the stated vesting period of the stock option or deferred stock unit with acceleration of any unrecognized compensation costs upon the retirement of the employee. Upon adoption of SFAS 123R, Schering-Plough recognizes compensation costs on all share-based grants made on or after January 1, 2006, over the service period, which is the earlier of: i) one year if the employee is or becomes retirement-eligible during the first year of the grant; ii) the employee’s retirement eligibility date if after the first year of the grant; and iii) the service period of the award.

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123R-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.” Schering-Plough has elected to adopt the transition method provided in this FASB Staff Position for purposes of calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123R.

During 2006, the 2006 Stock Incentive Plan (the 2006 Plan) was approved by Schering-Plough’s shareholders. Under the terms of the 2006 Plan, 92 million of Schering-Plough’s authorized common shares may be granted as stock options or awarded as deferred stock units to officers and certain employees of Schering-Plough through December 2011.

Schering-Plough intends to utilize unissued authorized shares to satisfy stock option exercises and for the issuance of deferred stock units. Expenses related to share-based compensation are classified in the line item associated with the employee’s function.

During 2008 and 2007, Schering-Plough granted performance-based deferred stock units under the 2006 Stock Incentive Plan, which provide certain senior managers the opportunity to earn shares of Schering-Plough common stock. These units will only be earned if specific pre-established levels of performance and service are achieved during the applicable three-year performance period.

Implementation of SFAS 123R

In the first quarter of 2006, Schering-Plough recognized a benefit to income of $22 million for the cumulative effect of a change in accounting principle related to two long-term compensation plans required to be accounted for as liability plans under SFAS 123R.

Tax benefits recognized related to stock-based compensation and related cash flow impacts were not material during 2008, 2007 and 2006, as Schering-Plough is in a U.S. Net Operating Loss position.

Stock Options

Stock options are granted to employees at exercise prices equal to the fair market value of Schering-Plough’s stock at the dates of grant. Stock options under the 2006 Plan generally vest over three years and have a term of seven years. Certain options granted under previous plans vest over longer periods ranging from three to nine years and have a term of 10 years. Compensation costs for all stock options are recognized over the requisite service period for each separately vesting portion of the stock option award. Expense is recognized, net of estimated forfeitures, over the vesting period of the options using an accelerated method. Expense recognized in 2008, 2007, and 2006 was approximately $65 million, $72 million and $56 million, respectively.

The weighted-average assumptions used in the Black-Scholes option-pricing model in 2008, 2007 and 2006 were as follows:

	2008		2007		2006
Dividend yield	1.1	%	1.1	%	1.1	%
Volatility	31.4	%	24.8	%	25.7	%
Risk-free interest rate	2.8	%	4.6	%	5.0	%
Expected term of options (in years)	4.5		4.5		4.5

        Dividend yields are based on historical dividend yields. Expected volatilities are based on historical volatilities of Schering-Plough’s common stock which is not expected to differ materially from future volatility.

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the options. The expected term of options represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules. Schering-Plough utilizes the simplified method of calculating the expected term of stock options as allowed under Staff Accounting Bulletin (SAB) 107 as amended by SAB 110 as historical experience is not expected to be a reasonable basis for estimated expected term due to various changes in the business.

The amount of cash received from the exercise of stock options in 2008, 2007 and 2006 was $15 million, $225 million and $83 million, respectively.

Summarized information about stock options outstanding and exercisable at December 31, 2008, is as follows:

	Outstanding				Exercisable
Exercise Price Range	Number of Options	Weighted- Average Remaining Term in Years	Weighted- Average Exercise Price		Number of Options	Weighted- Average Exercise Price
	(In thousands)				(In thousands)
Under $20	38,069	5.0	$	18.35	27,671	$	18.13
$20 to $30	13,086	6.1		20.81	8,350		20.92
$30 to $40	17,839	3.8		33.78	11,986		34.86
Over $40	13,574	1.3		46.20	13,564		46.21
	82,568				61,571

The weighted-average fair value of stock options granted in 2008, 2007 and 2006 was $5.35, $8.06 and $5.22, respectively. The intrinsic value of stock options exercised in 2008, 2007 and 2006 was $2 million, $132 million and $21 million, respectively. The total fair value of options vested in 2008, 2007 and 2006 was $67 million, $80 million and $73 million, respectively.

As of December 31, 2008, the total remaining unrecognized compensation cost related to non-vested stock options amounted to $48 million, which will be amortized over the weighted-average remaining requisite service period of 2.3 years.

The following table summarizes stock option activity as of December 31, 2008, and changes during the year then ended under the current and prior plans:

	Number of Options		Weighted- Average Exercise Price
	(In thousands)
Outstanding at January 1, 2008	79,840		$	28.47
Granted	13,605			19.51
Exercised	(833	)		18.11
Canceled or expired	(10,044	)		32.13
Outstanding at December 31, 2008	82,568		$	26.65
Exercisable at December 31, 2008	61,571		$	27.95

The aggregate intrinsic value of stock options outstanding at December 31, 2008, was $2 million. The aggregate intrinsic value of stock options currently exercisable at December 31, 2008, was $2 million. Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the quoted price of Schering-Plough’s common stock as of the reporting date.

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes nonvested stock option activity as of December 31, 2008, and changes during the year then ended under the current and prior plans:

	Number of Options		Weighted- Average Fair Value
	(In thousands)
Nonvested at January 1, 2008	20,135		$	6.99
Granted	13,605			5.35
Vested	(9,794	)		6.84
Forfeited	(2,949	)		5.62
Nonvested at December 31, 2008	20,997		$	6.19

Deferred Stock Units

The fair value of deferred stock units is determined based on the number of shares granted and the quoted price of Schering-Plough’s common stock at the date of grant. Deferred stock units generally vest at the end of three years provided the employee remains in the service of Schering-Plough. Expense is recognized on a straight-line basis over the vesting period. Deferred stock units are payable in an equivalent number of common shares. Expense recognized in 2008, 2007 and 2006 was $134 million, $125 million and $112 million, respectively.

Summarized information about deferred stock units outstanding at December 31, 2008, is as follows:

	Outstanding
Deferred Stock Unit Price Range	Number of Deferred Stock Units	Weighted- Average Remaining Term in Years	Weighted- Average Fair Value
	(In thousands)
$14 to $20	9,961	1.2	$	19.05
Over $20	5,381	1.4		30.70
	15,342

The weighted-average fair value of deferred stock units granted in 2008, 2007 and 2006 was $18.89, $31.19 and $19.27, respectively. The total fair value of deferred stock units vested during 2008, 2007 and 2006 was $127 million, $17 million and $68 million, respectively.

As of December 31, 2008, the total remaining unrecognized compensation cost related to deferred stock units amounted to $124 million, which will be amortized over the weighted-average remaining requisite service period of 1.8 years.

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes deferred stock unit activity as of December 31, 2008, and changes during the year then ended under the current and prior plans:

	Number of Nonvested Deferred Stock Units		Weighted- Average Fair Value
	(In thousands)
Nonvested at January 1, 2008	17,953		$	23.55
Granted	5,084			18.89
Vested	(6,141	)		20.67
Forfeited	(1,554	)		23.71
Nonvested at December 31, 2008	15,342		$	23.14

Performance-Based Deferred Stock Units

The distribution of the performance-based deferred stock units is contingent on Schering-Plough meeting either performance and/or market conditions. One half of each performance-based stock unit grant has a performance condition and the fair value of these units is based on the closing stock price on the date of grant. The other half of each grant has a market condition and the fair value of these units is determined by using a lattice valuation model with expected volatility assumptions and other assumptions appropriate for determining fair value. Compensation expense for the performance-based stock units, which excludes dividend equivalents, is based on the fair values of the awards expected to vest based on performance measures and is recognized over the performance period. The total compensation expense recognized for the years ended 2008 and 2007 is $20 million and $14 million, respectively.

The weighted average grant-date fair value of performance-based deferred stock units granted during 2008 and 2007 was $19.35 and $23.47, respectively, and represented approximately 1,063,036 and 1,397,000 underlying shares, respectively. As of December 31, 2008, none of these units have vested.

As of December 31, 2008, unrecognized compensation cost related to these deferred stock units was $31 million, which will be amortized over the remaining weighted average requisite service period of 1.5 years. The remaining unrecognized compensation cost for the performance-based deferred stock units may vary each reporting period based on changes in the expected achievement of performance measures.

The following table summarizes performance-based deferred stock unit activity as of December 31, 2008 and changes during the year then ended:

	Number of Nonvested Performance-based Deferred Stock Units		Weighted- Average Fair Value
	(In thousands)
Nonvested at January 1, 2008	1,397		$	23.47
Granted	1,063			19.35
Vested	—			—
Forfeited	(24	)		23.23
Nonvested at December 31, 2008	2,436		$	21.68

Liability Plans

Schering-Plough had two compensation plans for which the performance and vesting periods ended December 31, 2008. These plans were classified as liability plans under SFAS 123R, as the ultimate cash payout of these plans had been based on Schering-Plough’s stock performance as compared to the stock performance of a peer group.

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Upon adoption of SFAS 123R on January 1, 2006, Schering-Plough recognized a cumulative income effect of a change in accounting principle of $22 million in order to recognize the liability plans at fair value. During the service period, income or expense amounts related to these liability plans was based on the change in fair value at each reporting date. Fair value for the plans prior to the end of the service period was estimated using a lattice valuation model using expected volatility assumptions and other assumptions appropriate for determining fair value. For the first of these liability plans, the service period concluded as of December 31, 2006 and the value of the plan became fixed. For the second of these liability plans the service period concluded as of December 31, 2008. The income or expense recognized for these liability plans in the Statements of Consolidated Operations, exclusive of the impact of the cumulative effect of a change in accounting principle, was income of $30 million in 2008 and expense of $22 million and $24 million for 2007 and 2006, respectively.

As of December 31, 2008 there was no remaining unrecognized compensation cost related to the liability plans.

7. OTHER EXPENSE/(INCOME), NET

The components of other expense/(income), net, are as follows:

	2008			2007			2006
	(Dollars in millions)
Interest cost incurred	$	555		$	263		$	184
Less: amount capitalized on construction		(19	)		(18	)		(12	)
Interest expense		536			245			172
Interest income		(71	)		(395	)		(297	)
Foreign exchange losses/(gains), net		47			(37	)		2
Gain on sale of divested products		(160	)		—			—
Realized gain on foreign currency options, net		—			(510	)		—
Ineffective portion of interest rate swaps		—			7			—
Other, net		(17	)		7			(12	)
Total other expense/(income), net	$	335		$	(683	)	$	(135	)

In September 2008, Schering-Plough completed its previously announced divestitures of certain Animal Health products as required by regulatory agencies in the U.S. and Europe in connection with the acquisition of OBS. As a result of these divestitures, Schering-Plough recognized a gain of $160 million ($149 million after tax). In addition, during 2008, Schering-Plough recognized a gain of $17 million ($12 million after tax) on the sale of a manufacturing site. Net cash proceeds from the divested Animal Health products were $210 million.

During 2008 and 2007, Schering-Plough participated in health care refinancing programs adopted by local government fiscal authorities in a major European market. During 2008 and 2007, Schering-Plough transferred $47 million and $173 million, respectively, of its trade accounts receivables owned by a foreign subsidiary to third-party financial institutions without recourse. The transfer of trade accounts receivable qualified as sales of accounts receivable under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” For 2008 and 2007, the transfer of these trade accounts receivable did not have a material impact on Schering-Plough’s Statements of Consolidated Operations. Cash flows from these transactions are included in the change in accounts receivable in operating activities.

Net foreign exchange gains of $37 million in 2007 includes $101 million of foreign currency transaction exchange losses related to euro-denominated debt instruments prior to being accounted for as economic hedges of the net investment in a foreign operation. These currency exchange losses were non-cash items and are included as adjustments to reconcile net loss to net cash provided by operating activities in the Statement of Consolidated Cash Flows.

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2007, as part of an overall risk management strategy and in consideration of various preliminary financing scenarios associated with the acquisition of OBS, Schering-Plough purchased euro-denominated currency options (derivatives) for aggregate premiums of approximately $165 million and received proceeds of $675 million upon the termination of these options, resulting in a net realized gain of $510 million. These derivatives did not qualify for hedge accounting in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended (SFAS 133). Accordingly, the gain on these derivatives was recognized in the Statement of Consolidated Operations. These derivatives were short-term (trading) in nature and did not hedge a specific financing or investing transaction. Accordingly, the cash impacts of these derivatives were classified as operating cash flows in the Statement of Consolidated Cash Flows. These derivatives were terminated during the fourth quarter of 2007.

During 2007, Schering-Plough executed a series of interest rate swaps in anticipation of financing the acquisition of OBS. The objective of the swaps was to hedge the interest rate payments to be made on future issuances of debt. As such, the swaps were designated as cash flow hedges of future interest rate payments, and in accordance with SFAS 133, the effective portion of the gains or losses on the hedges are reported in other comprehensive income and any ineffective portion is reported in operations. In connection with the euro-denominated debt issuances as described in Note 15, “Borrowings and Other Commitments,” portions of the swaps were deemed ineffective and Schering-Plough recognized a $7 million loss in the Statement of Consolidated Operations during 2007. The effective portion of the swaps of $12 million was recorded in other comprehensive income during 2007 and is being recognized as interest expense over the life of the related debt. The cash flow impacts of these interest rate swaps were classified as operating cash flows in the Statement of Consolidated Cash Flows.

8. INCOME TAXES

The components of consolidated income/(loss) before income taxes for the years ended December 31 are as follows:

	2008			2007			2006
	(Dollars in millions)
United States	$	(207	)	$	(982	)	$	(593	)
Foreign		2,256			(233	)		2,098
Net income/(loss) before income taxes and including cumulative effect of a change in accounting principle	$	2,049		$	(1,215	)	$	1,505

Net income/(loss) in 2008 and 2007 include the amortization of fair values of certain assets acquired as part of the OBS acquisition. Net loss in 2007 includes a charge for acquired in-process research and development of $3.8 billion in connection with the acquisition of OBS.

Income from the cholesterol joint venture is included in the above table based on the jurisdiction in which the income is earned.

21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of income tax expense for the years ended December 31 are as follows:

	Federal			State		Foreign			Total
	(Dollars in millions)
2008
Current	$	23		$	24	$	498		$	545
Deferred		—			—		(399	)		(399	)
Total	$	23		$	24	$	99		$	146
2007
Current	$	36		$	20	$	265		$	321
Deferred		—			—		(63	)		(63	)
Total	$	36		$	20	$	202		$	258
2006
Current	$	42		$	25	$	251		$	318
Deferred		(3	)		—		47			44
Total	$	39		$	25	$	298		$	362

During 2004, Schering-Plough established a valuation allowance on its net U.S. deferred tax assets, including the benefit of U.S. operating losses, as management concluded that it is not more likely than not that the benefit of the U.S. net deferred tax assets can be realized. At December 31, 2008, Schering-Plough continues to maintain a valuation allowance against its U.S. net deferred tax assets.

Schering-Plough maintains its intent to indefinitely reinvest earnings of its international subsidiaries. Schering-Plough has not provided deferred taxes on approximately $7.5 billion of undistributed foreign earnings as of December 31, 2008. Determining the tax liability that would arise if these earnings were remitted is not practicable. That liability would depend on a number of factors, including the amount of the earnings distributed and whether the U.S. operations were generating taxable profits or losses.

Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of Schering-Plough’s assets and liabilities. Schering-Plough’s deferred tax assets result principally from the recording of certain items that currently are not deductible for tax purposes and net operating loss and other tax credit carryforwards. Schering-Plough’s deferred tax liabilities principally result from book over tax basis differences resulting from the OBS acquisition and the use of accelerated depreciation for tax purposes.

22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of Schering-Plough’s deferred tax assets and liabilities at December 31 are as follows:

	2008			2007
	(Dollars in millions)
Deferred tax assets:
NOL carryforwards	$	348		$	401
Other tax credit carryforwards		500			418
Post-retirement and other employee benefits		1,037			632
Inventory related		315			272
Sales return reserves		143			144
Litigation accruals		110			88
Intangible Assets		84			132
Other		235			343
Total deferred tax assets:	$	2,772		$	2,430
Deferred tax liabilities:
Depreciation	$	(496	)	$	(454	)
Inventory valuation		(40	)		(191	)
OBS Intangible Assets		(1,503	)		(1,669	)
Other		(53	)		(111	)
Total deferred tax liabilities:	$	(2,092	)	$	(2,425	)
Deferred tax valuation allowance	$	(1,400	)	$	(1,219	)
Net deferred tax (liabilities)	$	(720	)	$	(1,214	)

The deferred tax assets for net operating losses and other tax credit carryforwards principally relate to U.S. NOLs, Research and Development (R&D) tax credits, U.S. foreign tax credits and Federal Alternative Minimum Tax (AMT) credit carryforwards. At December 31, 2008, Schering-Plough had approximately $1.3 billion of U.S. NOLs for income tax purposes that are available to offset future U.S. taxable income. U.S. NOLs are U.S. operating losses adjusted for the differences between financial and tax reporting. These U.S. NOLs will expire in varying amounts between 2024 and 2028, if unused. State NOLs related to these U.S. NOLs, expire in varying amounts between 2009 and 2028. At December 31, 2008, Schering-Plough had approximately $215 million of R&D tax credits carryforwards that will expire between 2022 and 2028; $227 million of foreign tax credit carryforwards that will expire between 2011 and 2018; and $46 million of AMT tax credit carryforwards that have an indefinite life. The U.S. NOL carryforward could be materially reduced after examination of Schering-Plough’s income tax returns by the Internal Revenue Service (IRS). Schering-Plough has reduced the deferred tax assets and related valuation allowance recorded for its U.S. NOLs and tax credit carryforwards to reflect the estimated resolution of these examinations.

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The difference between income taxes based on the U.S. statutory tax rate and Schering-Plough’s income tax expense for the years ended December 31 was due to the following:

	2008			2007			2006
	(Dollars in millions)
Income tax expense/(benefit) at U.S. statutory rate	$	717		$	(425	)	$	527
Increase/(decrease) in taxes resulting from:
Lower rates in other jurisdictions, net		(691	)		(883	)		(436	)
U.S. operating losses for which no tax benefit was recorded		65			165			215
Permanent differences		7			1,346			(7	)
State income tax		24			20			25
Provision for other tax matters		24			35			38
Income tax at effective tax rate	$	146		$	258		$	362

The permanent differences in 2007 are largely attributable to the acquired in-process research and development charge of $3.8 billion related to the acquisition of OBS for which no tax benefit was recorded.

The lower tax rates in other jurisdictions in 2008, 2007 and 2006, net, are primarily attributable to Schering-Plough’s manufacturing subsidiaries in Singapore, Ireland and Puerto Rico, which operate under various incentive tax grants that begin to expire in 2011. Additionally, most major countries in which Schering Plough conducts its operations have statutory tax rates less than the U.S. tax rate. Overall, income taxes primarily relate to foreign taxes and do not include any benefit related to U.S. operating losses.

Schering-Plough implemented the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (FIN 48) as of January 1, 2007. As required by FIN 48, the cumulative effect of applying the provisions of the Interpretation was reported as an adjustment to Schering-Plough’s retained earnings balance as of January 1, 2007. Schering-Plough reduced its January 1, 2007 retained earnings by $259 million as a result of the adoption of FIN 48.

Schering-Plough’s unrecognized tax benefits result primarily from the varying application of statutes, regulations and interpretations and include exposures on intercompany terms of cross border arrangements and utilization of cash held by foreign subsidiaries (investment in U.S. property) as well as Schering-Plough’s tax matters litigation (see Note 21, “Legal, Environmental and Regulatory Matters”). At December 31, 2008 and 2007, the total amount of unrecognized tax benefits was $994 million and $859 million, respectively, which includes tax liabilities as well as reductions to deferred tax assets carrying a full valuation allowance. At December 31, 2008 and 2007, approximately $596 million and $535 million, respectively, of total unrecognized tax benefits, if recognized, would affect the effective tax rate. Management believes it is reasonably possible that total unrecognized tax benefits could decrease over the next twelve-month period up to approximately $625 million. This would be primarily attributable to a decision in the tax matter currently being litigated in Newark District Court for which a decision has not yet been rendered, possible final resolution of Schering-Plough’s 1997 through 2002 examination by the IRS and appeals and possible resolutions of various other matters. However, the timing of the ultimate resolution of Schering-Plough’s tax matters and the payment and receipt of related cash is dependent on a number of factors, many of which are outside Schering-Plough’s control.

Schering-Plough includes interest expense or income as well as potential penalties on uncertain tax positions as a component of income tax expense in the Statement of Consolidated Operations. The total amount of interest expense related to uncertain tax positions for the years ended December 31, 2008 and 2007 was $63 million and $50 million, respectively. The total amount of accrued interest related to uncertain tax positions at December 31, 2008 and 2007 was $245 million and $197 million, respectively, and are included in other accrued liabilities.

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The tabular reconciliation of Schering-Plough’s FIN 48 unrecognized tax benefits for the years ended December 31 is as follows:

	2008			2007
	(Dollars in millions)
At January 1	$	859		$	924
Additions for tax positions related to current year		115			74
Additions for tax positions related to prior years		45			46
Additions for tax positions related to acquired entities		2			37
Reductions related to amounts settled with taxing authorities		(27	)		(77	)
Reductions for tax positions related to prior years		—			(25	)
Reductions for potential refund claims(1)		—			(120	)
At December 31	$	994		$	859

(1) Schering-Plough had been considering the filing of refund claims based on court decisions involving the claim of right doctrine. Two courts of appeal decisions, clarifying the law in this area made it clear that Schering-Plough would not prevail on these claims. The amount of unrecognized tax benefits has been reduced accordingly and had no impact on the net loss in 2007.

Net consolidated income tax payments, exclusive of payments related to the tax examinations and litigation discussed below, during 2008, 2007 and 2006 were $444 million, $389 million and $234 million, respectively.

During the second quarter of 2007, the IRS completed its examination of Schering-Plough’s 1997-2002 federal income tax returns. Schering-Plough is seeking resolution of an issue raised during this examination through the IRS administrative appeals process. In July 2007, Schering-Plough made a payment of $98 million to the IRS pertaining to the 1997-2002 examination. Schering-Plough remains open with the IRS for the 1997 through 2008 tax years. During 2008, the IRS commenced its examination of the 2003 — 2006 federal income tax returns. This examination is expected to be completed in 2010. For most of its other significant tax jurisdictions (both U.S. state and foreign), Schering-Plough’s income tax returns are open for examination for the period 2000 through 2008.

In October 2001, IRS auditors asserted that two interest rate swaps that Schering-Plough entered into with an unrelated party should be recharacterized as loans from affiliated companies, resulting in additional tax liability for the 1991 and 1992 tax years. In September 2004, Schering-Plough made payments to the IRS in the amount of $194 million for income tax and $279 million for interest. Schering-Plough filed refund claims for the tax and interest with the IRS in December 2004. Following the IRS’s denial of Schering-Plough’s claims for a refund, Schering-Plough filed suit in May 2005 in the U.S. District Court for the District of New Jersey for refund of the full amount of the tax and interest. This refund litigation has been tried in Newark District court and a decision has not yet been rendered. Schering-Plough’s tax reserves were adequate to cover the above-mentioned payments.

9. RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

Plan Descriptions

Schering-Plough has defined benefit pension plans covering eligible employees in the U.S. and certain foreign countries. For the largest U.S. plan (the Schering-Plough Retirement Plan), benefits for normal retirement are primarily based upon the participant’s average final earnings, years of service and Social Security income, and are modified for early retirement. Death and disability benefits are also available under the plan. Benefits become fully vested after five years of service. The plan provides for the continued accrual of credited service for employees who opt to postpone retirement and remain employed with Schering-Plough after reaching the normal retirement age.

25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The largest international defined-benefit plan is a Dutch plan (the Schering-Plough Pension Fund), which provides benefits for normal retirement at the age of 65 based primarily on the participant’s average earnings and years of service. The benefit takes into account a social security (equivalent) income. A postponement of retirement is not an option under local Dutch regulation, and benefits are modified for early retirement. Death and disability benefits are also available under the plan. Non-U.S. pension plans offer benefits that are competitive with local market conditions.

The defined benefit plans that were assumed by Schering-Plough as part of the OBS acquisition have been included in Schering-Plough’s consolidated results of operations and consolidated financial position after the Acquisition Date and financial position as of December 31, 2007. See Note 2, “Acquisition.”

In addition, Schering-Plough provides post-retirement medical and life insurance benefits primarily to its eligible U.S. retirees and their dependents through its post-retirement benefit plans. Certain other countries also provide post-retirement benefit plans.

Effective December 31, 2006, Schering-Plough accounts for its retirement plans and other post-retirement benefit plans (the plans) in accordance with SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” (SFAS 158). SFAS 158 requires the recognition of an asset for the overfunded plans and a liability for the underfunded plans in Schering-Plough’s consolidated balance sheets. This Statement also requires the recognition of changes in the funded status of the plans in the year in which the changes occur. As of 2007, all of Schering-Plough’s defined-benefit pension and other postretirement plans have December 31 as the measurement date.

Included in Schering-Plough’s accumulated other comprehensive loss at December 31, 2008 and 2007, was $1.6 billion ($1.3 billion, net of tax effects) and $689 million ($553 million, net of tax effects), respectively, of costs that were not recognized as components of net periodic benefit costs pursuant to SFAS No. 87, “Employers’ Accounting for Pensions” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” The components of these costs at December 31, 2008 and 2007, were as follows:

	Retirement Plans				Other Post-Retirement Benefits
	2008		2007		2008			2007
	(Dollars in millions)
Actuarial loss	$	1,374	$	447	$	267		$	223
Prior service cost/(credit)		48		58		(122	)		(39	)
Total	$	1,422	$	505	$	145		$	184

The actuarial losses primarily represent the cumulative difference between the actuarial assumptions and the actual returns from plan assets, changes in discount rates and plans’ experience. Total loss amounts, net in excess of certain thresholds, are amortized into net pension and other post-retirement benefit cost over the average remaining service life of employees. The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic costs during 2009 are as follows:

	Retirement Plans		Other Post-Retirement Benefits
	(Dollars in millions)
Actuarial loss recognition	$	44	$	10
Prior service cost/(credit) recognition		7		(15	)

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Actuarial Assumptions

The consolidated weighted average assumptions used to determine benefit obligations at December 31 were:

	Retirement Plans				Other Post-Retirement Benefits
	2008		2007		2008		2007
U.S. Benefit Plans
Discount rate	6.25	%	6.4	%	6.25	%	6.5	%
Rate of increase in future compensation	4.0	%	4.0	%	N/A		N/A
International Benefit Plans
Discount rate	5.3	%	5.3	%	10.25	%(1)	7.4	%
Rate of increase in future compensation	3.3	%	3.4	%	N/A		N/A

(1) Schering-Plough’s International Other Post-Retirement Benefit Plans are in Argentina, Brazil, Canada and South Africa.

The assumptions above were used to develop the benefit obligations at year-end.

The consolidated weighted average assumptions used to determine net benefit costs for the years ended December 31 were:

	Retirement Plans						Other Post-Retirement Benefits
	2008		2007		2006		2008		2007		2006
U.S. Benefit Plans
Discount rate	6.4	%	6.0	%	5.7	%	6.5	%	6.0	%	5.8	%
Long-term expected rate of return on plan assets	8.5	%	8.5	%	8.5	%	7.5	%	7.5	%	7.5	%
Rate of increase in future compensation	4.0	%	4.0	%	4.0	%	N/A		N/A		N/A
International Benefit Plans
Discount rate	5.3	%	4.1	%	4.1	%	7.4	%	6.1	%	5.5	%
Long-term expected rate of return on plan assets	6.2	%	5.7	%	5.6	%	N/A		N/A		N/A
Rate of increase in future compensation	3.4	%	3.5	%	3.6	%	N/A		N/A		N/A

The assumptions used to determine net periodic benefit costs for each year are established at the end of each previous year while the assumptions used to determine benefit obligations are established at each year-end. The net periodic benefit costs and the actuarial present value of the benefit obligations are based on actuarial assumptions that are determined annually based on an evaluation of long-term trends, as well as market conditions that may have an impact on the cost of providing retirement benefits.

The long-term expected rates of return on plan assets are derived from return assumptions determined for each of the major asset classes: equities, fixed income and real estate, on a proportional basis. The return expectations for each of these asset classes are based largely on assumptions about economic growth and inflation, which are supported by long-term historical data.

The weighted average assumed healthcare cost trend rate used for post-retirement measurement purposes is 10.6 percent for 2009, trending down to 5.2 percent by 2018. A 1 percent increase in the assumed healthcare cost trend rate would increase combined post-retirement service and interest cost by $11 million and the post-retirement benefit obligation by $90 million. A 1 percent decrease in the assumed health care cost trend rate would decrease combined post-retirement service and interest cost by $9 million and the post-retirement benefit obligation by $73 million.

Average retirement age is assumed based on the annual rates of retirement experienced by Schering-Plough.

27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Components of Net Periodic Benefit Costs

The net pension and other post-retirement periodic benefit costs totaled $304 million, $223 million and $204 million in 2008, 2007 and 2006, respectively.

The components of net pension and other post-retirement periodic benefit costs were as follows:

	Retirement Plans									Other Post-Retirement Benefits
	2008			2007			2006			2008			2007			2006
	(Dollars in millions)
Service cost	$	213		$	137		$	119		$	27		$	21		$	18
Interest cost		231			135			113			39			29			26
Expected return on plan assets		(234	)		(135	)		(113	)		(12	)		(13	)		(13	)
Amortization, net		26			43			44			5			4			6
Termination benefits		3			—			—			2			—			—
Settlements		7			2			4			(3	)		—			—
Net pension and other post-retirement periodic benefit costs	$	246		$	182		$	167		$	58		$	41		$	37

The net pension and other post-retirement periodic benefit cost attributable to U.S. retirement and other post-employment benefit plans was $180 million in 2008, $157 million in 2007 and $153 million in 2006.

Benefit Obligations

The components of the changes in the benefit obligations were as follows:

	Retirement Plans						Other Post-Retirement Benefits
	2008			2007			2008			2007
	(Dollars in millions)
Benefit obligations at beginning of year	$	4,025		$	2,369		$	630		$	509
Service cost		213			137			27			21
Interest cost		231			135			39			29
Medicare drug subsidy received		—			—			3			2
Participant contributions		23			10			5			4
Effects of exchange rate changes		(198	)		51			(3	)		1
Benefits paid		(161	)		(108	)		(30	)		(27	)
Acquisitions/plan transfers		8			1,597			9			75
Actuarial(gains)/losses (including assumption change)		173			(165	)		(2	)		17
Change in measurement date		(88	)		4			—			—
Plan amendments		1			3			(91	)		(1	)
Termination benefits		3			—			2			—
Curtailment		(21	)		—			(5	)		—
Settlement		(5	)		(8	)		—			—
Benefit obligations at end of year	$	4,204		$	4,025		$	584		$	630
Benefit obligations of overfunded plans	$	23		$	250		$	—		$	—
Benefit obligations of underfunded plans		4,181			3,775			584			630

The benefit obligations of U.S. plans for retirement benefits and other post-retirement benefits was $2.6 billion in 2008 and $2.5 billion in 2007.

28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Funded Status and Balance Sheet Presentation

The components of the changes in plan assets were as follows:

	Retirement Plans						Other Post-Retirement Benefits
	2008			2007			2008			2007
	(Dollars in millions)
Fair value of plan assets, primarily stocks and bonds, at beginning of year	$	3,293		$	1,673		$	181		$	189
Actual (loss)/gain on plan assets		(610	)		101			(49	)		13
Employer contributions		247			196			3			2
Participant contributions		23			10			5			4
Acquisitions/plan transfers		3			1,388			—			—
Change in measurement date		(73	)		—
Effects of exchange rate changes		(150	)		41			—			—
Settlements		(11	)		(8	)		—			—
Benefits paid		(161	)		(108	)		(29	)		(27	)
Fair value of plan assets at end of year	$	2,561		$	3,293		$	111		$	181
Plan assets of overfunded plans	$	26		$	292		$	—		$	—
Plan assets of underfunded plans		2,535			3,001			111			181

The fair value of U.S. pension and other post-retirement benefits plan assets were $1.1 billion in 2008 and $1.6 billion in 2007.

The reduction in the fair value of plan assets at December 31, 2008, as compared to December 31, 2007, is due to conditions in the worldwide debt and equity markets, which deteriorated significantly during 2008. These conditions have had a negative effect on the fair value of plan assets.

In addition to the plan assets indicated above, at December 31, 2008 and 2007, securities investments of $42 million and $75 million, respectively, were held in a non-qualified trust designated to provide pension benefits for certain underfunded plans.

In accordance with SFAS No. 158, at December 31, 2008 and 2007, the net asset of the overfunded plans was $3 million and $42 million, respectively, all of which related to Schering-Plough’s retirement plans, and is included in other long-term assets in the accompanying consolidated balance sheets. The net liability from the underfunded plans at December 31, 2008 and 2007, totaled $2.1 billion and $1.2 billion, respectively, as follows:

	Retirement Plan				Other Post-Retirement Benefits
	2008		2007		2008		2007
	(Dollars in millions)
Accrued compensation (current)	$	28	$	18	$	1	$	4
Other long-term liabilities		1,618		756		472		445
Total	$	1,646	$	774	$	473	$	449

At December 31, 2008 and 2007, the accumulated benefit obligations (ABO) for the retirement plans were $3.7 billion and $3.6 billion, respectively. The aggregated accumulated benefit obligations and fair values of plan assets for retirement plans with accumulated benefit obligations in excess of plan assets were $3.4 billion and $2.2 billion, respectively, at December 31, 2008, and $2.7 billion and $2.2 billion, respectively, at December 31, 2007.

29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Plan Assets at Fair Value

The asset allocation for the consolidated retirement plans at December 31, 2008 and 2007, and the target allocation for 2009 are as follows:

	Target Allocation 2009		Percentage of Plan Assets at December 31,
Asset Category			2008		2007
Equity securities	54	%	49	%	54	%
Debt securities	39		44		39
Real estate	7		7		7
Total	100	%	100	%	100	%

The asset allocation for the post-retirement benefit trusts at December 31, 2008 and 2007, and the target allocation for 2009 are as follows:

	Target Allocation 2009		Percentage of Plan Assets at December 31,
Asset Category			2008		2007
Equity securities	70	%	69	%	75	%
Debt securities	30		31		25
Total	100	%	100	%	100	%

Schering-Plough’s investments related to these plans are broadly diversified, consisting primarily of equities and fixed income securities, with an objective of generating long-term investment returns that are consistent with an acceptable level of overall portfolio market value risk. The assets are periodically rebalanced back to the target allocations.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

	Retirement Plans	Other Post-retirement Benefits
	(Dollars in millions)
2009	165	34
2010	149	34
2011	160	36
2012	172	37
2013	197	39
Years 2014-2018	1,084	224

Schering-Plough’s practice is to fund qualified pension plans at least at sufficient amounts to meet the minimum requirements set forth in applicable laws. Schering-Plough expects to contribute approximately $350 million to its retirement plans during 2009, including approximately $200 million to the U.S. Schering-Plough Retirement Plan.

30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Defined Contribution Plans

Schering-Plough maintains defined contribution savings plans in the U.S., including a plan acquired as part of the OBS acquisition. For the largest U.S. plan, Schering-Plough makes contributions to the plan equal to 3 percent of eligible employee earnings, plus a matching contribution of up to 2 percent of eligible employee earnings based on employee contributions. The total Schering-Plough contributions to these plans in 2008, 2007 and 2006 were $96 million, $77 million, and $70 million respectively.

Schering-Plough also maintains defined contribution retirement plans in various other jurisdictions. Schering-Plough’s contributions to these plans in 2008 and 2007 were not material.

10. EARNINGS/(LOSS) PER COMMON SHARE

The following table reconciles the components of the basic and diluted earnings/(loss) per share computations:

	2008		2007			2006
	(Dollars and shares in millions)
EPS numerator:
Net income/(loss) available to common shareholders	$	1,753	$	(1,591	)	$	1,057
EPS Denominator:
Weighted average shares outstanding for basic EPS		1,625		1,536			1,482
Dilutive effect of options and deferred stock units		10		—			9
Average shares outstanding for diluted EPS		1,635		1,536			1,491

For the years ended December 31, 2008 and 2007, approximately 91 million common shares obtainable upon conversion of the 2007 mandatory convertible preferred stock were excluded from the computation of diluted earnings/(loss) per common share because their effect would have been antidilutive.

During the third quarter of 2007, Schering-Plough’s 2004 mandatory convertible preferred stock converted into 65 million common shares. These common shares are included in the weighted average shares calculation for the period after conversion.

For the years ended December 31, 2007 and 2006, 45 million and 65 million common shares, respectively, obtainable upon conversion of the 2004 mandatory convertible preferred stock were excluded from the computation of diluted earnings/(loss) per common share because their effect would have been antidilutive on a weighted average basis for the period prior to conversion.

The common shares issuable under Schering-Plough’s stock incentive plans that were excluded from the computation of diluted earnings/(loss) per common share because of their antidilutive effect would have been 61 million, 100 million and 48 million, respectively, for the years ended December 31, 2008, 2007 and 2006, respectively.

Schering-Plough issued 57,500,000 of common shares on August 15, 2007. These common shares are included in the weighted-average shares calculation for the period after issuance. See Note 18 “Shareholders’ Equity,” for additional information.

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss at December 31, 2008 and 2007, were as follows:

	2008			2007
	(Dollars in millions)
Foreign currency translation adjustment	$	(563	)	$	13
Pension and other post-retirement liabilities, net of tax effects, in accordance with SFAS No. 158 provisions		(1,321	)		(553	)
Accumulated derivative loss		(10	)		(12	)
Unrealized (loss)/gain on investments available for sale, net of tax		(19	)		18
Total	$	(1,913	)	$	(534	)

Included in the foreign currency translation adjustment during 2008 and 2007 are gains of $161 million and a loss of $23 million, respectively, from Schering-Plough’s euro-denominated debt instruments which have been designated as, and are effective as, economic hedges of the net investment in a foreign operation.

During 2007, Schering-Plough executed a series of interest rate swaps in anticipation of financing the acquisition of OBS. The objective of the swaps was to hedge the interest rate payments to be made on future issuances of debt. As such, the swaps were designated as cash flow hedges of future interest rate payments, and in accordance with SFAS 133, the effective portion of the gains or losses on the hedges are reported in other comprehensive income, and any ineffective portion is reported in operations. The effective portion of the swaps of $12 million was recorded in other comprehensive income and is being recognized as interest expense over the life of the related debt. During the years ended December 31, 2008 and 2007, $2 million and $1 million, respectively of the effective portion of the interest rate swaps was recognized as interest expense. $2 million is expected to be recognized as interest expense during 2009.

Gross unrealized pre-tax loss on investments in 2008 were $37 million, and in 2007, a gain of $1 million.

12. INVENTORIES

Inventories consisted of the following at December 31:

	2008		2007
	(Dollars in millions)
Finished products	$	1,212	$	1,823
Goods in process		1,428		1,729
Raw materials and supplies		679		617
Total inventories and inventory classified in other non-current assets	$	3,319	$	4,169

The overall decrease in total inventories was primarily due to the amortization of the fair value step-up recorded as part of the OBS acquisition of which $889 million and $258 million for 2008 and 2007 respectively, are included in Depreciation and amortization in the consolidated statements of cash flows.

Included in other assets at December 31, 2008 and 2007, is $205 million and $96 million, respectively, of inventory not expected to be sold within one year.

Inventories valued on a last-in, first-out (LIFO) basis comprised approximately 13 percent and 9 percent of total inventories at December 31, 2008 and 2007, respectively. The estimated replacement cost of total inventories at December 31, 2008 and 2007, was $3.4 billion and $4.2 billion, respectively. The cost of all other inventories is determined by the first-in, first-out method (FIFO).

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. GOODWILL AND OTHER INTANGIBLE ASSETS

As part of the purchase accounting for the acquisition of OBS, Schering-Plough recorded $2.7 billion of goodwill, of which $1.8 billion has been assigned to the Prescription Pharmaceuticals segment, and $873 million has been assigned to the Animal Health segment. None of the goodwill related to the OBS acquisition is deductible for income tax purposes.

The following table summarizes goodwill activity during the years ending December 31,

	2008											2007
	Prescription Pharmaceuticals			Animal Health			Consumer Health Care		Total			Prescription Pharmaceuticals		Animal Health		Consumer Health Care		Total
	(Dollars in millions)
Goodwill balance January 1	$	1,867		$	1,063		$	7	$	2,937		$	28	$	171	$	7	$	206
Acquisitions		—			—			—		—			1,828		888		—		2,716
Foreign exchange		(89	)		(26	)		—		(115	)		11		4		—		15
Adjustments to OBS purchase accounting		(29	)		(15	)		—		(44	)		—		—		—		—
Goodwill balance December 31	$	1,749		$	1,022		$	7	$	2,778		$	1,867	$	1,063	$	7	$	2,937

The components of other intangible assets, net, are as follows at December 31:

	2008						2007
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
	(Dollars in millions)
Patents	$	3,803	$	418	$	3,385	$	4,050	$	55	$	3,995
Trademarks		2,756		180		2,576		2,851		67		2,784
Licenses and other		796		603		193		740		515		225
Total other intangible assets	$	7,355	$	1,201	$	6,154	$	7,641	$	637	$	7,004

Patents, trademarks and licenses are amortized on the straight-line method over their respective useful lives. The residual value of intangible assets is estimated to be zero.

During 2007, as part of the purchase accounting for the acquisition of OBS, Schering-Plough recorded $6.8 billion of other intangible assets. See Note 2, “Acquisition,” for additional information.

Amortization expense related to other intangible assets in 2008, 2007 and 2006 was $570 million, $107 million and $47 million, respectively, and is included in cost of sales in the Statement of Consolidated Operations. All intangible assets are reviewed to determine their recoverability by comparing their carrying values to their expected undiscounted future cash flows when events or circumstances warrant such a review. Annual amortization expenses related to these intangible assets for the years 2009 to 2013 is expected to be approximately $570 million.

14. PRODUCT LICENSES

In December 2007, Schering-Plough and Centocor revised their distribution agreement regarding the development, commercialization and distribution of both REMICADE and golimumab, extending Schering-Plough’s rights to exclusively market REMICADE to match the duration of Schering-Plough’s exclusive marketing rights for golimumab. Effective upon regulatory approval of golimumab in the EU, Schering-Plough’s marketing rights for both products will now extend for 15 years after the first commercial sale of golimumab within the EU. Centocor will receive a progressively increased share of profits on Schering-Plough’s distribution of both products in the Schering-Plough marketing territory between 2010 and 2014, and the share of profits will remain fixed thereafter for the remainder of the term.

33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The changes to the duration of REMICADE marketing rights and the profit sharing arrangement for the products are all conditioned on approval of golimumab being granted prior to September 1, 2014. Schering-Plough may independently develop and market golimumab for a Crohn’s disease indication in its territories, with an option for Centocor to participate. In addition, Schering-Plough and Centocor agreed to utilize an autoinjector device in the commercialization of golimumab and further agreed to share its development costs. For the rights to this device, Schering-Plough made an upfront payment of $21 million, which is included in research and development expenses in the accompanying statement of consolidated operations for the year ended December 31, 2007.

15. BORROWINGS AND OTHER COMMITMENTS

Short and Long-Term Borrowings

Schering-Plough’s outstanding borrowings at December 31, 2008 and 2007, are as follows:

	2008		2007
	(Dollars in millions)
Short-term
Commercial paper	$	—	$	149
Other short-term borrowings and current portion of long-term debt		244		310
Current portion of capital leases		1		2
Total short-term borrowings	$	245	$	461
Long-term
5.00% senior unsecured euro-denominated notes due 2010	$	698	$	736
Floating rate unsecured euro-denominated term loan due 2012		698		1,619
5.30% senior unsecured notes due 2013		1,247		1,247
5.375% senior unsecured euro-denominated notes due 2014		2,090		2,205
6.00% senior unsecured notes due 2017		995		995
6.50% senior unsecured notes due 2033		1,143		1,143
6.55% senior unsecured notes due 2037		994		994
Capital leases		19		24
Other long-term borrowings		47		56
Total long-term borrowings	$	7,931	$	9,019

Schering-Plough’s short-term borrowings consist primarily of bank loans and commercial paper issued in the U.S. The weighted average interest rate on short-term borrowings was 7.1 percent and 7.9 percent at December 31, 2008 and 2007, respectively.

Senior unsecured notes

On October 1, 2007, Schering-Plough issued Euro 500 million aggregate principal amount of 5.00 percent senior unsecured euro-denominated notes due 2010 and Euro 1.5 billion aggregate principal amount of 5.375 percent senior unsecured euro-denominated notes due 2014. The net proceeds from this offering were approximately $2.8 billion. Interest on the notes is payable annually. The effective interest rate on the 5.00 percent senior unsecured euro-denominated notes and the 5.375 percent senior unsecured euro-denominated notes, which incorporates the initial discount, debt issuance fees and the impact of interest rate hedges, is 5.10 percent and 5.46 percent, respectively. The interest rate payable on these notes is not subject to adjustment. The notes generally restrict Schering-Plough from creating or assuming liens or entering into sale and leaseback transactions unless the aggregate outstanding indebtedness secured by any such liens and related to any such sale and leaseback transactions does not exceed 10 percent of consolidated net tangible assets.

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

These notes are redeemable in whole or in part, at Schering-Plough’s option at any time, at a redemption price specified in the prospectus. If a change of control triggering event occurs, under certain circumstances, as defined in the prospectus, holders of the notes will have the right to require Schering-Plough to repurchase all or any part of the notes for a cash payment equal to 101 percent of the aggregate principal amount of the notes repurchased plus accrued and unpaid interest, if any, to the date of purchase.

On September 17, 2007, Schering-Plough issued $1.0 billion aggregate principal amount of 6.00 percent senior unsecured notes due 2017 and $1.0 billion aggregate principal amount of 6.55 percent senior unsecured notes due 2037. The net proceeds from this offering were approximately $2.0 billion. Interest on the notes is payable semi-annually. The effective interest rate on the 6.00 percent senior unsecured notes and the 6.55 percent senior unsecured notes, which incorporates the initial discount and debt issuance fees, is 6.13 percent and 6.67 percent, respectively. The interest rate payable on these notes is not subject to adjustment. The notes generally restrict Schering-Plough from creating or assuming liens or entering into sale and leaseback transactions unless the aggregate outstanding indebtedness secured by any such liens and related to any such sale and leaseback transactions does not exceed 10 percent of consolidated net tangible assets. These notes are redeemable in whole or in part, at Schering-Plough’s option at any time, at a redemption price equal to the greater of (1) 100 percent of the principal amount of such notes and (2) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the redemption date on a semiannual basis using the rate of Treasury Notes with comparable remaining terms plus 25 basis points for the 2017 notes or 30 basis points for the 2037 notes. If a change of control triggering event occurs, under certain circumstances, as defined in the prospectus, holders of the notes will have the right to require Schering-Plough to repurchase all or any part of the notes for a cash payment equal to 101 percent of the aggregate principal amount of the notes repurchased plus accrued and unpaid interest, if any, to the date of purchase.

Schering-Plough used the net proceeds from the issuance of these senior unsecured notes to fund a portion of the purchase price for the OBS acquisition. See Note 2, “Acquisition.”

On November 26, 2003, Schering-Plough issued $1.25 billion aggregate principal amount of 5.3 percent senior unsecured notes due 2013 and $1.15 billion aggregate principal amount of 6.5 percent senior unsecured notes due 2033. The net proceeds from this offering were $2.37 billion. Interest on the notes is payable semi-annually and subject to rate adjustment as follows: If the rating assigned to a particular series of notes by either Moody’s Investors Service, Inc. (Moody’s) or Standard & Poor’s Rating Services (S&P) changes to a rating set forth below, the interest rate payable on that series of notes will be the initial interest rate (5.3 percent for the notes due 2013 and 6.5 percent for the notes due 2033) plus the additional interest rate set forth below by Moody’s and S&P:

Additional Interest Rate	Moody’s Rating	S&P Rating
0.25%	Baa1	BBB+
0.50%	Baa2	BBB
0.75%	Baa3	BBB–
1.00%	Ba1 or below	BB+ or below

In no event will the interest rate for any of the notes increase by more than 2 percent above the initial coupon rates of 5.3 percent and 6.5 percent, respectively. If either Moody’s or S&P subsequently upgrades its ratings, the interest rates will be correspondingly reduced, but not below 5.3 percent or 6.5 percent, respectively. Furthermore, the interest rate payable on a particular series of notes will return to 5.3 percent and 6.5 percent, respectively, and the rate adjustment provisions will permanently cease to apply if, following a downgrade by either Moody’s or S&P below A3 or A-, respectively, the notes are subsequently rated above Baa1 by Moody’s and BBB+ by S&P.

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Upon issuance, the notes were rated A3 by Moody’s and A+ by S&P. On July 14, 2004, Moody’s lowered its rating of the notes to Baa1 and, accordingly, the interest payable on each note increased by 25 basis points, effective December 1, 2004, resulting in a 5.55 percent interest rate payable on the notes due 2013, and a 6.75 percent interest rate payable on the notes due 2033. At December 31, 2008, the notes were rated Baa1 by Moody’s and A- by S&P.

These senior unsecured notes are redeemable in whole or in part, at Schering-Plough’s option at any time, at a redemption price equal to the greater of (1) 100 percent of the principal amount of such notes and (2) the sum of the present values of the remaining scheduled payments of principal and interest discounted using the rate of Treasury Notes with comparable remaining terms plus 25 basis points for the 2013 notes or 35 basis points for the 2033 notes.

Term Loan

On October 24, 2007, Schering-Plough entered into a five-year senior unsecured euro-denominated term loan facility with a syndicate of banks. On October 31, 2007, Schering-Plough drew Euro 1.1 billion ($1.6 billion) on this term loan to fund a portion of the purchase price for the OBS acquisition. See Note 2, “Acquisition,” for additional information. This term loan has a floating interest rate (5.06% and 4.95% weighted average rates for 2008 and 2007, respectively) and requires Schering-Plough to maintain a net debt to total capital ratio of no more than 65 percent through 2009 and 60 percent thereafter, in which net debt equals total debt less cash, cash equivalents, short-term investments and marketable securities and total capital equals the sum of total debt and total shareholders’ equity excluding the cumulative effect of acquired in-process research and development in connection with any acquisition consummated after the closing of the term loan. The term loan also generally restricts Schering-Plough from creating or assuming liens or entering into sale and leaseback transactions unless the aggregate outstanding indebtedness secured by any such liens and related to any such sale and leaseback transactions does not exceed 12 percent of consolidated net tangible assets. During 2008, Schering-Plough made early principal repayments of Euro 600 million. No prepayment penalty was incurred relating to these principal repayments.

In addition, Schering-Plough’s international subsidiaries had approximately $578 million available in unused lines of credit, most of which are uncommitted, from various financial institutions at December 31, 2008.

Aggregate Amount of Maturities

The aggregate amount of maturities for all long-term debt at December 31, 2008, for each of the next five years and thereafter are as follows:

	2009	2010		2011		2012		2013		Thereafter
	(Dollars in millions)
Long-term debt	—	$	703	$	19	$	720	$	1,253	$	5,236

Credit Facilities

On August 9, 2007, Schering-Plough entered into a $2.0 billion revolving credit agreement with a syndicate of banks and terminated its $1.5 billion credit facility that was to mature in May 2009. This credit facility has a floating interest rate, matures in August 2012 and requires Schering-Plough to maintain a net debt to total capital ratio of no more than 65 percent through 2009 and 60 percent thereafter, in which net debt equals total debt less cash, cash equivalents, short-term investments and marketable securities and total capital equals the sum of total debt and total shareholders’ equity excluding the cumulative effect of acquired in-process research and development in connection with any acquisition consummated after the closing of the credit facility. The credit facility also generally restricts Schering-Plough from creating or assuming liens or entering into sale and leaseback transactions unless the aggregate outstanding indebtedness secured by any such liens and related to any such sale and leaseback transactions does not exceed 12 percent of consolidated net tangible assets.

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

This credit line is available for general corporate purposes and is considered as support to Schering-Plough’s commercial paper borrowings. Borrowings under this credit facility may be drawn by the U.S. parent company or by its wholly-owned international subsidiaries when accompanied by a parent guarantee. This facility does not require compensating balances, however, a nominal commitment fee is paid. As of December 31, 2008 and 2007, no borrowings were outstanding under this facility.

Other Commitments

Total rent expense amounted to $258 million, $156 million and $118 million in 2008, 2007 and 2006, respectively. Future annual minimum rental commitments in the next five years on non-cancelable operating leases as of December 31, 2008, are as follows: 2009, $165 million; 2010, $130 million; 2011, $88 million; 2012, $55 million; and 2013, $44 million, with aggregate minimum lease obligations of $76 million due thereafter.

At December 31, 2008, Schering-Plough has commitments totaling $106 million and $1 million related to capital expenditures to be made in 2009 and 2010, respectively.

16. FINANCIAL INSTRUMENTS

SFAS 133 requires all derivatives to be recorded on the balance sheets at fair value. In addition, this Statement also requires: (1) the effective portion of qualifying cash flow hedges be recognized in income when the hedged item affects income; (2) changes in the fair value of derivatives that qualify as fair value hedges, along with the change in the fair value of the hedged risk, be recognized as they occur; and (3) changes in the fair value of derivatives that do not qualify for hedge treatment, as well as the ineffective portion of qualifying hedges, be recognized in the statements of consolidated operations as they occur.

Risks, Policy and Objectives

Schering-Plough is exposed to market risk, primarily from changes in foreign currency exchange rates and, to a lesser extent, from interest rate and equity price changes. Currently, Schering-Plough has not deemed it cost effective to engage in a formula-based program of hedging the profits and cash flows of international operations using derivative financial instruments, but on a limited basis, Schering-Plough will hedge selective foreign currency risks with derivatives. Because Schering-Plough’s international subsidiaries purchase significant quantities of inventory payable in U.S. dollars, managing the level of inventory and related payables and the rate of inventory turnover can provide a natural level of protection against adverse changes in exchange rates. Furthermore, the risk of adverse exchange rate change is somewhat mitigated by the fact that Schering-Plough’s international operations are widespread.

Schering-Plough’s senior unsecured euro-denominated notes and euro-denominated term loan have been designated as, and are effective as, economic hedges of the net investment in a foreign operation. In accordance with SFAS No. 52, “Foreign Currency Translation,” the foreign currency transaction gains or losses on these euro-denominated debt instruments are included in foreign currency translation adjustment within other comprehensive income.

During 2007, as part of an overall risk management strategy and in consideration of various preliminary financing scenarios associated with the acquisition of OBS, Schering-Plough purchased euro-denominated currency options to mitigate its exposure in the event there was a significant strengthening in the Euro as compared to the U.S. Dollar. Schering-Plough purchased the options for aggregate premiums of approximately $165 million and received proceeds of $675 million upon the termination of these options, resulting in a net realized gain of $510 million. These derivatives did not qualify for hedge accounting in accordance with SFAS 133. Accordingly, the gain on these derivatives was recognized in the Statement of Consolidated Operations. These derivatives were short-term (trading) in nature and did not hedge a specific financing or investment transaction. Accordingly, the cash impacts of these derivatives were classified as operating cash flows in the Statement of Consolidated Cash Flows. See Note 7, “Other (Income)/Expense, Net.” As of December 31, 2008 and 2007, there were no open foreign currency option contracts.

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During 2007, Schering-Plough executed a series of interest rate swaps in anticipation of financing the acquisition of OBS. The objective of the swaps was to hedge the interest rate payments to be made on future issuances of debt. As such, the swaps were designated as cash flow hedges of future interest payments, and in accordance with SFAS 133, the effective portion of the gains or losses on the hedges are reported in other comprehensive income, and any ineffective portion was reported in operations. In connection with the euro-denominated debt issuances as described in Note 15, “Borrowings and Other Commitments,” portions of the swaps were deemed ineffective, and Schering-Plough recognized a $7 million loss in the Statement of Consolidated Operations. The effective portion of the swaps of $12 million were recorded in other comprehensive income in 2007 and is being recognized as interest expense over the life of the related debt. The cash flows related to these interest rate swaps were classified as operating cash flows in the Statement of Consolidated Cash Flows. See Note 7, “Other Expense/(Income), Net.” As of December 31, 2008 and 2007, there were no open interest rate swaps.

Schering-Plough mitigates credit risk on derivative instruments by dealing only with counterparties considered to be of high credit quality. Accordingly, Schering-Plough does not anticipate loss for non-performance. Schering-Plough does not enter into derivative instruments in a manner to generate trading profits. Schering-Plough classifies cash flows from derivatives accounted for as hedges in the same category as the item being hedged.

Fair value of financial instruments

The table below presents the carrying values and estimated fair values for certain of Schering-Plough’s financial instruments at December 31, 2008 and 2007. Estimated fair values were determined based on market prices, where available, or dealer quotes. The carrying values of all other financial instruments, including cash and cash equivalents, approximated their estimated fair values at December 31, 2008 and 2007.

	2008				2007
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
	(Dollars in millions)
ASSETS:
Short-term investments	$	5	$	5	$	32	$	32
Long-term investments		157		157		200		200
LIABILITIES:
Short-term borrowings and current portion of long-term debt	$	245	$	245	$	461	$	461
Long-term debt		7,931		7,891		9,019		9,130

Long-term Investments

Long-term investments, which are included in other non-current assets, primarily consist of debt and equity securities held in non-qualified trusts to fund long-term employee benefit obligations. The long-term employee benefit obligations are included as liabilities in the Consolidated Balance Sheets. These assets can only be used to fund the related employee benefit obligations.

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17. FAIR VALUE MEASUREMENTS

Schering-Plough’s Consolidated Balance Sheet at December 31, 2008, includes the following assets and liabilities that are measured at fair value on a recurring basis:

	Total Fair Value at December 31, 2008		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in millions)
Assets
Securities held for employee compensation	$	107	$	107	$	—	$	—
Other		18		5		13		—
Total assets	$	125	$	112	$	13	$	—
Liabilities
Foreign currency exchange contract		3		—		3		—
Total liabilities	$	3	$	—	$	3	$	—

The majority of Schering-Plough’s assets and liabilities measured at fair value on a recurring basis are measured using unadjusted quoted prices in active markets for identical items (Level 1) as inputs, multiplied by the number of units held at the balance sheet date. As of December 31, 2008, assets and liabilities with fair values measured using significant other observable inputs (Level 2) include measurements using quoted prices for identical items in markets that are not active and measurements using inputs that are derived principally from or corroborated by observable market data.

18. SHAREHOLDERS’ EQUITY

Preferred Shares

As of December 31, 2008, Schering-Plough has authorized 50,000,000 shares of preferred stock that consists of 11,500,000 preferred shares designated as 6 percent Mandatory Convertible Preferred Stock and 38,500,000 preferred shares whose designations have not yet been determined. As of December 31, 2008, 10,000,000 of the shares of 6 percent Mandatory Convertible Preferred Stock are issued and outstanding.

2007 Mandatory Convertible Preferred Stock

On August 15, 2007, Schering-Plough issued 10,000,000 shares of 6 percent Mandatory Convertible Preferred Stock (the 2007 Preferred Stock) with a face value of $2.5 billion. Net proceeds to Schering-Plough were approximately $2.4 billion after deducting commissions, discounts and other underwriting expenses. Schering-Plough used the net proceeds from the sale of the 2007 Preferred Stock to fund a portion of the purchase price for the OBS acquisition. See Note 2, “Acquisition,” for additional information.

Each share of the 2007 Preferred Stock will automatically convert into between 7.4206 and 9.0909 common shares of Schering-Plough depending on the average closing price of Schering-Plough’s common shares over the 20 trading day period ending on the third trading day prior to the mandatory conversion date of August 13, 2010, as defined in the prospectus. The preferred shareholders may elect to convert at any time prior to August 13, 2010, at the minimum conversion ratio of 7.4206 common shares per share of the 2007 Preferred Stock. Additionally, if at any time prior to the mandatory conversion date the closing price of Schering-Plough’s common shares exceeds $50.53 (for at least 20 trading days within a period of 30 consecutive trading days), Schering-Plough may elect to cause the conversion of all, but not less than all, of the 2007 Preferred Stock then outstanding at the same minimum conversion ratio of 7.4206 common shares for each share of 2007 Preferred Stock. These shares have a liquidation preference of $250 per share, plus an amount equal to the sum of all accrued cumulated and unpaid dividends.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The 2007 Preferred Stock accrues dividends at an annual rate of 6 percent on shares outstanding. The dividends are cumulative from the date of issuance, and, to the extent Schering-Plough is legally permitted to pay dividends and the Board of Directors declares a dividend payable, Schering-Plough will pay dividends on each dividend payment date. The dividend payment dates are February 15, May 15, August 15 and November 15 of each year, with the first dividend to be paid on November 15, 2007.

2004 Mandatory Convertible Preferred Stock

During the year ended December 31, 2007, all shares of 6 percent Mandatory Convertible Preferred Stock issued on August 10, 2004 (the 2004 Preferred Stock) were converted into 64,584,929 shares of Schering-Plough common stock. Following conversion, all 28,750,000 shares of 2004 Preferred Stock resumed their status as authorized and unissued preferred stock, undesignated as to series and available for future issuance.

Equity Issuance and Treasury Shares

On August 15, 2007, Schering-Plough issued 57,500,000 common shares from treasury shares at $27.50 per share. Net proceeds to Schering-Plough were approximately $1.5 billion after deducting commissions, discounts and other underwriting expenses. Schering-Plough used the net proceeds from the sale of the common shares to fund a portion of the purchase price for the OBS acquisition. See Note 2, “Acquisition,” for additional information.

A summary of treasury share transactions for the years ended December 31 is as follows:

	2008	2007		2006
	(Shares in millions)
Share balance at January 1	490	547		550
Issuance of common shares	—	(57	)	—
Stock incentive plans activities	2	—		(3	)
Share balance at December 31	492	490		547

Included in the treasury share balance is 70.2 million shares that were acquired by a subsidiary of Schering-Plough through an open-market purchase program in 1994-1995. These shares are not considered treasury shares under New Jersey law; however, like treasury shares, they may not be voted and are not considered outstanding shares for determining the necessary votes to approve a matter submitted to a stockholder vote. The subsidiary does not receive dividends on these shares.

Effective September 17, 2007, the Board of Directors of Schering-Plough adopted an amended and restated certificate of incorporation, reflecting both the automatic conversion of the 2004 Preferred Stock issued into shares of common stock on September 14, 2007, and the terms of the 2007 Preferred Stock.

19. INSURANCE COVERAGE

Schering-Plough maintains insurance coverage with such deductibles and self-insurance as management believes adequate for its needs under current circumstances. Such coverage reflects market conditions (including cost and availability) existing at the time it is written, and the relationship of insurance coverage to self-insurance varies accordingly. Schering-Plough self-insures substantially all of its risk as it relates to products’ liability, as the availability of commercial insurance has become more restrictive. Schering-Plough continually assesses the best way to provide for its insurance needs.

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

20. SEGMENT INFORMATION

Schering-Plough has three reportable segments: Prescription Pharmaceuticals, Animal Health and Consumer Health Care. The segment sales and profit/(loss) data that follow are consistent with Schering-Plough’s current management reporting structure. The Prescription Pharmaceuticals segment discovers, develops, manufactures and markets human pharmaceutical products. The Animal Health segment discovers, develops, manufactures and markets animal health products. The Consumer Health Care segment develops, manufactures and markets over-the-counter, foot care and sun care products, primarily in the U.S.

Net Sales by Major Product and by Segment:

	2008		2007		2006
	(Dollars in millions)
PRESCRIPTION PHARMACEUTICALS	$	14,253	$	10,173	$	8,561
REMICADE		2,118		1,648		1,240
NASONEX		1,155		1,092		944
TEMODAR		1,002		861		703
PEGINTRON		914		911		837
CLARINEX/AERIUS		790		799		722
FOLLISTIM/PUREGON(1)		577		57		—
NUVARING(1)		440		45		—
CLARITIN Rx		425		391		356
AVELOX		376		384		304
INTEGRILIN		314		332		329
CAELYX		297		257		206
REBETOL		260		277		311
ZEMURON(1)		253		25		—
REMERON(1)		239		33		—
INTRON A		234		233		237
SUBUTEX/SUBOXONE		230		220		203
ASMANEX		180		162		103
Other Pharmaceutical		4,449		2,446		2,066
ANIMAL HEALTH		2,973		1,251		910
CONSUMER HEALTH CARE		1,276		1,266		1,123
OTC		680		682		558
Foot Care		357		345		343
Sun Care		239		239		222
CONSOLIDATED NET SALES	$	18,502	$	12,690	$	10,594

(1) Products acquired in OBS acquisition on November 19, 2007.

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Net Sales by Geographic Area:

	2008		2007		2006
	(Dollars in millions)
United States	$	5,556	$	4,597	$	4,192
Europe and Canada		8,903		5,500		4,403
Latin America		1,987		1,359		990
Asia Pacific		2,056		1,234		1,009
Consolidated net sales	$	18,502	$	12,690	$	10,594

Schering-Plough has subsidiaries in more than 55 countries outside the U.S. Net sales are presented in the geographic area in which Schering-Plough’s customers are located. The following foreign countries accounted for 5 percent or more of consolidated net sales during any of the past three years:

	2008				2007				2006
	Net Sales		% of Consolidated Net Sales		Net Sales		% of Consolidated Net Sales		Net Sales		% of Consolidated Net Sales
	(Dollars in millions)
Total International net sales	$	12,946	70	%	$	8,093	64	%	$	6,402	60	%
France		1,369	7	%		965	8	%		809	8	%
Japan		1,008	5	%		709	6	%		669	6	%
Germany		835	5	%		473	4	%		408	4	%
Canada		774	4	%		578	5	%		478	5	%

Net sales by customer:

Sales to a single customer that accounted for 10 percent or more of Schering-Plough’s consolidated net sales during the past three years are as follows:

	2008				2007				2006
	Net Sales		% of Consolidated Net Sales		Net Sales		% of Consolidated Net Sales		Net Sales		% of Consolidated Net Sales
	(Dollars in millions)
McKesson Corporation	$	1,923	10	%	$	1,526	12	%	$	1,159	11	%
Cardinal Health		1,168	6	%		1,196	9	%		1,019	10	%

Profit/(Loss) by segment

	Year Ended December 31,
	2008(1)			2007(2)			2006
	(Dollars in millions)
Prescription Pharmaceuticals	$	2,725		$	(1,206	)	$	1,394
Animal Health(3)		186			(582	)		120
Consumer Health Care		271			275			228
Corporate and other (including net interest (expense)/income of ($465) million, $150 million and $125 million in 2008, 2007 and 2006, respectively		(1,133	)		298			(259	)
Consolidated profit/(loss) before tax and cumulative effect of a change in accounting principle	$	2,049		$	(1,215	)	$	1,483

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(1) In 2008, the Prescription Pharmaceuticals segment’s profit includes charges arising from purchase accounting items of $808 million. In 2008, the Animal Health segment’s profit includes charges arising from purchase accounting items of $641 million.

(2) In 2007, the Prescription Pharmaceuticals segment’s loss includes $3.4 billion of purchase accounting items, including acquired in-process research and development of $3.2 billion. In 2007, the Animal Health segment’s loss includes $721 million of purchase accounting items, including acquired in-process research and development of $600 million.

(3) In 2008, the profits of the Animal Health segment include the gain on sale of certain Animal Health products of $160 million.

Schering-Plough’s net sales do not include sales of VYTORIN and ZETIA, which are managed in the joint venture with Merck, as Schering-Plough accounts for this joint venture under the equity method of accounting (see Note 5, “Equity Income,” for additional information). The Prescription Pharmaceuticals segment includes equity income from the Merck/Schering-Plough joint venture.

“Corporate and other” includes interest income and expense, foreign exchange gains and losses, currency option gains, headquarters expenses, special charges and other miscellaneous items. The accounting policies used for segment reporting are the same as those described in Note 1, “Summary of Significant Accounting Policies.”

In 2008, “Corporate and other” includes special and acquisition-related charges of $329 million, comprised of $54 million of integration-related costs and $275 million of employee termination costs related to the Productivity Transformation Program which includes the ongoing integration of OBS. It is estimated the charges relate to the reportable segments as follows: Prescription Pharmaceuticals — $230 million, Animal Health — $30 million, Consumer Health Care — $2 million and Corporate and other — $67 million.

In 2007, “Corporate and other” includes special and acquisition-related charges of $84 million, comprised of $61 million of integration-related costs for the OBS acquisition and $23 million of employee termination costs as part of integration activities. It is estimated the charges relate to the reportable segments as follows: Prescription Pharmaceuticals — $27 million, Animal Health — $11 million and Corporate and other — $46 million.

In 2006, “Corporate and other” includes special charges of $102 million primarily related to changes to Schering-Plough’s manufacturing operations in the U.S. and Puerto Rico announced in June 2006, all of which related to the Prescription Pharmaceuticals segment. Included in 2006 cost of sales were charges of approximately $146 million from the manufacturing streamlining actions which were primarily related to the Prescription Pharmaceuticals segment.

See Note 3, “Special and Acquisition-Related Charges and Manufacturing Streamlining,” for additional information.

Supplemental sales information:

Sales of products comprising 10 percent or more of Schering-Plough’s U.S. or international sales for the year ended December 31, 2008, were as follows:

	Amount		Percentage of applicable sales
	(Dollars in millions)
U.S.
NASONEX	$	644	12	%
International
REMICADE	$	2,118	16	%

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Long-lived Assets by Geographic Location

	2008		2007		2006
	(Dollars in millions)
United States	$	2,792	$	2,863	$	2,547
Netherlands		1,244		1,320		1
Ireland		689		719		488
Singapore		816		822		824
Other		1,572		1,599		804
Total	$	7,113	$	7,323	$	4,664

Long-lived assets shown by geographic location are primarily property. The significant increase in long-lived assets as of December 31, 2007, is due to the OBS acquisition.

Schering-Plough does not disaggregate assets on a segment basis for internal management reporting and, therefore, such information is not presented.

21. LEGAL, ENVIRONMENTAL AND REGULATORY MATTERS

Background

Schering-Plough is involved in various claims, investigations and legal proceedings.

Schering-Plough records a liability for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. Schering-Plough adjusts its liabilities for contingencies to reflect the current best estimate of probable loss or minimum liability, as the case may be. Where no best estimate is determinable, Schering-Plough records the minimum amount within the most probable range of its liability. Expected insurance recoveries have not been considered in determining the amounts of recorded liabilities for environmental related matters.

If Schering-Plough believes that a loss contingency is reasonably possible, rather than probable, or the amount of loss cannot be estimated, no liability is recorded. However, where a liability is reasonably possible, disclosure of the loss contingency is made.

Schering-Plough reviews the status of all claims, investigations and legal proceedings on an ongoing basis, including related insurance coverages. From time to time, Schering-Plough may settle or otherwise resolve these matters on terms and conditions management believes are in the best interests of Schering-Plough. Resolution of any or all claims, investigations and legal proceedings, individually or in the aggregate, could have a material adverse effect on Schering-Plough’s consolidated results of operations, cash flows or financial condition.

Except for the matters discussed in the remainder of this Note, the recorded liabilities for contingencies at December 31, 2008, and the related expenses incurred during the year ended December 31, 2008, were not material. In the opinion of management, based on the advice of legal counsel, the ultimate outcome of these matters, except matters discussed in the remainder of this Note, is not expected to have a material impact on Schering-Plough’s consolidated results of operations, cash flows or financial condition.

Patent Matters

Intellectual property protection is critical to Schering-Plough’s ability to successfully commercialize its product innovations. The potential for litigation regarding Schering-Plough’s intellectual property rights always exists and may be initiated by third parties attempting to abridge Schering-Plough’s rights, as well as by Schering-Plough in protecting its rights.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AWP Litigation and Investigations

Schering-Plough continues to respond to existing and new litigation by certain states and private payors and investigations by the Department of Health and Human Services, the Department of Justice and several states into industry and Schering-Plough practices regarding average wholesale price (AWP). Schering-Plough is cooperating with these investigations.

These litigations and investigations relate to whether the AWP used by pharmaceutical companies for certain drugs improperly exceeds the average prices paid by providers and, as a consequence, results in unlawful inflation of certain reimbursements for drugs by state programs and private payors that are based on AWP. The complaints allege violations of federal and state law, including fraud, Medicaid fraud and consumer protection violations, among other claims. In the majority of cases, the plaintiffs are seeking class certifications. In some cases, classes have been certified. The outcome of these litigations and investigations could include substantial damages, the imposition of substantial fines, penalties and injunctive or administrative remedies.

Securities and Class Action Litigation

Federal Securities Litigation

Following Schering-Plough’s announcement that the FDA had been conducting inspections of Schering-Plough’s manufacturing facilities in New Jersey and Puerto Rico and had issued reports citing deficiencies concerning compliance with current Good Manufacturing Practices, several lawsuits were filed against Schering-Plough and certain named officers. These lawsuits allege that the defendants violated the federal securities law by allegedly failing to disclose material information and making material misstatements. Specifically, they allege that Schering-Plough failed to disclose an alleged serious risk that a new drug application for CLARINEX would be delayed as a result of these manufacturing issues, and they allege that Schering-Plough failed to disclose the alleged depth and severity of its manufacturing issues. These complaints were consolidated into one action in the U.S. District Court for the District of New Jersey, and a consolidated amended complaint was filed on October 11, 2001, purporting to represent a class of shareholders who purchased shares of Schering-Plough stock from May 9, 2000 through February 15, 2001. The complaint seeks compensatory damages on behalf of the class. The Court certified the shareholder class on October 10, 2003. Notice of pendency of the class action was sent to members of that class in July 2007. On February 18, 2009 the Court signed an order preliminarily approving a settlement agreement. The proposed settlement agreement is scheduled to be presented for final approval at a hearing on June 1, 2009.

ERISA Litigation

On March 31, 2003, Schering-Plough was served with a putative class action complaint filed in the U.S. District Court in New Jersey alleging that Schering-Plough, retired Chairman, CEO and President Richard Jay Kogan, Schering-Plough’s Employee Savings Plan (Plan) administrator, several current and former directors, and certain former corporate officers breached their fiduciary obligations to certain participants in the Plan. The complaint seeks damages in the amount of losses allegedly suffered by the Plan. The complaint was dismissed on June 29, 2004. The plaintiffs appealed. On August 19, 2005 the U.S. Court of Appeals for the Third Circuit reversed the dismissal by the District Court and the matter has been remanded back to the District Court for further proceedings.

K-DUR Antitrust Litigation

Schering-Plough had settled patent litigation with Upsher-Smith, Inc. (Upsher-Smith) and ESI Lederle, Inc. (Lederle) 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. Following the commencement of an FTC administrative proceeding alleging anti-competitive effects from those settlements (which has been resolved in Schering-Plough’s favor), alleged class action suits were filed in federal and state courts on behalf of direct and indirect purchasers of K-DUR against Schering-Plough, Upsher-Smith and Lederle.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

These suits claim violations of federal and state antitrust laws, as well as other state statutory and common law causes of action. These suits seek unspecified damages. In February 2009, a special master recommended that the U.S. District Court for the District of New Jersey dismiss the class action lawsuits on summary judgment.

Third-party Payor Actions

Several purported class action litigations have been filed following the announcement of the settlement of the Massachusetts Investigation. Plaintiffs in these actions seek damages on behalf of third-party payors resulting from the allegations of off-label promotion and improper payments to physicians that were at issue in the Massachusetts Investigation.

Litigation and Investigations relating to the Merck/Schering-Plough Cholesterol Joint Venture

Background. In January 2008, the Merck/Schering-Plough Cholesterol Joint Venture announced the results of the ENHANCE clinical trial (Effect of Combination Ezetimibe and High-Dose Simvastatin vs. Simvastatin Alone on the Atherosclerotic Process in Patients with Heterozygous Familial Hypercholesterolemia). In July 2008 the Merck/Schering-Plough Cholesterol Joint Venture announced the results of the SEAS clinical trial (Simvastatin and Ezetimibe in Aortic Stenosis). Litigation and investigations with respect to matters relating to these clinical trials are ongoing.

Schering-Plough is cooperating fully with the various investigations and responding to the requests for information, and Schering-Plough intends to vigorously defend the lawsuits that have been filed relating to the ENHANCE study.

Investigation and Inquiries. As of February 27, 2009, Schering-Plough, the Joint Venture and/or its joint venture partner, Merck, received a number of governmental inquiries and have been the subject of a number of investigations relating to the ENHANCE clinical trial. These include several letters from Congress, including the Subcommittee on Oversight and Investigation of the House Committee on Energy and Commerce, and the ranking minority member of the Senate Finance Committee, collectively seeking a combination of witness interviews, documents and information on a variety of issues related to the Merck/Schering-Plough Cholesterol Joint Venture’s ENHANCE clinical trial. These also include several subpoenas from state officials, including State Attorneys General, and requests for information from U.S. Attorneys and the Department of Justice seeking similar information and documents. In addition, Schering-Plough received letters from the Subcommittee on Oversight and Investigations of the House Committee on Energy and Commerce seeking certain information and documents related to the SEAS clinical trial and other matters. Schering-Plough, Merck and the Joint Venture are cooperating with these investigations and responding to the inquiries.

In January 2008, after the initial release of ENHANCE data, the FDA stated that it would review the results of the ENHANCE trial. On January 8, 2009 the FDA announced the results of its review. The FDA stated that following two years of treatment,

• Carotid artery thickness increased by 0.011 mm in the VYTORIN group and by 0.006 mm in the simvastatin group. The difference in the changes in carotid artery thickness between the two groups was not statistically significant.

• The levels of LDL cholesterol decreased by 56% in the VYTORIN group and decreased by 39% in the simvastatin group. The difference in the reductions in LDL cholesterol between the two groups was statistically significant.

The FDA also stated that the results from ENHANCE do not change its position that an elevated LDL cholesterol is a risk factor for cardiovascular disease and that lowering LDL cholesterol reduces the risk for cardiovascular disease. The FDA also stated that pending the results of the IMPROVE-IT clinical trial, patients should not stop taking VYTORIN or other cholesterol lowering medications and should talk to their doctors if they have any questions.

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Litigation. Schering-Plough continues to respond to existing and new litigation, including civil class action lawsuits alleging common law and state consumer fraud claims in connection with Schering-Plough’s sale and promotion of the Merck/Schering-Plough joint-venture products’ VYTORIN and ZETIA; several putative shareholder securities class action lawsuits (where several officers are also named defendants) alleging false and misleading statements and omissions by Schering-Plough and its representatives related to the timing of disclosures concerning the ENHANCE results, allegedly in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934; a putative shareholder securities class action lawsuit (where several officers and directors are also named), alleging material misstatements and omissions related to the ENHANCE results in the offering documents in connection with Schering-Plough’s 2007 securities offerings, allegedly in violation of the Securities Act of 1933, including Section 11; several putative class action suits alleging that Schering-Plough and certain officers and directors breached their fiduciary duties under ERISA and seeking damages in the amount of losses allegedly suffered by the Plans; a Shareholder Derivative Action alleging that the Board of Directors breached its fiduciary obligations relating to the timing of the release of the ENHANCE results; and a letter on behalf of a single shareholder requesting that the Board of Directors investigate the allegations in the litigation described above and, if warranted, bring any appropriate legal action on behalf of Schering-Plough.

Tax Matters

In October 2001, IRS auditors asserted that two interest rate swaps that Schering-Plough entered into with an unrelated party should be recharacterized as loans from affiliated companies, resulting in additional tax liability for the 1991 and 1992 tax years. In September 2004, Schering-Plough made payments to the IRS in the amount of $194 million for income tax and $279 million for interest. Schering-Plough filed refund claims for the tax and interest with the IRS in December 2004. Following the IRS’s denial of Schering-Plough’s claims for a refund, Schering-Plough filed suit in May 2005 in the U.S. District Court for the District of New Jersey for refund of the full amount of the tax and interest. This refund litigation has been tried in Newark District court and a decision has not yet been rendered. Schering-Plough’s tax reserves were adequate to cover the above-mentioned payments.

Pending Administrative Obligations

In connection with the settlement of an investigation with the U.S. Department of Justice and the U.S. Attorney’s Office for the Eastern District of Pennsylvania, Schering-Plough entered into a five-year corporate integrity agreement (CIA). The CIA was amended in August 2006 in connection with the settlement of the Massachusetts Investigation, commencing a new five-year term. Failure to comply with the obligations under the CIA could result in financial penalties. To date, Schering-Plough believes it has complied with its obligations.

Other Matters

Products Liability

Beginning in May 2007, a number of complaints were filed in various jurisdictions asserting claims against Organon USA, Inc., Organon Pharmaceuticals USA, Inc., Organon International (Organon), and Schering-Plough Corporation arising from Organon’s marketing and sale of NUVARING, a combined hormonal contraceptive vaginal ring. The plaintiffs contend that Organon and Schering-Plough 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 venued in Missouri and in New Jersey state court. Other cases are pending in other states.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

French Matter

Based on a complaint to the French competition authority from a competitor in France and pursuant to a court order, the French competition authority has obtained documents from a French subsidiary of Schering-Plough relating to SUBUTEX, one of the products that the subsidiary markets and sells. Any resolution of this matter adverse to the French subsidiary could result in the imposition of civil fines and injunctive or administrative remedies. On July 17, 2007, the Juge des Libertés et de la Détention ordered the annulment of the search and seizure on procedural grounds. On July 19, 2007, the French authority appealed the order to the French Supreme Court.

In April 2007, the competitor also requested interim relief, a portion of which was granted by the French competition authority in December 2007. The interim relief required Schering-Plough’s French subsidiary to publish in two specialized newspapers information including that the generic has the same quantitative and qualitative composition and the same pharmaceutical form as, and is substitutable for, SUBUTEX. In February 2008, the Paris Court of Appeal confirmed the decision of the French competition authority. In January 2009, the French Supreme Court confirmed the decision of the French competition authority.

Environmental

Schering-Plough has responsibilities for environmental cleanup under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. At several Superfund sites (or equivalent sites under state law), Schering-Plough is alleged to be a potentially responsible party (PRP). Schering-Plough believes that it is remote at this time that there is any material liability in relation to such sites. Schering-Plough estimates its obligations for cleanup costs for Superfund sites based on information obtained from the federal Environmental Protection Agency (EPA), an equivalent state agency and/or studies prepared by independent engineers, and on the probable costs to be paid by other PRPs. Schering-Plough records a liability for environmental assessments and/or cleanup when it is probable a loss has been incurred and the amount can be reasonably estimated.

48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Schering-Plough Corporation

We have audited the accompanying consolidated balance sheets of Schering-Plough Corporation and subsidiaries (the “Company”) at December 31, 2008 and 2007, and the related statements of consolidated operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15, Schedule II. Valuation and Qualifying Accounts. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Schering-Plough Corporation and subsidiaries at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 9 to the consolidated financial statements, effective December 31, 2006, the Company adopted Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans . As discussed in Note 1 to the consolidated financial statements, effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting at December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2009 (not presented herein) expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Parsippany, New Jersey

February 27, 2009

49

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

QUARTERLY DATA (UNAUDITED)

	Three Months Ended
	March 31						June 30						September 30						December 31
	2008			2007			2008			2007			2008			2007			2008			2007
	(Dollars in millions, except per share figures)
Net sales	$	4,657		$	2,975		$	4,921		$	3,178		$	4,576		$	2,812		$	4,348		$	3,724
Cost of sales		2,137			937			1,908			977			1,737			925			1,525			1,566
Gross margin		2,520			2,038			3,013			2,201			2,839			1,887			2,823			2,158
Selling, general and administrative		1,676			1,213			1,870			1,358			1,660			1,262			1,615			1,634
Research and development		880			707			906			696			893			669			850			855
Acquired in-process research and development		—			—			—			—			—			—			—			3,754
Other (income)/expense, net		95			(48	)		134			(16	)		(39	)		(390	)		146			(231	)
Special charges and acquisition-related charges		23			1			94			11			101			20			111			52
Equity income from cholesterol joint venture		(517	)		(487	)		(493	)		(490	)		(434	)		(506	)		(426	)		(566	)
Income/(loss) before income taxes		363			652			502			642			658			832			527			(3,340	)
Income tax expense		49			87			40			103			44			82			13			(14	)
Net income/(loss)	$	314		$	565		$	462		$	539		$	614		$	750		$	514		$	(3,326	)
Dividends on preferred shares		38			22			38			22			38			37			38			38
Net income/(loss) available to common shareholders	$	276		$	543		$	424		$	517		$	576		$	713		$	476		$	(3,364	)
Diluted earnings/(loss) per common share	$	0.17		$	0.36		$	0.26		$	0.34		$	0.35		$	0.45		$	0.29		$	(2.08	)
Basic earnings/(loss) per common share:	$	0.17		$	0.37		$	0.26		$	0.35		$	0.36		$	0.46		$	0.29		$	(2.08	)
Dividends per common share		0.065			0.065			0.065			0.065			0.065			0.065			0.065			0.065
Common share prices:
High		27.73			25.51			20.72			33.34			22.32			32.83			18.48			32.94
Low		14.41			22.75			13.86			25.42			17.51			27.26			12.76			26.20
Average shares outstanding for diluted EPS (in millions)		1,637			1,571			1,632			1,587			1,636			1,622			1,634			1,621
Average shares outstanding for basic EPS (in millions)		1,621			1,489			1,624			1,496			1,626			1,620			1,626			1,621

In completing the final analysis of results for 2008, Schering-Plough determined that certain income tax effects relating to the accounting for the purchase of OBS reflected an overstatement of income tax expense during each of the first three quarterly periods of 2008, totaling $74 million. Accordingly, Schering-Plough has revised the quarterly information included above. This change results in a reduction of income tax expense, and a corresponding increase in net income and net income available to common shareholders, along with associated per share amounts. The revisions to tax expense, net income, and net income available to common shareholders in 2008, reflected in the table above, were $23 million for the first quarter, $26 million for the second quarter and $25 million for the third quarter.

50

Operating results for the three month period ended December 31, 2007 reflects the closing of the OBS acquisition on November 19, 2007, including the impacts of purchase accounting in accordance with SFAS No. 141, “Business Combinations.”

Diluted earnings per common share for the three month period ended September 30, 2007, is calculated using a numerator of $731 million, which is the arithmetic sum of net income available to common shareholders of $713 million plus dividends of $18 million related to the 2004 preferred stock which are dilutive, and a denominator of 1,622 which represents the average diluted shares outstanding for the third quarter of 2007.

See Note 3, “Special and Acquisition-Related Charges and Manufacturing Changes,” to the Consolidated Financial Statements for additional information relating to special and acquisition-related charges.

Schering-Plough’s approximate number of holders of record of common shares as of January 31, 2009 was 33,252.

51

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31, 2008, 2007 and 2006

Valuation and qualifying accounts deducted from assets to which they apply:

Allowances for accounts receivable:

	Reserve for Doubtful Accounts			Reserve for Cash Discounts			Reserve for Claims and Other			Total
	(Dollars in millions)
2008
Balance at beginning of year	$	52		$	34		$	175		$	261
Additions:
Charged to costs and expenses		20			124			235			379
Deductions from reserves		(7	)		(105	)		(215	)		(327	)
Effects of foreign exchange		(6	)		(2	)		(9	)		(17	)
Balance at end of year	$	59		$	51		$	186		$	296
2007
Balance at beginning of year	$	53		$	32		$	152		$	237
OBS reserves acquired November 19, 2007		9			—			1			10
Additions:
Charged to costs and expenses		18			94			143			255
Deductions from reserves		(30	)		(94	)		(124	)		(248	)
Effects of foreign exchange		2			2			3			7
Balance at end of year	$	52		$	34		$	175		$	261
2006
Balance at beginning of year	$	54		$	31		$	126		$	211
Additions:
Charged to costs and expenses		25			150			493			668
Deductions from reserves		(29	)		(150	)		(468	)		(647	)
Effects of foreign exchange		3			1			1			5
Balance at end of year	$	53		$	32		$	152		$	237

52

EX-99.2

Exhibit 99.2

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS

(Unaudited)

(Amounts in millions, except per share figures)

	Three Months Ended March 31,
	2009			2008
Net sales	$	4,393		$	4,657
Cost of sales		1,399			2,137
Selling, general and administrative		1,493			1,676
Research and development		804			880
Other expense/(income), net		88			95
Special, merger and acquisition-related charges		75			23
Equity income		(400	)		(517	)
Income before income taxes		934			363
Income tax expense		129			49
Net income		805			314
Preferred stock dividends		38			38
Net income available to common shareholders	$	767		$	276
Diluted earnings per common share	$	0.46		$	0.17
Basic earnings per common share	$	0.47		$	0.17
Dividends per common share	$	0.065		$	0.065

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS

(Unaudited)

(Amounts in millions)

	Three Months Ended March 31,
	2009			2008
Operating Activities:
Net income	$	805		$	314
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		296			876
Accrued share-based compensation		48			60
Special, merger and acquisition-related charges and payments		(8	)		—
Changes in assets and liabilities:
Accounts receivable		(292	)		(383	)
Inventories		(239	)		(138	)
Prepaid expenses and other assets		47			78
Accounts payable		88			109
Other liabilities		(189	)		(454	)
Net cash provided by operating activities		556			462
Investing Activities:
Capital expenditures		(161	)		(175	)
Dispositions of property and equipment		1			27
Purchases of short-term investments		(708	)		—
Maturities of short-term investments		5			25
Other, net		2			—
Net cash used for investing activities		(861	)		(123	)
Financing Activities:
Payments of long-term debt		(71	)		—
Cash dividends paid to common shareholders		(106	)		(105	)
Cash dividends paid to preferred shareholders		(38	)		(38	)
Net change in short-term borrowings		(2	)		(36	)
Stock option exercises		36			2
Other, net		—			(7	)
Net cash used for financing activities		(181	)		(184	)
Effect of exchange rates on cash and cash equivalents		(42	)		20
Net (decrease) / increase in cash and cash equivalents		(528	)		175
Cash and cash equivalents, beginning of period		3,373			2,279
Cash and cash equivalents, end of period	$	2,845		$	2,454

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions, except per share figures)

	March 31, 2009			December 31, 2008
ASSETS
Current Assets:
Cash and cash equivalents	$	2,845		$	3,373
Short-term investments		708			5
Accounts receivable, net		2,953			2,816
Inventories		3,158			3,114
Deferred income taxes		485			435
Prepaid expenses and other current assets		1,195			1,228
Total current assets		11,344			10,971
Property, plant and equipment		10,244			10,440
Less accumulated depreciation		3,582			3,607
Property, net		6,662			6,833
Goodwill		2,667			2,778
Other intangible assets, net		5,761			6,154
Other assets		1,284			1,381
Total assets	$	27,718		$	28,117
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,670		$	1,677
Short-term borrowings and current portion of long-term debt		204			245
Income taxes		162			183
Accrued compensation		838			1,010
Other accrued liabilities		2,087			2,078
Total current liabilities		4,961			5,193
Long-term Liabilities:
Long-term debt, net of current portion		7,685			7,931
Deferred income taxes		1,442			1,551
Other long-term liabilities		2,795			2,913
Total long-term liabilities		11,922			12,395
Commitments and contingent liabilities (Note 16)
Shareholders’ Equity:
2007 Mandatory convertible preferred shares — $1 par value; $250 per share face value; issued: 10 at March 31, 2009 and December 31, 2008		2,500			2,500
Common shares — authorized: 2,400, $.50 par value; issued: 2,120 at March 31, 2009 and 2,118 at December 31, 2008		1,060			1,059
Paid-in capital		5,128			5,045
Retained earnings		9,842			9,181
Accumulated other comprehensive loss		(2,352	)		(1,913	)
Total		16,178			15,872
Less treasury shares: 492 at March 31, 2009 and December 31, 2008; at cost		5,343			5,343
Total shareholders’ equity		10,835			10,529
Total liabilities and shareholders’ equity	$	27,718		$	28,117

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

These unaudited Condensed Consolidated Financial Statements of Schering-Plough Corporation and subsidiaries (Schering-Plough), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on Form 10-Q. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles have been condensed or omitted pursuant to such SEC rules and regulations. These statements should be read in conjunction with the accounting policies and notes to the consolidated financial statements included in Schering-Plough’s 2008 10-K.

In the opinion of Schering-Plough’s management, these financial statements reflect all adjustments necessary, including normal recurring accruals, for a fair presentation of the statements of operations, cash flows and financial position for the interim periods presented.

First quarter 2008 income tax expense has been revised from the prior year 10-Q which reflected an overstatement of income tax expense relating to the accounting for the purchase of Organon BioSciences N.V. (OBS). This change resulted in a reduction of income tax expense and a corresponding increase in net income and net income available to common shareholders of $23 million, along with an associated increase in per share amounts.

In November 2007, Schering-Plough acquired OBS, a company that discovers, develops and manufactures human prescription and animal health products.

Impact of Recently Issued Accounting Standards

As of January 1, 2009, Schering-Plough implemented Financial Accounting Standards Board (FASB) Staff Position (FSP) Emerging Issues Task Force (EITF) No. 03-6-1 (FSP EITF 03-6-1), “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 requires Schering-Plough to treat unvested deferred stock units as participating securities in accordance with the two-class method in the calculation of both basic and diluted earnings per share. FSP EITF 03-6-1 must be applied retrospectively. The effect of the retrospective application of FSP EITF 03-6-1 was not material to Schering-Plough’s earnings per share in 2008, 2007 or 2006.

In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” The standard defines fair value, establishes a framework for measuring fair value in accordance with U.S. Generally Accepted Accounting Principles, and expands disclosures about fair value measurements. The standard codifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. For calendar-year companies, the standard became effective January 1, 2008 (see Note 13, “Fair Value Measurements”) except for non-financial items measured on a non-recurring basis for which it is effective beginning January 1, 2009. The implementation of the non-financial items measured on a non-recurring basis of this standard did not have a material impact on Schering-Plough’s condensed consolidated financial statements.

In December 2007, the FASB issued EITF Issue No. 07-1, “Accounting for Collaborative Arrangements,” which is effective for calendar-year companies beginning January 1, 2009. The Task Force clarified the manner in which costs, revenues and sharing payments made to, or received by, a partner in a collaborative arrangement should be presented in the income statement and set forth certain disclosures that should be required in the partners’ financial statements. The implementation of this standard did not have a material impact on Schering-Plough’s condensed consolidated financial statements. Schering-Plough has a number of collaborative arrangements. For collaborative arrangements, sales are generally included in Net sales and payments to collaboration partners are classified in the statement of condensed consolidated operations based on their nature in Cost of sales or Research and development, as appropriate.

4

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” (SFAS 141R). For calendar-year companies, the standard is applicable to new business combinations occurring on or after January 1, 2009. SFAS 141R requires an acquiring entity to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Most significantly, SFAS 141R requires that acquisition costs generally be expensed as incurred, certain acquired contingent liabilities be recorded at fair value, and acquired in-process research and development be recorded at fair value as an indefinite-lived intangible asset at the acquisition date. The implementation of this standard did not have a material impact on Schering-Plough’s condensed consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51,” which is effective for calendar-year companies beginning January 1, 2009. The standard establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The implementation of this standard did not have a material impact on Schering-Plough’s condensed consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FASB Statement No. 133,” which is effective for calendar-year companies beginning January 1, 2009. The standard enhances required disclosures regarding derivatives and hedging activities. The implementation of this standard did not have a material impact on Schering-Plough’s condensed consolidated financial statements.

In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). FSP 142-3 is effective for calendar-year companies beginning January 1, 2009. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The implementation of this standard did not have a material impact on the Schering-Plough’s condensed consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP FAS 141(R)-1 amends the provisions in Statement 141R for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. The FSP is effective for contingent assets or contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The implementation of this standard did not have a material impact on Schering-Plough’s condensed consolidated financial statements.

In April 2009, FASB Staff Position FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, or FSP FAS 107-1 and APB 28-1. FSP FAS 107-1 and APB 28-1, amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all interim financial statements. The FSP is effective for periods ending after June 15, 2009. Schering Plough is currently assessing the potential impact of implementing this standard.

2. PRODUCTIVITY TRANSFORMATION PROGRAM

Schering-Plough’s Productivity Transformation Program (PTP), is designed to reduce and avoid costs, and increase productivity.

5

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes activities reflected in the condensed consolidated financial statements related to the Productivity Transformation Program, for the three months ended March 31, 2009:

	Charges Included in
	Cost of Sales		Research and Development		Special, Merger and Acquisition- Related Charges		Total Charges		Cash Payments			Non-cash Charges		Accrued Liability
	(Dollars in millions)
Accrued liability at January 1, 2009														$	155
Employee termination costs	$	—	$	—	$	56	$	56	$	(69	)	$	—		(13	)
Accelerated depreciation		2		2		—		4		—			4		—
Total	$	2	$	2	$	56	$	60	$	(69	)	$	4
Accrued liability at March 31, 2009														$	142

For the three months ended March 31, 2009, special, merger and acquisition-related costs totaled $75 million of which $56 million related to employee termination costs and $19 million related to the planned merger with Merck & Co., Inc.

The following table summarizes activities reflected in the condensed consolidated financial statements related to the Productivity Transformation Program, for the three months ended March 31, 2008:

	Special, and Acquisition- Related Charges		Total Charges		Cash Payments			Non-cash Charges		Accrued Liability
	(Dollars in millions)
Accrued liability at January 1, 2008										$	23
Employee termination costs	$	8	$	8	$	(6	)	$	—		2
Accrued liability at March 31, 2008										$	25

For the three months ended March 31, 2008, special and acquisition-related charges totaled $23 million ($8 million of employee termination costs and $15 million of other OBS acquisition related costs).

3. EQUITY INCOME

In May 2000, Schering-Plough and Merck entered into two separate sets of agreements to jointly develop and market certain products in the U.S. including (1) two cholesterol-lowering drugs and (2) an allergy/asthma drug. In December 2001, the cholesterol agreements were expanded to include all countries of the world except Japan. In general, the companies agreed that the collaborative activities under these agreements would operate in a virtual joint venture to the maximum degree possible by relying on the respective infrastructures of the two companies. These agreements generally provide for equal sharing of development costs and for co-promotion of approved products by each company.

The cholesterol agreements provide for Schering-Plough and Merck to jointly develop and commercialize ezetimibe in the cholesterol management field:

i. as a once-daily monotherapy (managed as ZETIA in the U.S. and Asia and EZETROL in Europe);

ii. in co-administration with various approved statin drugs; and

iii. as a fixed-combination tablet of ezetimibe and simvastatin (Zocor), Merck’s cholesterol-modifying medicine. This combination medication (ezetimibe/simvastatin) is managed as VYTORIN in the U.S. and as INEGY in many international countries.

6

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ZETIA/EZETROL (ezetimibe) and VYTORIN/INEGY (the combination of ezetimibe/simvastatin) are approved for use in the U.S. and have been launched in many international markets.

Schering-Plough utilizes the equity method of accounting in recording its share of activity from the Merck/Schering-Plough cholesterol joint venture. As such, Schering-Plough’s net sales do not include the sales of the joint venture. The cholesterol joint venture agreements provide for the sharing of operating income generated by the joint venture based upon percentages that vary by product, sales level and country. In the U.S. market, Schering-Plough receives a greater share of profits on the first $300 million of annual ZETIA sales. Above $300 million of annual ZETIA sales, Merck and Schering-Plough generally share profits equally. Schering-Plough’s allocation of the joint venture income is increased by milestones recognized. Further, either company’s share of the joint venture’s income from operations is subject to a reduction if that company fails to perform a specified minimum number of physician details in a particular country. The companies agree annually to the minimum number of physician details by country.

The companies bear the costs of their own general sales forces and commercial overhead in marketing joint venture products around the world. In the U.S., Canada and Puerto Rico, the cholesterol agreements provide for a reimbursement to each company for physician details that are set on an annual basis, and in Italy, a contractual amount is included in the profit sharing calculation that is not reimbursed. In the U.S., Canada and Puerto Rico this amount is equal to each company’s agreed physician details multiplied by a contractual fixed fee. Schering-Plough reports these amounts as part of equity income from the cholesterol joint venture. These amounts do not represent a reimbursement of specific, incremental and identifiable costs for Schering- Plough’s detailing of the cholesterol products in these markets. In addition, these amounts are not reflective of Schering-Plough’s sales effort related to the joint venture as Schering-Plough’s sales force and related costs associated with the joint venture are generally estimated to be higher.

Costs of the joint venture that the companies contractually share are a portion of manufacturing costs, specifically identified promotion costs (including direct-to-consumer advertising and direct and identifiable out-of-pocket promotion) and other agreed upon costs for specific services such as market support, market research, market expansion, a specialty sales force and physician education programs.

Certain specified research and development expenses are generally shared equally by Schering-Plough and Merck.

The unaudited financial information below presents summarized combined financial information for the Merck/Schering-Plough cholesterol joint venture for the three months ended March 31, 2009 and 2008:

	Three Months Ended March 31,
	2009		2008
	(Dollars in millions)
Net sales	$	945	$	1,233
Cost of sales		42		52
Income from operations		661		854

Amounts related to physician details, among other expenses, that are invoiced by Schering-Plough and Merck in the U.S., Canada and Puerto Rico are deducted from income from operations of the cholesterol joint venture.

Schering-Plough’s share of the cholesterol joint venture’s income from operations for the three months ended March 31, 2009 and 2008 was $367 million and $459 million, respectively. In the U.S. market, Schering-Plough receives a greater share of income from operations on the first $300 million of annual ZETIA sales. As a result, Schering-Plough’s share of the cholesterol joint venture’s income from operations is generally higher in the first quarter than in subsequent quarters.

7

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following information provides a summary of the components of Schering-Plough’s equity income from the cholesterol joint venture for the three months ended March 31, 2009 and 2008:

	Three Months Ended March 31,
	2009			2008
	(Dollars in millions)
Schering-Plough’s share of income from operations	$	367		$	459
Contractual amounts for physician details		37			62
Elimination of intercompany profit and other, net		(4	)		(4	)
Total equity income from cholesterol joint venture	$	400		$	517

At March 31, 2009 and December 31, 2008, Schering-Plough had net receivables (including undistributed income) from the Merck/Schering-Plough Joint Venture of $111 million and $130 million, respectively.

Equity income from the joint venture excludes any profit arising from transactions between Schering-Plough and the joint venture until such time as there is an underlying profit realized by the joint venture in a transaction with a party other than Schering-Plough or Merck.

Due to the virtual nature of the cholesterol joint venture, Schering-Plough incurs substantial costs, such as selling, general and administrative costs, that are not reflected in Equity income and are borne by the overall cost structure of Schering-Plough. These costs are reported on their respective line items in the statements of condensed consolidated operations and are not separately identifiable. The cholesterol agreements do not provide for any jointly owned facilities and, as such, products resulting from the joint venture are manufactured in facilities owned by either Schering-Plough or Merck.

Schering-Plough and Merck are developing a single-tablet combination of ezetimibe and atorvastatin as a treatment for elevated cholesterol levels.

In April 2008, the Merck/Schering-Plough joint venture received a not-approvable letter from the FDA for the proposed fixed combination of loratadine/montelukast. During the second quarter of 2008 the respiratory joint venture was terminated in accordance with the agreements. This action has no impact on the cholesterol joint venture.

See Note 16, “Legal, Environmental and Regulatory Matters,” — “Litigation and Investigations relating to the Merck/Schering-Plough Cholesterol Joint Venture,” for additional information.

4. SHARE-BASED COMPENSATION

A summary of the options, deferred stock units and performance-based deferred stock units granted during the three months ended March 31, 2009 and 2008 is as follows:

	Three Months Ended March 31,
	2009			2008
	Underlying Shares	Weighted- Average Grant-Date Fair Value		Underlying Shares	Weighted- Average Grant-Date Fair Value
	(In thousands)			(In thousands)
Stock options	2	$	5.21	5,837	$	4.48
Deferred stock units	19		16.94	95		21.31
Performance-based deferred stock units	1,043		27.93	1,034		19.43
Total awards	1,064			6,966

Options generally become exercisable in equal annual installments over a three-year period. The deferred stock units generally vest at the end of a three-year period from the date they were granted. The performance-based deferred stock units vest at the end of a three-year performance period if specific pre-established levels of performance, market conditions and service are met.

8

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The weighted-average assumptions used in the Black-Scholes option pricing model for the three months ended March 31, 2009 and 2008, were as follows:

	Three Months Ended March 31,
	2009		2008
Dividend yield	1.1	%	1.1	%
Volatility	39.0	%	24.5	%
Risk-free interest rate	1.9	%	2.5	%
Expected term of options (in years)	4.5		4.5

Total compensation expense related to stock options, deferred stock units and performance-based deferred stock units for the three months ended March 31, 2009 and 2008 was $48 million and $60 million, respectively.

At March 31, 2009, the total remaining unrecognized compensation cost related to the performance-based deferred stock units granted in 2009 amounted to $29 million, which will be amortized over the weighted-average remaining requisite service period of 2.75 years. The remaining unrecognized compensation cost for the performance-based deferred stock units may vary each reporting period based on changes in the expected achievement of performance measures.

5. OTHER EXPENSE/(INCOME), NET

The components of other expense/(income), net are as follows:

	Three Months Ended March 31,
	2009			2008
	(Dollars in millions)
Interest cost incurred	$	116		$	143
Less: amount capitalized on construction		(7	)		(5	)
Interest expense		109			138
Interest income		(4	)		(22	)
Foreign exchange gains		(17	)		(4	)
Other, net		—			(17	)
Total other expense/(income), net	$	88		$	95

During the first quarter of 2008, Schering-Plough recognized a gain of $17 million ($12 million after tax) on the sale of a manufacturing site.

6. INCOME TAXES

Schering-Plough expects to report a U.S. Net Operating Loss (NOL) carryforward of approximately $1.3 billion on its 2008 tax return, which will be available to offset future U.S. taxable income, in varying amounts, through 2028.

This U.S. NOL carryforward could be materially reduced after examination of Schering-Plough’s income tax returns by the Internal Revenue Service (IRS). Schering-Plough continues to maintain a valuation allowance against its U.S. deferred tax assets, as management cannot conclude that it is more likely than not the benefit of the U.S. net deferred tax assets can be realized.

7. RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

Schering-Plough has defined benefit pension plans covering eligible employees in the U.S. and certain foreign countries. In addition, Schering-Plough provides post-retirement medical and life insurance benefits primarily to its eligible U.S. retirees and their dependents through its post-retirement benefit plans.

9

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of net pension expense were as follows:

	Three Months Ended March 31,
	2009			2008
	(Dollars in millions)
Service cost	$	51		$	53
Interest cost		58			58
Expected return on plan assets		(56	)		(59	)
Amortization, net		10			7
Settlement		—			—
Net pension expense	$	63		$	59

The components of other post-retirement benefits expense were as follows:

	Three Months Ended March 31,
	2009			2008
	(Dollars in millions)
Service cost	$	6		$	7
Interest cost		9			10
Expected return on plan assets		(3	)		(3	)
Amortization, net		(1	)		1
Net other post-retirement benefits expense	$	11		$	15

For the three months ended March 31, 2009 and 2008, Schering-Plough contributed $140 million and $49 million, respectively, to its retirement plans. Schering-Plough expects to contribute approximately $210 million to its retirement plans during the remainder of 2009.

8. EARNINGS PER COMMON SHARE

As of January 1, 2009, Schering-Plough implemented Financial Accounting Standards Board (FASB) Staff Position (FSP) Emerging Issues Task Force (EITF) No. 03-6-1 (FSP EITF 03-6-1), “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 requires Schering-Plough to treat unvested deferred stock units as participating securities in accordance with the two-class method in the calculation of both basic and diluted earnings per share. FSP EITF 03-6-1 must be applied retrospectively. The effect of the retrospective application of FSP EITF 03-6-1 was not material to Schering-Plough’s earnings per share in 2008, 2007 or 2006.

The following tables summarize the components of basic and diluted earnings per common share computations.

	Three Months Ended March 31,
	2009		2008
	(Dollars in millions)
Reconciliation of undistributed earnings:
Net income available to common shareholders	$	767	$	276
Less: Dividends on common stock		106		105
Less: Dividends on unvested participating securities		1		1
Undistributed earnings(1)	$	660	$	170

10

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Three Months Ended March 31,
	2009		2008
	(Dollars and shares in millions)
Basic earnings per common share computation:
Net income available to common shareholders	$	767	$	276
Less: Dividend equivalents on unvested participating securities		1		1
Less: Undistributed earnings allocated to unvested participating securities(1)		8		2
Undistributed earnings allocated to common shareholders	$	758	$	273
EPS denominator:
Weighted-average shares outstanding for basic earnings per common share		1,627		1,621
Basic earnings per common share	$	0.47	$	0.17

	Three Months Ended March 31,
	2009		2008
	(Dollars and shares in millions)
Diluted earnings per common share computation:
Net income available to common shareholders	$	767	$	276
Add: Preferred stock dividends		38		—
Less: Dividend equivalents on unvested participating securities		1		1
Less: Undistributed earnings allocated to unvested participating securities(1)		8		2
	$	796	$	273
EPS denominator calculation:
Weighted-average shares outstanding for basic earnings per common share		1,627		1,621
Dilutive effect of options(2)		2		5
Dilutive effect of preferred shares(3)		91		—
Weighted-average shares outstanding for diluted earnings per common share		1,720		1,626
Diluted earnings per common share	$	0.46	$	0.17

(1) For the three months ended March 31, 2009 and 2008, 19 million and 21 million, respectively of unvested outstanding deferred stock units and performance-based deferred stock units are considered participating securities. The undistributed earnings are allocated to both common shares and unvested participating securities in computing the earnings per share under the two-class method.

(2) For the three months ended March 31, 2009 and 2008, 46 million and 40 million, respectively, of equivalent common shares, issuable under Schering-Plough’s stock incentive plans were excluded from the computation of diluted EPS because their effect would have antidilutive.

(3) For the three months ended March 31, 2009, approximately 91 million common shares, obtainable upon conversion of Schering-Plough’s 2007 mandatory convertible preferred stock were dilutive to earnings per share and were therefore included in the computation of diluted earnings per share. For the three months ended March 31, 2008, approximately 91 million common shares, obtainable upon conversion of the 2007 mandatory convertible preferred stock were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.

11

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. COMPREHENSIVE INCOME

Comprehensive income is comprised of the following:

	Three Months Ended March 31,
	2009			2008
	(Dollars in millions)
Net income	$	805		$	314
Foreign currency translation adjustment		(435	)		450
Unrealized loss on investments available for sale, net of tax		(4	)		(9	)
Total comprehensive income	$	366		$	755

10. INVENTORIES

Inventories consisted of the following:

	March 31, 2009		December 31, 2008
	(Dollars in millions)
Finished products	$	1,104	$	1,212
Goods in process		1,679		1,428
Raw materials and supplies		597		679
Total inventories and inventory classified in other non-current assets	$	3,380	$	3,319

For the three months ended March 31, 2008, $551 million of amortization of the fair value step-up recorded as part of the OBS acquisition are included in Depreciation and amortization in the condensed consolidated statements of cash flows.

Included in Other assets (non-current) at March 31, 2009 and December 31, 2008 was $222 million and $205 million, respectively, of inventory not expected to be sold within one year.

11. GOODWILL AND OTHER INTANGIBLE ASSETS

The decrease in goodwill at March 31, 2009 as compared to December 31, 2008 of $111 million was due to foreign currency translation.

The components of other intangible assets, net are as follows:

	March 31, 2009						December 31, 2008
	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
	(Dollars in millions)
Patents	$	3,616	$	486	$	3,130	$	3,803	$	418	$	3,385
Trademarks and other		2,655		207		2,448		2,756		180		2,576
Licenses and other		799		616		183		796		603		193
Total other intangible assets	$	7,070	$	1,309	$	5,761	$	7,355	$	1,201	$	6,154

These intangible assets are amortized on the straight-line method over their respective useful lives. The residual value of intangible assets is estimated to be zero. Amortization expense for the three months ended March 31, 2009 and 2008 was $129 million and $143 million, respectively. Annual amortization expenses related to these intangible assets for the years 2009 to 2013 is expected to be approximately $516 million.

12

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. BORROWINGS

Schering-Plough’s outstanding borrowings at March 31, 2009 and December 31, 2008 were as follows:

	March 31, 2009		December 31, 2008
	(Dollars in millions)
Short-term
Short-term borrowings and current portion of long-term debt	$	203	$	244
Current portion of capital leases		1		1
Total short-term borrowings and current portion of long-term debt	$	204	$	245
Long-term
5.00% senior unsecured Euro-denominated notes due 2010	$	662	$	698
Floating rate Euro-denominated term loan due 2012		595		698
5.30% senior unsecured notes due 2013		1,247		1,247
5.375% senior unsecured Euro-denominated notes due 2014		1,983		2,090
6.00% senior unsecured notes due 2017		995		995
6.50% senior unsecured notes due 2033		1,143		1,143
6.55% senior unsecured notes due 2037		994		994
Capital leases		19		19
Other long-term borrowings		47		47
Total long-term borrowings, net of current portion	$	7,685	$	7,931

The decrease in the Floating rate Euro-denominated term loan due 2012 was due to an early principal repayment of Euro 50 million in the first quarter of 2009 and foreign currency translation. No prepayment penalty was incurred relating to this principal repayment. The other changes in outstanding Euro-denominated borrowings at March 31, 2009 were due to foreign currency translation on Euro-denominated debt balances.

13. FAIR VALUE MEASUREMENTS

Schering-Plough’s Condensed Consolidated Balance Sheet at March 31, 2009 includes the following assets and liabilities that are measured at fair value on a recurring basis:

	Total Fair Value at March 31, 2009		Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in millions)
Assets
Securities held for employee compensation	$	88	$	88	$	—	$	—
Other		16		3		13		—
Total assets	$	104	$	91	$	13	$	—
Liabilities
Foreign currency exchange contract		4		—		4		—
Total liabilities	$	4	$	—	$	4	$	—

The majority of Schering-Plough’s assets and liabilities measured at fair value on a recurring basis are measured using unadjusted quoted prices in active markets for identical items (Level 1) as inputs, multiplied by the number of units held at the balance sheet date. As of March 31, 2009, assets and liabilities with fair values measured using significant other observable inputs (Level 2) include measurements using quoted prices for identical items in markets that are not active and measurements using inputs that are derived principally from or corroborated by observable market data.

13

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14. SEGMENT DATA

Schering-Plough has three reportable segments: Prescription Pharmaceuticals, Animal Health and Consumer Health Care. The segment sales and profit data that follow are consistent with Schering-Plough’s current management reporting structure. The Prescription Pharmaceuticals segment discovers, develops, manufactures and markets human pharmaceutical products. The Animal Health segment discovers, develops, manufactures and markets animal health products. The Consumer Health Care segment develops, manufactures and markets over-the-counter, foot care and sun care products, primarily in the U.S.

Net sales by segment:

	Three Months Ended March 31,
	2009		2008
	(Dollars in millions)
Prescription Pharmaceuticals	$	3,379	$	3,557
Animal Health		630		723
Consumer Health Care		384		377
Consolidated net sales	$	4,393	$	4,657

Profit by segment:

	Three Months Ended March 31,
	2009(1)			2008(1)
	(Dollars in millions)
Prescription Pharmaceuticals	$	953		$	515
Animal Health		127			(85	)
Consumer Health Care		117			106
Corporate and other(2)		(263	)		(173	)
Income before income taxes	$	934		$	363

(1) For the three months ended March 31, 2009, the Prescription Pharmaceuticals and the Animal Health segments’ profits include expense of $97 million and $32 million, respectively, related to the amortization of fair values of intangible assets acquired as part of the OBS acquisition. For the three months ended March 31, 2008, the Prescription Pharmaceuticals segment’s profit and the Animal Health segment’s loss includes expense of $432 million and $259 million, respectively, related to purchase accounting items from the OBS transaction.

(2) For the three months ended March 31, 2009 and 2008, “Corporate and other” included special, merger and acquisition-related charges of $75 million and $23 million, respectively.

Schering-Plough’s consolidated net sales do not include sales of VYTORIN and ZETIA, which are managed in the cholesterol joint venture with Merck, as Schering-Plough accounts for this joint venture under the equity method of accounting (see Note 3, “Equity Income,” for additional information). The Prescription Pharmaceuticals segment includes equity income from the Merck/Schering-Plough joint venture.

“Corporate and other” includes interest income and expense, foreign exchange gains and losses, headquarters expenses, special, merger and acquisition-related charges and other miscellaneous items. The accounting policies used for segment reporting are the same as those described in Note 1, “Summary of Significant Accounting Policies,” in Schering-Plough’s 2008 10-K.

14

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Sales of products comprising 10 percent or more of Schering-Plough’s U.S. or international sales for the three months ended March 31, 2009, were as follows:

	Three Months Ended March 31, 2009
	Amount		Percentage of Applicable Sales
	(Dollars in millions)		(%)
U.S.
NASONEX	$	158	11	%
International
REMICADE		518	18	%

For the three months ended March 31, 2009 net sales outside the U.S. totaled $2.9 billion, or 67 percent, of consolidated net sales.

Schering-Plough does not disaggregate assets on a segment basis for internal management reporting and, therefore, such information is not presented.

15. PRODUCT LICENSES

In December 2007, Schering-Plough and Centocor revised their distribution agreement regarding the development, commercialization and distribution of both REMICADE and golimumab, extending Schering-Plough’s rights to exclusively market REMICADE to match the duration of Schering-Plough’s exclusive marketing rights for golimumab. Effective upon regulatory approval of golimumab in the EU, Schering-Plough’s marketing rights for both products will now extend for 15 years after the first commercial sale of golimumab within the EU. After operating expenses and subject to certain adjustments, Schering-Plough currently is entitled to receive an approximately 60 percent share of profits on Schering-Plough’s distribution in the Schering Plough marketing territory. Beginning in 2010, subject to the approval of golimumab within the EU, share of profits will change over time to a 50 percent share of profits by 2014 for both products and the share of profits will remain fixed thereafter for the remainder of the term. The changes to the duration of REMICADE marketing rights and the profit sharing arrangement for the products are all conditioned on approval of golimumab being granted in the EU prior to September 1, 2014. Schering-Plough may independently develop and market golimumab for a Crohn’s disease indication in its territories, with an option for Centocor to participate. In addition, Schering-Plough and Centocor agreed to utilize an autoinjector device in the commercialization of golimumab and further agreed to share its development costs.

16. LEGAL, ENVIRONMENTAL AND REGULATORY MATTERS

Schering-Plough is involved in various claims, investigations and legal proceedings.

Schering-Plough records a liability for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. Schering-Plough adjusts its liabilities for contingencies to reflect the current best estimate of probable loss or minimum liability, as the case may be. Where no best estimate is determinable, Schering-Plough records the minimum amount within the most probable range of its liability. Expected insurance recoveries have not been considered in determining the amounts of recorded liabilities for environmental related matters.

If Schering-Plough believes that a loss contingency is reasonably possible, rather than probable, or the amount of loss cannot be estimated, no liability is recorded. However, where a liability is reasonably possible, disclosure of the loss contingency is made.

Schering-Plough reviews the status of all claims, investigations and legal proceedings on an ongoing basis, including related insurance coverages. From time to time, Schering-Plough may settle or otherwise resolve these matters on terms and conditions management believes are in the best interests of Schering-Plough. Resolution of any or all claims, investigations and legal proceedings, individually or in the aggregate, could have a material adverse effect on Schering-Plough’s condensed consolidated results of operations, cash flows or financial condition.

Except for the matters discussed in the remainder of this Note, the recorded liabilities for contingencies at March 31, 2009, and the related expenses incurred during the three months ended March 31, 2009, were not material.

15

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In the opinion of management, based on the advice of legal counsel, the ultimate outcome of these matters, except matters discussed in the remainder of this Note, is not expected to have a material impact on Schering-Plough’s consolidated results of operations, cash flows or financial condition.

AWP Litigation and Investigations

Schering-Plough continues to respond to existing and new litigation by certain states and private payors and investigations by the Department of Health and Human Services, the Department of Justice and several states into industry and Schering-Plough practices regarding average wholesale price (AWP). Schering-Plough is cooperating with these investigations.

These litigations and investigations relate to whether the AWP used by pharmaceutical companies for certain drugs improperly exceeds the average prices paid by providers and, as a consequence, results in unlawful inflation of certain reimbursements for drugs by state programs and private payors that are based on AWP. The complaints allege violations of federal and state law, including fraud, Medicaid fraud and consumer protection violations, among other claims. In the majority of cases, the plaintiffs are seeking class certifications. In some cases, classes have been certified. The outcome of these litigations and investigations could include substantial damages, the imposition of substantial fines, penalties and injunctive or administrative remedies.

Securities and Class Action Litigation

Federal Securities Litigation

Following Schering-Plough’s announcement that the FDA had been conducting inspections of Schering-Plough’s manufacturing facilities in New Jersey and Puerto Rico and had issued reports citing deficiencies concerning compliance with current Good Manufacturing Practices, several lawsuits were filed against Schering-Plough and certain named officers. These lawsuits allege that the defendants violated the federal securities law by allegedly failing to disclose material information and making material misstatements. Specifically, they allege that Schering-Plough failed to disclose an alleged serious risk that a new drug application for CLARINEX would be delayed as a result of these manufacturing issues, and they allege that Schering-Plough failed to disclose the alleged depth and severity of its manufacturing issues. These complaints were consolidated into one action in the U.S. District Court for the District of New Jersey, and a consolidated amended complaint was filed on October 11, 2001, purporting to represent a class of shareholders who purchased shares of Schering-Plough stock from May 9, 2000 through February 15, 2001. The complaint seeks compensatory damages on behalf of the class. The Court certified the shareholder class on October 10, 2003. Notice of pendency of the class action was sent to members of that class in July 2007. On February 18, 2009, the Court signed an order preliminarily approving a settlement agreement. The proposed settlement agreement is scheduled to be presented for final approval at a hearing on June 1, 2009.

ERISA Litigation

On March 31, 2003, Schering-Plough was served with a putative class action complaint filed in the U.S. District Court in New Jersey alleging that Schering-Plough, retired Chairman, CEO and President Richard Jay Kogan, Schering-Plough’s Employee Savings Plan (Plan) administrator, several current and former directors, and certain former corporate officers breached their fiduciary obligations to certain participants in the Plan. The complaint seeks damages in the amount of losses allegedly suffered by the Plan. The complaint was dismissed on June 29, 2004. The plaintiffs appealed. On August 19, 2005 the U.S. Court of Appeals for the Third Circuit reversed the dismissal by the District Court and the matter has been remanded back to the District Court for further proceedings. On September 30, 2008, the District Court entered an order granting in part, and denying in part, the named putative class representative’s motion for class certification. Schering-Plough thereafter petitioned the United States District Court of Appeals for the Third Circuit for leave to appeal the class certification decision. Schering-Plough’s petition was granted on December 10, 2008 and the appeal is currently pending before the Third Circuit.

K-DUR Antitrust Litigation

Schering-Plough had settled patent litigation with Upsher-Smith, Inc. (Upsher-Smith) and ESI Lederle, Inc. (Lederle) relating to generic versions of K-DUR, Schering-Plough’s long-acting potassium chloride product

16

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

supplement used by cardiac patients, for which Lederle and Upsher Smith had filed Abbreviated New Drug Applications. Following the commencement of an FTC administrative proceeding alleging anti-competitive effects from those settlements (which has been resolved in Schering-Plough’s favor), alleged class action suits were filed in federal and state courts on behalf of direct and indirect purchasers of K-DUR against Schering-Plough, Upsher-Smith and Lederle. These suits claim violations of federal and state antitrust laws, as well as other state statutory and common law causes of action. These suits seek unspecified damages. In February 2009, a special master recommended that the U.S. District Court for the District of New Jersey dismiss the class action lawsuits on summary judgment. The U.S. District Court judge has not yet ruled on the recommendation.

Third-party Payor Actions

Several purported class action litigations have been filed following the announcement of the settlement of the Massachusetts Investigation. Plaintiffs in these actions seek damages on behalf of third-party payors resulting from the allegations of off-label promotion and improper payments to physicians that were at issue in the Massachusetts Investigation.

Litigation and Investigations relating to the Merck/Schering-Plough Cholesterol Joint Venture

Background. In January 2008, the Merck/Schering-Plough Cholesterol Joint Venture announced the results of the ENHANCE clinical trial (Effect of Combination Ezetimibe and High-Dose Simvastatin vs. Simvastatin Alone on the Atherosclerotic Process in Patients with Heterozygous Familial Hypercholesterolemia). In July 2008 the Merck/Schering-Plough Cholesterol Joint Venture announced the results of the SEAS clinical trial (Simvastatin and Ezetimibe in Aortic Stenosis). Litigation and investigations with respect to matters relating to these clinical trials are ongoing.

Schering-Plough is cooperating fully with the various investigations and responding to the requests for information, and Schering-Plough intends to vigorously defend the lawsuits that have been filed relating to the ENHANCE study.

Investigations and Inquiries. Through the date of filing this 10-Q, Schering-Plough, the Joint Venture and/or its joint venture partner, Merck, received a number of governmental inquiries and have been the subject of a number of investigations and inquiries relating to the ENHANCE clinical trial. These include several letters from Congress, including the Subcommittee on Oversight and Investigations of the House Committee on Energy and Commerce, and the ranking minority member of the Senate Finance Committee, collectively seeking a combination of witness interviews, documents and information on a variety of issues related to the Merck/Schering-Plough Cholesterol Joint Venture’s ENHANCE clinical trial. These also include several subpoenas from state officials, including State Attorneys General, and requests for information from U.S. Attorneys and the Department of Justice seeking similar information and documents. In addition, Schering-Plough received letters from the Subcommittee on Oversight and Investigations of the House Committee on Energy and Commerce seeking certain information and documents related to the SEAS clinical trial, and other matters. Schering-Plough, Merck and the Joint Venture are cooperating with these investigations and responding to the inquiries.

In January 2008, after the initial release of ENHANCE data, the FDA stated that it would review the results of the ENHANCE trial. On January 8, 2009 the FDA announced the results of its review. The FDA stated that following two years of treatment,

• Carotid artery thickness increased by 0.011 mm in the VYTORIN group and by 0.006 mm in the simvastatin group. The difference in the changes in carotid artery thickness between the two groups was not statistically significant.

• The levels of LDL cholesterol decreased by 56% in the VYTORIN group and decreased by 39% in the simvastatin group. The difference in the reductions in LDL cholesterol between the two groups was statistically significant.

The FDA also stated that the results from ENHANCE do not change its position that an elevated LDL cholesterol is a risk factor for cardiovascular disease and that lowering LDL cholesterol reduces the risk for cardiovascular disease.

17

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The FDA also stated that pending the results of the IMPROVE-IT clinical trial, patients should not stop taking VYTORIN or other cholesterol lowering medications and should talk to their doctors if they have any questions.

Litigation. Schering-Plough continues to respond to existing and new litigation, including civil class action lawsuits alleging common law and state consumer fraud claims in connection with Schering-Plough’s sale and promotion of the Merck/Schering-Plough joint venture products’ VYTORIN and ZETIA; several putative shareholder securities class action lawsuits (where several officers are also named defendants) alleging false and misleading statements and omissions by Schering-Plough and its representatives related to the timing of disclosures concerning the ENHANCE results, allegedly in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934; a putative shareholder securities class action lawsuit (where several officers and directors are also named), alleging material misstatements and omissions related to the ENHANCE results in the offering documents in connection with Schering-Plough’s 2007 securities offerings, allegedly in violation of the Securities Act of 1933, including Section 11; several putative class action suits alleging that Schering-Plough and certain officers and directors breached their fiduciary duties under ERISA and seeking damages in the amount of losses allegedly suffered by the Plans; a Shareholder Derivative Action alleging that the Board of Directors breached its fiduciary obligations relating to the timing of the release of the ENHANCE results; and a letter on behalf of a single shareholder requesting that the Board of Directors investigate the allegations in the litigation described above and, if warranted, bring any appropriate legal action on behalf of Schering-Plough.

Legal Proceedings Related to the Merck Transaction

Since the announcement of the merger agreement with Merck & Co., Inc. (see Note 17, “Merger Agreement with Merck & Co., Inc.”), a number of putative class action lawsuits have been filed on behalf of the shareholders of Schering-Plough. The complaints name as defendants Schering-Plough, its directors, and in certain cases, Merck and Schering-Plough subsidiaries, Blue, Inc. and Purple, Inc.

The complaints variously allege, among other things, that Schering-Plough’s directors breached their fiduciary duties by agreeing to a merger of Schering-Plough with Merck without taking steps to ensure that shareholders would obtain adequate, fair and maximum consideration under the circumstances, and that Schering-Plough and, in certain complaints, Merck aided and abetted the directors’ breaches of duty. The complaints seek, among other things, class action status, an order preliminarily and permanently enjoining the proposed transaction, rescission of the transaction if it is consummated, damages, and attorneys’ fees and expenses.

Tax Matters

In October 2001, IRS auditors asserted that two interest rate swaps that Schering-Plough entered into with an unrelated party should be recharacterized as loans from affiliated companies, resulting in additional tax liability for the 1991 and 1992 tax years. In September 2004, Schering-Plough made payments to the IRS in the amount of $194 million for income tax and $279 million for interest. Schering-Plough filed refund claims for the tax and interest with the IRS in December 2004. Following the IRS’s denial of Schering-Plough’s claims for a refund, Schering-Plough filed suit in May 2005 in the U.S. District Court for the District of New Jersey for refund of the full amount of the tax and interest. This refund litigation has been tried in Newark District court and a decision has not yet been rendered. Schering-Plough’s tax reserves were adequate to cover the above-mentioned payments.

Pending Administrative Obligations

In connection with the settlement of an investigation with the U.S. Department of Justice and the U.S. Attorney’s Office for the Eastern District of Pennsylvania, Schering-Plough entered into a five-year corporate integrity agreement (CIA). The CIA was amended in August of 2006 in connection with the settlement of the Massachusetts Investigation, commencing a new five-year term. Failure to comply with the obligations under the CIA could result in financial penalties. To date, Schering-Plough believes it has complied with its obligations.

18

SCHERING-PLOUGH CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Matters

Products Liability

Beginning in May 2007, a number of complaints were filed in various jurisdictions asserting claims against Organon USA, Inc., Organon Pharmaceuticals USA, Inc., Organon International (Organon), and Schering-Plough Corporation arising from Organon’s marketing and sale of NUVARING, a combined hormonal contraceptive vaginal ring. The plaintiffs contend that Organon and Schering-Plough 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 venued in Missouri and in New Jersey state court. Other cases are pending in other states.

French Matter

Based on a complaint to the French competition authority from a competitor in France and pursuant to a court order, the French competition authority has obtained documents from a French subsidiary of Schering-Plough relating to SUBUTEX, one of the products that the subsidiary markets and sells. Any resolution of this matter adverse to the French subsidiary could result in the imposition of civil fines and injunctive or administrative remedies. On July 17, 2007, the Juge des Libertés et de la Détention ordered the annulment of the search and seizure on procedural grounds. On July 19, 2007, the French authority appealed the order to the French Supreme Court.

In April 2007, the competitor also requested interim relief, a portion of which was granted by the French competition authority in December 2007. The interim relief required Schering-Plough’s French subsidiary to publish in two specialized newspapers information including that the generic has the same quantitative and qualitative composition and the same pharmaceutical form as, and is substitutable for, SUBUTEX. In February 2008, the Paris Court of Appeal confirmed the decision of the French competition authority. In January 2009, the French Supreme Court confirmed the decision of the French competition authority.

Environmental

Schering-Plough has responsibilities for environmental cleanup under various state, local and federal laws, including the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. At several Superfund sites (or equivalent sites under state law), Schering-Plough is alleged to be a potentially responsible party (PRP). Schering-Plough believes that it is remote at this time that there is any material liability in relation to such sites. Schering-Plough estimates its obligations for cleanup costs for Superfund sites based on information obtained from the federal Environmental Protection Agency (EPA), an equivalent state agency and/or studies prepared by independent engineers, and on the probable costs to be paid by other PRPs. Schering-Plough records a liability for environmental assessments and/or cleanup when it is probable a loss has been incurred and the amount can be reasonably estimated.

17. MERGER AGREEMENT WITH MERCK & CO., INC.

On March 9, 2009 Merck & Co., Inc.(Merck) and Schering-Plough announced that their Boards of Directors had unanimously approved a definitive merger agreement under which Merck and Schering-Plough will combine, under the name Merck, in a stock and cash transaction. The merger agreement was filed as an exhibit to Schering-Plough’s Form 8-K dated March 11, 2009.

Under the terms of the agreement, Schering-Plough shareholders will receive 0.5767 shares and $10.50 in cash for each share of Schering-Plough. Each Merck share will automatically become a share of the combined company.

The transaction is subject to approval by Merck and Schering-Plough shareholders and the satisfaction of customary closing conditions and regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as clearance by the European Commission (EC) under the EC Merger Regulation and certain other foreign jurisdictions. Merck and Schering-Plough expect to complete the transaction in the fourth quarter of 2009.

19

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Schering-Plough Corporation

We have reviewed the accompanying condensed consolidated balance sheet of Schering-Plough Corporation and subsidiaries (the “Company”) as of March 31, 2009, and the related statements of condensed consolidated operations for the three-month periods ended March 31, 2009 and 2008, and the statements of condensed consolidated cash flows for the three-month periods ended March 31, 2009 and 2008. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2008, and the related statements of consolidated operations, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 27, 2009, we expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding the Company’s adoption of Statement of Financial Accounting Standards (“SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans and Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes . In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2008 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Deloitte & Touche LLP

Parsippany, New Jersey

May 1, 2009

20

EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION

In March 2009, Merck and Schering-Plough announced that their Boards of Directors unanimously approved a definitive merger agreement under which Merck and Schering-Plough will combine in a stock and cash transaction. The transaction is structured as a “reverse merger” in which Schering-Plough, renamed Merck, will continue as the surviving public corporation (referred to herein as “New Merck”). Under the terms of the merger agreement, each issued and outstanding share of Schering-Plough common stock will be converted into the right to receive a combination of $10.50 in cash and 0.5767 of a share of the common stock of New Merck. Each issued and outstanding share of Merck common stock will automatically be converted into a share of the common stock of New Merck. Based on the closing price of Merck stock on June 5, 2009, the date used for preparation of these unaudited pro forma condensed combined financial statements, the consideration to be received by Schering-Plough shareholders is valued at $25.53 per share, or $44.6 billion in the aggregate. The cash portion of the consideration will be funded with a combination of existing cash, the sale or redemption of short-term investments and the issuance of debt. Upon completion of the merger, each issued and outstanding share of Schering-Plough 6% Mandatory Convertible Preferred Stock not converted in accordance with the preferred stock designations shall remain outstanding as one share of 6% Mandatory Convertible Preferred Stock of New Merck having the rights set forth in the New Merck certificate of incorporation. The transaction remains subject to Merck and Schering-Plough shareholder approvals and the satisfaction of customary closing conditions and regulatory approvals. The transaction is expected to close in the fourth quarter of 2009.

The unaudited pro forma condensed combined financial statements set forth below have been prepared by Merck and give effect to the following transactions:

• The merger with Schering-Plough for aggregate consideration of approximately $44.6 billion;

• The issuance of common shares and debt, as well as the use of existing cash and the sale or redemption of short-term investments to fund the merger; and

• The consolidation of the Merck/Schering-Plough cholesterol partnership joint venture which will be owned 100% by New Merck upon consummation of the transaction.

The unaudited pro forma condensed combined financial statements give effect to the merger as if it had been completed on January 1, 2008 for income statement purposes, and as if it had been completed on March 31, 2009 for balance sheet purposes, subject to the assumptions and adjustments as described in the accompanying notes. The pro forma condensed combined statement of income does not reflect the potential realization of cost savings, or restructuring or other costs relating to the integration of the two companies nor does it include any other items not expected to have a continuing impact on the combined results of the companies. Additionally, the unaudited pro forma condensed combined financial statements do not reflect the effects of business or product divestitures, including those that may be required to obtain regulatory approval. The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the Securities and Exchange Commission (“SEC”) and should not be considered indicative of the financial position or results of operations that would have occurred if the merger had been consummated on the dates indicated, nor are they indicative of the future financial position or results of operations of the combined company. The unaudited pro forma condensed combined financial statements should be read in conjunction with the:

• separate historical consolidated financial statements and accompanying notes of Merck as of and for the year ended December 31, 2008 included in Merck’s Current Report on Form 8-K filed on May 20, 2009;

• separate unaudited condensed consolidated financial statements and accompanying notes of Merck as of and for the three months March 31, 2009 included in Merck’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009;

• separate historical consolidated financial statements and accompanying notes of Schering-Plough as of and for the year ended December 31, 2008 included in this Current Report on Form 8-K as Exhibit 99.1; and

• separate unaudited condensed consolidated financial statements and accompanying notes of Schering-Plough as of and for the three months March 31, 2009 included in this Current Report on Form 8-K as Exhibit 99.2.

The transactions contemplated by the merger agreement will be accounted for under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“FAS”) No. 141(R), Business Combinations (“FAS 141(R)”). New Merck will account for the transaction by using Merck historical information and accounting policies and adding the assets and liabilities of Schering-Plough as of the completion date of the merger primarily at their respective fair values. Pursuant to FAS 141(R), under the acquisition method, the total estimated purchase price (consideration transferred) as described in Note 1 to the unaudited pro forma condensed combined financial statements, will be measured at the closing date of the merger using the market price at that time. Therefore, this will most likely result in a per share equity component that is different from that assumed for purposes of preparing these unaudited pro forma condensed combined financial statements. The assets and liabilities of Schering-Plough have been measured based on various preliminary estimates using assumptions that Merck management believes are reasonable utilizing information currently available. Use of different estimates and judgments could yield materially different results. Because of antitrust regulations, there are limitations on the types of information that can be exchanged between Merck and Schering-Plough at this current time. Until the merger is completed, Merck will not have complete access to all relevant information.

1

The process for estimating the fair values of in-process research and development, identifiable intangible assets and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows, developing appropriate discount rates, estimating the costs, timing and probability of success to complete in-process projects and projecting regulatory approvals. Under FAS 141(R), transaction costs are not included as a component of consideration transferred, and will be expensed as incurred. The excess of the purchase price (consideration transferred) over the estimated amounts of identifiable assets and liabilities of Schering-Plough as of the effective date of the merger will be allocated to goodwill in accordance with FAS 141(R). The purchase price allocation is subject to finalization of Merck’s analysis of the fair value of the assets and liabilities of Schering-Plough as of the effective date of the merger. Accordingly, the purchase price allocation in the unaudited pro forma condensed combined financial statements is preliminary and will be adjusted upon completion of the final valuation. Such adjustments could be material. The final valuation is expected to be completed as soon as practicable but no later than one year after the consummation of the merger.

On April 1, 2009, the FASB issued Staff Position FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (“FAS 141(R)-1”), which amends the guidance in FAS 141(R) to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can reasonably be estimated. If the fair value of an asset or liability that arises from a contingency cannot be determined, the asset or liability would be recognized in accordance with FAS No. 5, Accounting for Contingencies (“FAS 5”) and FASB Interpretation No. 14, Reasonable Estimation of the Amount of a Loss. If the fair value is not determinable and the FAS 5 criteria are not met, no asset or liability would be recognized. The amended guidance is applicable to the merger of Merck and Schering-Plough. However, at this time, Merck does not have sufficient information to determine the fair value of contingencies of Schering-Plough to be acquired in the merger; and therefore, these amounts are reflected in accordance with FAS 5 as applied by Schering-Plough in its historical financial statements. If information becomes available which would permit Merck to fair value these acquired contingencies, Merck will adjust these amounts in accordance with FAS 141(R)-1.

For purposes of measuring the estimated fair value of the assets acquired and liabilities assumed as reflected in the unaudited pro forma condensed combined financial statements, Merck used the guidance in FAS No. 157, Fair Value Measurements (“FAS 157”), which established a framework for measuring fair values. FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, under FAS 157, fair value measurements for an asset assume the highest and best use of that asset by market participants. As a result, New Merck may be required to value assets of Schering-Plough at fair value measures that do not reflect New Merck’s intended use of those assets. Use of different estimates and judgments could yield different results.

2

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

MARCH 31, 2009

							Merck/Schering- Plough Cholesterol Partnership Adjustments (Note 2)
	Historical									Pro Forma Adjustments (Note 3)									Pro Forma As Adjusted
	Merck			Schering- Plough						Reclassifications			Financing			Purchase Accounting
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	6,017.1		$	2,845.0		$	225.0		$	—		$	8,500.0	(a)	$	(11,846.9	)(b)	$	5,440.2
																	(100.0	)(c)
																	(200.0	)(d)
Short-term investments		6,564.5			708.0			—			—			—			(6,564.5	)(b)		708.0
Accounts receivable		3,569.7			2,953.0			99.3			—			—			—			6,622.0
Inventories		2,127.8			3,158.0			84.0			—			—			1,873.0	(e)		7,242.8
Deferred income taxes and other current assets		7,905.5			1,680.0			(99.0	)		—			—			(711.7	)(f)		8,870.2
																	95.4	(d)
Total current assets		26,184.6			11,344.0			309.3			—			8,500.0			(17,454.7	)		28,883.2
Investments		78.7			—			—			—			—			—			78.7
Property, Plant and Equipment, at cost, net		11,826.1			6,662.0			—			222.0	(g)		—			—	(h)		18,710.1
Goodwill		1,439.0			2,667.0			—			—			—			15,551.3	(i)		16,990.3
																	(2,667.0	)(i)
Other Intangibles, Net		614.2			5,761.0			—			—			—			36,693.0	(j)		44,861.2
																	7,554.0	(j)(r)
																	(5,761.0	)(j)
Other Assets		6,400.5			1,284.0			(261.0	)		(222.0	)(g)		—			—			7,201.5
Total Assets	$	46,543.1		$	27,718.0		$	48.3		$	—		$	8,500.0		$	33,915.6		$	116,725.0
LIABILITIES AND EQUITY
Current Liabilities
Loans payable and current portion of long-term debt	$	2,798.9		$	204.0		$	—		$	—		$	3,500.0	(a)	$	—		$	6,502.9
Trade accounts payable		622.5			1,670.0			(3.3	)		—			—			—			2,289.2
Accrued and other current liabilities		8,710.7			2,925.0			70.0			(125.0	)(g)		—			100.0	(k)		11,741.2
																	165.0	(l)
																	(104.5	)(d)
Income taxes payable		480.2			162.0			—			—			—			—			642.2
Dividends payable		803.6			—			—			125.0	(g)		—			—			928.6
Total current liabilities		13,415.9			4,961.0			66.7			—			3,500.0			160.5			22,104.1
Long-Term Debt		3,939.1			7,685.0			—			—			5,000.0	(a)		254.0	(m)		16,878.1
Deferred Income Taxes and Noncurrent Liabilities		7,186.6			4,237.0			—			—			—			10,904.1	(f)		22,228.7
																	(99.0	)(n)
Equity
Mandatory convertible preferred shares		—			2,500.0			—			—			—			(2,500.0	)(o)		—
Common shares		29.8			1,060.0			—			—			—			494.0	(b)		1,548.4
																	(8.7	)(s)
																	1,033.3	(p)
																	(1,060.0	)(o)
Other paid-in capital		8,386.8			5,128.0			—			—			—			25,263.2	(b)		33,014.5
																	397.8	(q)
																	(1,033.3	)(p)
																	(5,128.0	)(o)
Retained earnings		44,320.4			9,842.0			(18.4	)		—			—			7,576.0	(r)		20,985.5
																	(100.0	)(c)
																	(100.0	)(k)
																	(30,692.5	)(s)
																	(9,842.0	)(o)
Accumulated other comprehensive loss		(2,472.8	)		(2,352.0	)		—			—			—			2,352.0	(o)		(2,472.8	)
Treasury stock, at cost		(30,701.2	)		(5,343.0	)		—			—			—			30,701.2	(s)		—
																	5,343.0	(o)
Total stockholders’ equity		19,563.0			10,835.0			(18.4	)		—			—			22,696.0			53,075.6
Noncontrolling interests		2,438.5			—			—			—			—			—			2,438.5
Total equity		22,001.5			10,835.0			(18.4	)		—			—			22,696.0			55,514.1
Total Liabilities and Stockholders’ Equity	$	46,543.1		$	27,718.0		$	48.3		$	—		$	8,500.0		$	33,915.6		$	116,725.0

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

3

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

THREE MONTHS ENDED MARCH 31, 2009

							Merck/Schering- Plough Cholesterol Partnership Adjustments (Note 2)
	Historical								Pro Forma Adjustments (Note 3)
	Merck			Schering- Plough					Reclassifications		Financing			Purchase Accounting			Pro Forma As Adjusted
	(In millions except per share amounts)
Sales	$	5,385.2		$	4,393.0		$	907.4	$	—	$	—		$	—		$	10,685.6
Costs, Expenses and Other
Materials and production		1,333.8			1,399.0			8.6		—		—			972.1	(t1)		3,584.5
															(129.0	)(t2)
Marketing and administrative		1,632.9			1,493.0			162.0		—		—			(7.0	)(v)		3,280.9
Research and development		1,224.2			804.0			43.0		—		—			—			2,071.2
Restructuring costs		64.3			75.0			—		—		—			(19.0	)(v)		120.3
Equity income from affiliates		(585.8	)		(400.0	)		690.9		—		—			—			(294.9	)
Other (income) expense, net		(67.2	)		88.0			—		—		69.6	(w2)		70.3	(w3)		141.7
												(12.0	)(w5)		(7.0	)(w4)
		3,602.2			3,459.0			904.5		—		57.6			880.4			8,903.7
Income Before Taxes		1,783.0			934.0			2.9		—		(57.6	)		(880.4	)		1,781.9
Taxes on Income		327.2			129.0			—		—		(21.9	)(x)		(189.2	)(x)		245.1
Net Income		1,455.8			805.0			2.9		—		(35.7	)		(691.2	)		1,536.8
Less: Net Income Attributable to Noncontrolling Interests		30.8			—			—		—		—			—			30.8
Net Income Attributable to Controlling Interests		1,425.0			805.0			2.9		—		(35.7	)		(691.2	)		1,506.0
Preferred Stock Dividends		—			38.0			—		—		—			(38.0	)(y)		—
Net Income Available to Common Shareholders	$	1,425.0		$	767.0		$	2.9	$	—	$	(35.7	)	$	(653.2	)	$	1,506.0
Basic Earnings per Common Share	$	0.67		$	0.47												$	0.48
Earnings per Common Share Assuming Dilution	$	0.67		$	0.46												$	0.48
Weighted average common shares used to calculate earnings per share:
Basic		2,107.9			1,627.0													3,095.9	(z)
Diluted		2,109.2			1,720.0													3,098.4	(z)

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

4

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31, 2008

							Merck/Schering- Plough Cholesterol Partnership Adjustments (Note 2)
	Historical									Pro Forma Adjustments (Note 3)
	Merck			Schering- Plough						Reclassifications			Financing			Purchase Accounting			Pro Forma As Adjusted
	(In millions except per share amounts)
Sales	$	23,850.3		$	18,502.0		$	4,397.3		$	—		$	—		$	—		$	46,749.6
Costs, Expenses and Other
Materials and production		5,582.5			7,307.0			38.0			—			—			3,888.4	(t1)		16,245.9
																	(570.0	)(t2)
Marketing and administrative		7,377.0			6,823.0			839.0			54.0	(u)		—			—			15,093.0
Research and development		4,805.3			3,529.0			168.0			—			—			—			8,502.3
Restructuring costs		1,032.5			329.0			—			(54.0	)(u)		—			—			1,307.5
Equity income from affiliates		(2,560.6	)		(1,870.0	)		3,406.3			—			—			—			(1,024.3	)
Other (income) expense, net		(2,318.1	)		335.0			—			—			200.0	(w1)		281.4	(w3)		(1,251.5	)
														278.5	(w2)		(28.3	)(w4)
		13,918.6			16,453.0			4,451.3			—			478.5			3,571.5			38,872.9
Income Before Taxes		9,931.7			2,049.0			(54.0	)		—			(478.5	)		(3,571.5	)		7,876.7
Taxes on Income		1,999.4			146.0			—			—			(181.8	)(x)		(775.9	)(x)		1,187.7
Net Income		7,932.3			1,903.0			(54.0	)		—			(296.7	)		(2,795.6	)		6,689.0
Less: Net Income Attributable to Noncontrolling Interests		123.9			—			—			—			—			—			123.9
Net Income Attributable to Controlling Interests		7,808.4			1,903.0			(54.0	)		—			(296.7	)		(2,795.6	)		6,565.1
Preferred Stock Dividends		—			150.0			—			—			—			(150.0	)(y)		—
Net Income Available to Common Shareholders	$	7,808.4		$	1,753.0		$	(54.0	)	$	—		$	(296.7	)	$	(2,645.6	)	$	6,565.1
Basic Earnings per Common Share	$	3.65		$	1.08														$	2.09
Earnings per Common Share Assuming Dilution	$	3.63		$	1.07														$	2.09
Weighted average common shares used to calculate earnings per share:
Basic		2,135.8			1,625.0															3,123.8	(z)
Diluted		2,142.5			1,635.0															3,132.5	(z)

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

5

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(1) Calculation of Estimated Consideration Transferred and Preliminary Allocation of Consideration Transferred to Net Assets Acquired

Calculation of Estimated Consideration Transferred

	(In millions except per share amounts)
Schering-Plough common stock shares outstanding at March 31, 2009 (net of treasury shares)		1,628.0
Conversion of Schering-Plough 6% Mandatory Convertible Preferred Stock		85.5	(a)
Shares eligible for conversion		1,713.5
Cash per share	$	10.50
Cash consideration for outstanding shares	$	17,991.8
Schering-Plough 6% Mandatory Convertible Preferred Stock make-whole dividend payments	$	144.5	(a)
Value of Schering-Plough deferred stock units to be settled in cash		275.1	(b)
Total cash consideration	$	18,411.4
Shares eligible for conversion		1,713.5
Common stock exchange ratio per share		0.5767
Equivalent new company shares (par value $0.50)		988
Merck common stock share price on June 5, 2009	$	26.07	(c)
Common stock equity consideration	$	25,757.2
Fair value of share-based compensation awards	$	397.8	(b)
Total estimated consideration transferred	$	44,566.4

(a) For purposes of preparing these unaudited pro forma condensed combined financial statements, Merck has assumed conversion of all outstanding Schering-Plough 6% Mandatory Convertible Preferred Stock in connection with the merger at the make-whole conversion rate as Merck believes this would be most advantageous to those holders. Holders converting their preferred stock will be entitled to receive a make-whole dividend payment equal to the present value of the dividends that would otherwise be payable in respect of those shares during the period from the conversion date through the mandatory conversion date on August 13, 2010 using a discount rate of 6.75%. Each share of preferred stock not so converted would result in a reduction of 8.6 shares of common stock issued and a per share reduction of $14.45 in the make-whole dividend payment. This conversion factor assumes the transaction closes in the fourth quarter of 2009.

(b) Represents the fair value of Schering-Plough stock option, performance-based deferred stock unit and certain deferred stock unit replacement awards and the cash consideration to be paid to holders of certain other deferred stock units for precombination services. FAS 141(R) requires that the fair value of replacement awards and cash payments made to settle vested awards attributable to precombination service be included in the consideration transferred. Holders of Schering-Plough stock options and performance-based deferred stock units will receive replacement awards. Holders of Schering-Plough deferred stock units issued after 2007 will receive replacement awards and holders of deferred stock units for 2007 awards and prior will be converted into the right to receive cash as specified in the merger agreement. The fair value of outstanding Schering-Plough stock options, deferred stock units and performance-based deferred stock units for 2007 awards and prior, which will immediately vest at the effective time of the merger, has been attributed to precombination service and included in the consideration transferred. Awards for 2008 and 2009 will not immediately vest upon completion of the merger. For these awards, the fair value of the awards attributed to precombination services is included as part of the consideration transferred and the fair value attributed to postcombination services will be recorded as compensation cost in the postcombination financial statements of the combined entity.

6

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)

(c) In accordance with FAS 141(R), the fair value of equity securities issued as part of the consideration transferred will be measured using the market price of Merck common stock on the closing date. Assuming a $1 change in Merck’s closing common stock price, the estimated consideration transferred would increase or decrease by approximately $1 billion which would have a corresponding offset to estimated goodwill.

Preliminary Allocation of Consideration Transferred to Net Assets Acquired

Identifiable intangible assets	$	36,693.0
Property, plant and equipment		6,662.0
Inventories		5,009.0
Other non-current assets		1,284.0
Net working capital, excluding inventories and deferred taxes		2,575.0
Deferred income taxes, net		(12,572.9	)
Long-term debt		(7,939.0	)
Other long-term liabilities		(2,696.0	)
Goodwill		15,551.3
Estimated purchase price to be allocated	$	44,566.4

(2) Merck/Schering-Plough Cholesterol Partnership Adjustments

The Merck/Schering-Plough cholesterol partnership was formed by Merck and Schering-Plough to develop and commercialize in the United States (and in 2001 expanded to include the world, excluding Japan) Schering-Plough’s proprietary cholesterol absorption inhibitor ezetimibe in the cholesterol management field: (i) as a stand-alone product (marketed in the United States as Zetia and outside the United States as Ezetrol ); (ii) as a fixed combination tablet with Merck’s simvastatin ( Zocor ) (marketed in the United States as Vytorin and outside the United States as Inegy ); and (iii) in co-administration with various approved statin drugs.

As a result of the merger, the combined company will acquire the non-controlling interest in the Merck/Schering-Plough cholesterol partnership and therefore obtain a controlling interest in the Merck/Schering-Plough cholesterol partnership. Previously Merck had a non-controlling interest. These unaudited pro forma condensed combined financial statements reflect (1) the consolidation of the Merck/Schering-Plough cholesterol partnership and (2) a gain in accordance with FAS 141(R) (see Note 3(r)).

Balance Sheet

Represents the consolidation of the Merck/Schering-Plough cholesterol partnership and the elimination of historical investment and related party balances that were reflected on the balance sheets of Merck and Schering-Plough. Also reflects the elimination of balances resulting primarily from the timing of recognition of certain transactions between Merck, Schering-Plough and the Merck/Schering-Plough cholesterol partnership, including milestone payments.

Income Statement

Reflects the consolidation of the Merck/Schering-Plough cholesterol partnership and the elimination of equity earnings related to the Merck/Schering-Plough cholesterol partnership reflected in the historical financial statements of both Merck and Schering-Plough. Additionally, reflects the reclassification of certain costs, as well as the elimination of sales and associated materials and production costs reflected in the Merck/Schering-Plough cholesterol partnership historical results related to transactions that have not yet resulted in sales to third parties.

7

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)

(3) Pro Forma Adjustments

Pro Forma Condensed Combined Balance Sheet

(a) Reflects the issuance of a combination of short-term debt ($3.5 billion) and long-term debt ($5.0 billion) to fund the merger. Merck currently has committed financing in the form of various 364-day facilities amounting to $7.0 billion in the aggregate, as well as Merck’s existing $1.5 billion credit facility. However, for purposes of preparing the unaudited pro forma condensed combined financial statements, the debt financing is reflected as a combination of short- and long-term debt as it is Merck’s intention that New Merck not draw down on these facilities, but rather to issue a combination of commercial paper and permanent long-term debt financing of varying maturities prior to the completion of the merger. The debt structure and interest rates used for purposes of preparing the unaudited pro forma condensed combined financial statements may be considerably different than the actual amounts incurred by Merck based on market conditions at the time of the debt financing.

(b) Reflects the issuance of common stock (see Note 1), the use of cash and cash equivalents after the receipt of proceeds from the financing transactions discussed in (a) above, and the sale or redemption of short-term investments to fund the purchase price.

(c) Reflects an estimate of Merck’s merger-related transaction costs (including advisory, legal and valuation fees) of $100 million. These amounts will be expensed as incurred. Because they will not have a continuing impact, they are not reflected in the unaudited pro forma condensed combined statement of income. No adjustment has been made for merger-related costs to be incurred by Schering-Plough which are estimated to be $100 million.

(d) Reflects the payment of approximately $200 million in commitment fees associated with the various 364-day facilities entered into in connection with the merger agreement. Also reflects the recognition of $95 million of deferred costs as a current asset related to these facilities not already recognized at March 31, 2009 and the reduction to accrued liabilities of $105 million as a result of the assumed payment of these amounts. Merck amortized $12 million of these costs during the first quarter of 2009 (see w(5)). Merck does not intend that New Merck will draw down on any of these facilities, but rather to refinance the facilities with a combination of short- and long-term permanent debt financing.

(e) Reflects the adjustment of historical Schering-Plough and Merck/Schering-Plough cholesterol partnership inventories to estimated fair value. At this time, Merck does not have detailed information as to the components of raw materials, work in process and finished goods inventories. In general, the fair valuation of inventories will result in an increase over book value pursuant to the lower of cost or market requirements, particularly when, as in the pharmaceutical industry, the selling price is affected more by the ownership of intellectual property and less by the costs associated with the manufacturing of products. Merck estimated the fair value adjustment to inventories using information as to the major categories of inventory by business segment (prescription pharmaceuticals, animal health and consumer health care) utilizing assumptions (including profit margins and turnover ratios) in the aggregate to establish net realizable value and by high level benchmarking of other relevant transactions within the industry utilizing similar valuation trends. The impact of this adjustment is not reflected in the unaudited pro forma condensed combined statement of income because the adjustment will not have a continuing impact; however, the inventory adjustment will result in an increase in materials and production costs in periods subsequent to the completion of the merger when the related inventories are sold.

(f) Reflects estimated adjustments to net deferred taxes arising from the merger. Transactions involving the Merck/Schering-Plough cholesterol partnership were provided at a rate applicable for the taxing jurisdiction. Merck assumed a combined U.S. federal and state statutory rate of 38.0% when estimating all other tax impacts of the merger, including deferred taxes for intangible assets, as well as an adjustment for estimated deferred taxes on Schering-Plough’s unremitted earnings for which no taxes had previously been provided, as it is

8

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)

Merck’s intention to repatriate these earnings as opposed to permanently reinvesting them overseas. The amount of the undistributed earnings of $7.5 billion was obtained by reference to Schering-Plough’s Annual Report on Form 10-K for the year ended December 31, 2008. The adjustment to net deferred taxes also reflects the reversal of Schering-Plough’s valuation allowance, which includes amounts for tax credits that Merck believes will be utilized based on currently available information. However, these credits are subject to complex calculations and limitations and therefore the amounts actually recognized could change and such change could be material. The effective tax rate of the combined company could be significantly different than the rates assumed for purposes of preparing the unaudited pro forma condensed combined financial statements for a variety of factors, including post-merger activities.

(g) To reclassify Schering-Plough’s capitalized software costs of $222 million and dividends payable of $125 million consistent with Merck’s presentation.

(h) At this time there is insufficient information as to the specific nature, age, condition and location of Schering-Plough’s property, plant and equipment to make a reasonable estimation of fair value or the corresponding adjustment to depreciation and amortization. For each $100 million fair value adjustment to property, plant and equipment, assuming a weighted-average useful life of 10 years, depreciation expense would change by approximately $10 million.

(i) Reflects estimated goodwill from the purchase price allocation of $15.6 billion and the elimination of historical Schering-Plough goodwill of $2.7 billion.

(j) Reflects an estimate of the purchase price to be allocated to Schering-Plough’s acquired identifiable intangible assets and acquired in-process research and development projects and the elimination of historical Schering-Plough intangible assets. The fair value of identifiable intangible assets for the prescription pharmaceutical business segment is determined primarily using the “income approach,” which utilizes a forecast of expected future net cash flows. The income approach is also applied to the intangible assets of the consumer health business segment. The fair value of the intangible assets of the animal health business segment is based on benchmarking of similar publicly available transactions within the industry segment. Merck’s valuation assumes that the Remicade product rights are retained by New Merck, and also includes other major products such as Nasonex , Temodar , PegIntron and Clarinex , Merck/Schering-Plough cholesterol partnership products Zetia and Vytorin, as well as Schering-Plough’s other pharmaceutical, animal health and consumer healthcare products and projects still in the research and development phase. To the extent any products are divested due to the regulatory process or for other reasons, the amount allocated to intangible assets will change. In particular, Merck’s estimates of revenues and associated costs of the acquired in-process research and development programs were based on relevant industry and therapeutic area growth drivers and factors; current and expected trends in technology and product life cycles; the time and investment that will be required to develop products and technologies; the ability to obtain marketing and regulatory approvals; the ability to manufacture and commercialize the products; the extent and timing of potential new product introductions by our competitors; the amount of revenues that will be derived from the products; and the appropriate discount rates to use in the analysis. The discount rates used are commensurate with the uncertainties associated with the economic estimates described above, as well as the risk profile of the cash flows utilized in the value. The probability-adjusted future cash flows which reflect the different stages of development of each product are then present valued utilizing the appropriate discount rate. At the time of the preparation of these unaudited pro forma condensed combined financial statements, Merck does not have complete information as to the amount, timing and risk of cash flows of all Schering-Plough’s intangible assets, particularly those assets still in the early research and development phases. For purposes of preparing the unaudited pro forma condensed combined financial statements, Merck used publicly available information and market participant assumptions such as historical product revenues, Schering-Plough’s existing cost structure, and certain other high-level assumptions. Estimated weighted average useful lives for products and

9

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)

product rights were determined based on the estimated patent expiration of the underlying product. The estimated fair values and estimated weighted average useful lives are as follows:

	Estimated Fair Value		Weighted Average Estimated Useful Life
Products and product rights	$	35,730	9 years
Tradenames		705	14 years
Tradenames — indefinite lived		420	—
In-process research and development		7,392	Unknown	*
	$	44,247

* These amounts will be capitalized and accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, Merck will make a separate determination as to the useful life of the assets and begin amortization.

Once Merck has complete information as to the specifics of Schering-Plough’s intangible assets, the estimated values assigned to the intangible assets and/or the associated estimated weighted-average useful life of the intangible assets will likely be different than that reflected in these unaudited pro forma condensed combined financial statements and the differences could be material.

(k) Represents an estimated adjustment to conform the accounting policies of both Schering-Plough and the Merck/Schering-Plough cholesterol partnership for legal defense costs to Merck’s policy. This adjustment represents the approximate amount that would have been recognized in the historical financial statements of Schering-Plough and the Merck/Schering-Plough cholesterol partnership had they followed Merck’s policy election in this area.

(l) Represents a liability incurred for certain Schering-Plough employee benefit related amounts that will become payable as a result of the merger pursuant to the terms of the existing contractual arrangements.

(m) Reflects an adjustment of Schering-Plough’s historical debt values to estimated fair values. The estimated fair values of Schering-Plough’s long-term debt results in an increase to long-term debt of $254 million. The carrying value of debt with an original maturity of less than one year approximates market value.

(n) Reflects the elimination of deferred revenue recorded by Schering-Plough as Merck has no legal performance obligation.

(o) Reflects the elimination of the historical equity of Schering-Plough. Additionally, these unaudited pro forma condensed combined financial statements assume conversion of all outstanding Schering-Plough 6% Mandatory Convertible Preferred Stock (see Note 1).

(p) Reflects an adjustment for the change in par value from $0.01 for Merck historical common stock to $0.50 for the common stock of New Merck in accordance with the merger agreement.

(q) Represents the fair value of Schering-Plough stock option, performance-based deferred stock unit and certain deferred stock unit replacement awards attributable to precombination services that will be exchanged for New Merck awards (see Note 1).

(r) Represents the fair value adjustment associated with Merck’s previously held equity interest in the Merck/Schering-Plough cholesterol partnership resulting in a gain, substantially all of which is reflected as a corresponding fair value adjustment to intangible assets and the remainder as an adjustment to inventory. Under FAS 141(R), a business combination in which an acquirer holds a noncontrolling equity investment in the acquiree immediately before obtaining control of that acquiree is referred to as a “step acquisition.” FAS 141(R) requires that the acquirer remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss in earnings. Because this adjustment will not have a continuing impact, it is excluded from the unaudited pro forma condensed combined statement of income.

10

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)

(s) Reflects the cancellation of historical Merck treasury shares pursuant to the merger agreement.

Pro Forma Condensed Combined Statement of Income

(t) Reflects the following:

(1) An estimate of annual amortization expense of $3.9 billion ($972 million for three months) for identifiable intangible assets at their estimated fair values over a weighted average useful life of approximately 9 years.

(2) The elimination of historical Schering-Plough intangible amortization of $570 million for the full year of 2008 and $129 million for the three months ended March 31, 2009.

(u) Reflects the reclassification of historical Schering-Plough integration costs, associated with a previous acquisition, consistent with Merck’s presentation.

(v) Reflects an adjustment of $7 million of Merck merger related costs and $19 million of Schering-Plough merger related costs which do not have a continuing impact and therefore are not reflected in the unaudited pro forma condensed combined statement of income.

(w) Reflects the following:

(1) The expense of $200 million of commitment fees associated with the various 364-day facilities entered into in connection with the merger agreement. Merck does not intend that New Merck will draw down on any of these facilities, but rather to refinance the facilities with a combination of short- and long-term permanent debt financing.

(2) An adjustment to increase annual interest expense by $279 million ($70 million for three months) as a result of the assumed issuance of $8.5 billion in debt including commercial paper of $3.5 billion and $5.0 billion of mixed floating-rate and fixed rate long-term debt with varying terms and maturities with an aggregate weighted-average interest rate of 3.3%. The debt structure and interest rates used for purposes of preparing the unaudited pro forma condensed combined financial statements may be considerably different than the actual amounts incurred by Merck based on market conditions at the time of the debt financing. A 0.125% change in the interest rates on these debt issuances would change the estimated annual interest expense by approximately $11 million. The interest rates assumed on the long-term debt do not contemplate any interest rate swap agreements that New Merck may decide to enter into in the future. Merck currently has committed financing in the form of various 364-day facilities amounting to $7.0 billion in the aggregate, as well as Merck’s existing $1.5 billion credit facility. If New Merck were to draw down on these facilities to fund the merger, annual interest expense and related incremental fees on these facilities is estimated to be approximately $437 million using a weighted average interest rate of 3.821% as determined using the one-month London Interbank Offered Rate (“LIBOR”) in effect on June 5, 2009 of 0.32063% plus weighted average duration fees of 3.75% on the $3 billion bridge facility.

(3) A reduction in annual interest income of $281 million ($70 million for three months) resulting from the assumed utilization of cash and short-term investments to partially fund the merger. The estimate was calculated using a weighted-average interest rate of 2.8% derived from actual interest rates realized by Merck in 2008.

(4) Amortization of $28 million ($7 million for three months) associated with an increase in Schering-Plough debt to fair value which is amortized over the weighted-average remaining life of the obligations.

11

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS — (Continued)

(5) Reflects an adjustment to historical Merck results for commitment fees of $12 million recognized in the first quarter of 2009, as all of the commitment fees are assumed to be recognized in 2008 (see w(1)).

(x) For purposes of determining the estimated income tax expense for adjustments reflected in the unaudited pro forma condensed combined statement of income, a combined U.S. federal and state statutory rate of 38.0% has been used, except with respect to the amortization of intangible assets associated with Merck/Schering-Plough cholesterol partnership products Zetia and Vytorin which was provided for at a rate appropriate for the applicable taxing jurisdiction. The effective tax rate of the combined company could be significantly different than the rates assumed for purposes of preparing the unaudited pro forma condensed combined financial statements for a variety of factors, including post-merger activities.

(y) Represents the elimination of dividends on Schering-Plough 6% Mandatory Convertible Preferred Stock assuming conversion of these shares into common stock as of January 1, 2008 in connection with the merger (see Note 1).

(z) Represents adjusted weighted average shares outstanding after giving effect to the issuance of 988 million common shares to Schering-Plough shareholders pursuant to the merger (see Note 1) which are assumed outstanding for all of 2008 and for the three months ended March 31, 2009.

12

EX-99.4

Exhibit 99.4

RISK FACTORS

As previously announced, Merck & Co., Inc. (“Merck”) and Schering-Plough Corporation (“Schering-Plough”) have entered into a definitive merger agreement under which Merck and Schering-Plough will combine in a stock and cash transaction (the “merger”). The merger agreement provides for two successive mergers and is expected to close in the fourth quarter of 2009, subject to certain closing conditions. In the first merger, or the Schering-Plough merger, a wholly owned subsidiary of Schering-Plough will merge into Schering-Plough. Schering-Plough will continue as the surviving company in this merger, but will change its name to “Merck & Co., Inc.” The surviving company in this merger is referred to herein as “New Merck.” In the second merger, or the Merck merger, a second wholly owned subsidiary of Schering-Plough will merge with Merck. Unless the context otherwise requires, references to “we”, “us” or “our” and other first person references herein refer to both Merck and Schering-Plough, before completion of the merger.

Investors in Merck’s securities should carefully consider the matters described below when determining whether to invest in Merck’s securities.

Risks Relating to the Merger

Merck’s inability to obtain the financing necessary to complete the transaction could delay or prevent the completion of the merger.

Under the terms of the merger agreement, even if the conditions to closing are satisfied, if the proceeds of the financing necessary to complete the transaction are not available in full, the closing may be delayed until the date, if any, on which the proceeds of the financing are available in full. Moreover, the merger agreement may be terminated if the required financing is not available to Merck by the “drop-dead date” of December 8, 2009 under the merger agreement, which may be extended to as late as March 8, 2010. In addition, Merck is required to pay Schering-Plough a termination fee of $2.5 billion and reimburse Schering-Plough’s expenses up to a maximum of $150 million if the merger agreement is terminated because the merger has not occurred by the drop-dead date by reason of the fact that the proceeds of the financing are not available to Merck and all of Merck’s other closing conditions have been fulfilled.

On May 6, 2009, Merck entered into (i) a $3.0 billion 364-day bridge loan agreement with respect to the bridge loan facility, (ii) a $3.0 billion 364-day asset sale facility agreement with respect to the asset sale facility and (iii) a $1.0 billion 364-day incremental loan agreement with respect to the incremental facility. Under each of the new credit facilities, JPMorgan Chase Bank, N.A. is the administrative agent, J.P. Morgan Securities Inc., or J.P. Morgan, is the sole bookrunner and the sole lead arranger and Banco Santander, S.A. New York Branch, Bank of America Securities LLC, BNP Paribas Securities Corp., Citigroup Global Markets Inc., Credit Suisse (USA) LLC, HSBC Bank USA, National Association, The Royal Bank of Scotland plc, and UBS Securities LLC are the co-arrangers. In addition to J.P. Morgan and the eight co-arrangers, twenty other lenders are party to the bridge loan facility and the asset sale facility and fourteen other lenders are party to the incremental facility. The maximum aggregate exposure for any single lender under the new credit facilities is $875.0 million. On April 20, 2009, Merck amended its existing $1.5 billion five-year revolving credit facility to allow it to remain in place after the merger. In addition, Schering-Plough’s existing $2.0 billion revolving credit facility will remain in place following consummation of the merger. Although Merck entered into credit agreements with respect to the new credit facilities and amended its existing $1.5 billion five-year revolving credit facility, the funding under the new credit facilities and the effectiveness of the amendment to the existing $1.5 billion five-year revolving credit facility are subject to various customary conditions, including the absence of any material adverse change with respect to New Merck, satisfaction of a pro forma maximum debt to capitalization ratio, and other closing conditions. Under the terms of the credit agreements for the new credit facilities, neither J.P. Morgan nor the co-arrangers is responsible for the failure of any other member of the syndicate to provide its committed portion of the financing. Although Merck expects to obtain in a timely manner the financing necessary to complete the pending merger, if Merck is unable to timely obtain the financing because one of the conditions to the financing fails to be satisfied or one or more of the

1

members of the syndicate defaults on its obligations to provide its committed portion of the financing (and the commitments of any defaulting syndicate member cannot be replaced on a timely basis), the closing of the merger could be significantly delayed or may not occur at all.

Legal proceedings in connection with the merger, the outcomes of which are uncertain, could delay or prevent the completion of the merger.

Since the announcement of the transaction, several putative class action lawsuits have been filed on behalf of shareholders of Schering-Plough (alleging, among other things, that the merger consideration is too low) and Merck (alleging, among other things, that the consideration is too high). The complaints seek, among other things, class action status, an order preliminarily and permanently enjoining the proposed transaction, rescission of the transaction if it is consummated, damages, and attorneys’ fees and expenses. Such legal proceedings could delay or prevent the transaction from becoming effective within the agreed upon timeframe.

The transaction is subject to the receipt of certain required clearances or approvals from governmental entities that could delay the completion of the merger or impose conditions that could have a material adverse effect on the combined company.

Completion of the merger is conditioned upon the receipt of certain governmental clearances or approvals, including, without limitation, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or HSR Act, the issuance by the European Commission of a decision under the Council Regulation No. 139/2004 of the European Community, or the EC Merger Regulation, declaring the merger compatible with the common market, and the clearance or approval of the merger by the antitrust regulators in Canada, China, Mexico and Switzerland. Although Merck and Schering-Plough have agreed in the merger agreement to use reasonable best efforts to obtain the requisite governmental approvals, there can be no assurance that these clearances and approvals will be obtained. In addition, the governmental entities from which these clearances and approvals are required may impose conditions on the completion of the merger or require changes to the terms of the merger. Under the terms of the merger agreement, in using reasonable best efforts to obtain required regulatory approvals, we may be obligated to make divestitures of assets of Merck or Schering-Plough so long as such divestitures, individually or in the aggregate, would not result in the one-year loss of net sales revenues (measured by net 2008 sales revenue) in excess of $1 billion (excluding any loss of net sales revenues related to the license, sale, divestiture or other disposition or holding separate of Schering-Plough’s animal health segment and Merck’s direct or indirect interest in Merial Ltd.). If Merck or Schering-Plough become subject to any material conditions in order to obtain any clearances or approvals required to complete the merger, the business and results of operations of the combined company may be adversely affected.

Any delay in completing the merger beyond the fourth quarter of 2009 may reduce or eliminate the benefits expected.

In addition to receipt of financing and required antitrust clearances and approvals, the merger is subject to a number of other conditions beyond the parties’ control that may prevent, delay or otherwise materially adversely affect the completion of the transaction. Merck and Schering-Plough cannot predict with certainty whether and when these other conditions will be satisfied. Any delay in completing the merger beyond the fourth quarter of 2009 could cause the combined company not to realize, or delay the realization of, some or all of the cost savings and other benefits we expect to achieve from the transaction.

2

The combined company may fail to realize the anticipated cost savings, revenue enhancements and other benefits expected from the merger, which could adversely affect the value of New Merck common stock after the merger.

The success of the merger will depend, in part, on New Merck’s ability to successfully combine the businesses of Merck and Schering-Plough and realize the anticipated benefits and cost savings from the combination of the two companies. If the combined company is not able to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits and cost savings of the merger may not be realized fully or at all or may take longer to realize than expected and the value of New Merck’s common stock may be adversely affected.

Merck and Schering-Plough have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, result in the disruption of each company’s ongoing businesses or identify inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with customers, suppliers, distributors, creditors, lessors, clinical trial investigators or managers or to achieve the anticipated benefits of the merger.

Specifically, issues that must be addressed in integrating the operations of Merck and Schering-Plough in order to realize the anticipated benefits of the merger include, among other things:

• integrating the research and development, manufacturing, distribution, marketing and promotion activities and information technology systems of Merck and Schering-Plough;

• conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures between the companies;

• consolidating corporate and administrative infrastructures;

• consolidating sales and marketing operations;

• retaining existing customers and attracting new customers;

• identifying and eliminating redundant and underperforming operations and assets;

• coordinating geographically dispersed organizations;

• managing tax costs or inefficiencies associated with integrating the operations of the combined company; and

• making any necessary modifications to operating control standards to comply with the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder.

Integration efforts between the two companies will also divert management attention and resources. An inability to realize the full extent of, or any of, the anticipated benefits of the merger, as well as any delays encountered in the integration process, could have an adverse effect on New Merck’s business and results of operations, which may affect the value of the shares of the New Merck common stock.

In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. Actual cost and sales synergies, if achieved at all, may be lower than we expect and may take longer to achieve than anticipated. If the combined company is not able to adequately address these challenges, it may be unable to successfully integrate the operations of Merck and Schering-Plough, or to realize the anticipated benefits of the integration of the two companies.

3

Delays encountered in the integration process could have a material adverse effect on the revenues, expenses, operating results and financial condition of New Merck. Although Merck and Schering-Plough expect significant benefits, such as increased cost savings, to result from the merger, there can be no assurance that New Merck will realize any of these anticipated benefits.

Merck, Schering-Plough and the combined company will incur significant transaction and merger-related transition costs in connection with the merger.

Merck and Schering-Plough expect that they and the combined company will incur significant costs in connection with consummating the merger and integrating the operations of the two companies, with a significant portion of such costs being incurred through the first year after completion of the merger. Merck continues to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the integration of the businesses of Merck and Schering-Plough. Although Merck and Schering-Plough believe that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, will offset incremental transaction and merger-related costs over time, no assurance can be given that this net benefit will be achieved in the near term, or at all.

An arbitration proceeding commenced by Centocor against Schering-Plough may result in the combined company’s loss of the rights to market Remicade and golimumab.

A subsidiary of Schering-Plough is a party to a Distribution Agreement (the “Distribution Agreement”) with Centocor, a wholly owned subsidiary of Johnson & Johnson, pursuant to which the Schering-Plough subsidiary has rights to distribute and commercialize the rheumatoid arthritis treatment Remicade and golimumab, a next-generation treatment, in certain territories. By its terms, the Distribution Agreement may be terminated by a party if the other party is subject to a “Change of Control” as defined in the Distribution Agreement.

Centocor has initiated an arbitration proceeding to resolve the parties’ dispute over whether, as a result of the proposed merger between Schering-Plough and Merck, Schering-Plough and its subsidiary would undergo a change of control that would permit Centocor to terminate the Distribution Agreement.

Schering-Plough is vigorously contesting, and the combined company will vigorously contest, Centocor’s attempt to terminate the Distribution Agreement as a result of the proposed merger. However, if the arbitrator were to conclude that Centocor is permitted to terminate the Distribution Agreement as a result of the transaction and Centocor in fact terminates the Distribution Agreement following the merger, the combined company would not be able to distribute Remicade, which generated sales for Schering-Plough of approximately $2.1 billion in 2008, and would not have the right to commercialize and distribute golimumab in the future. In addition, due to the uncertainty surrounding the outcome of the arbitration, the parties may choose to settle the dispute under mutually agreeable terms but any agreement reached with Centocor to resolve the dispute under the Distribution Agreement may result in the terms of the Distribution Agreement being modified in a manner that may reduce the benefits of the Distribution Agreement to the combined company.

Merck and Schering-Plough will be subject to business uncertainties and contractual restrictions while the merger is pending, which could adversely affect Merck’s and Schering-Plough’s respective businesses.

Uncertainty about the effect of the merger on customers, suppliers and others that do business with Merck and Schering-Plough may have an adverse effect on Merck and Schering-Plough and, consequently, on the combined company. Although Merck and Schering-Plough intend to take steps to reduce any adverse effects, these uncertainties could cause customers, suppliers and others that do business with Merck or Schering-Plough to

4

terminate or change existing business relationships with Merck, Schering-Plough and, after the completion of the merger, the combined company. In addition, the merger agreement restricts Schering-Plough and, to a lesser extent, Merck, without the other party’s consent, from making certain acquisitions and taking other specified actions until completion of the merger or the merger agreement is terminated. These restrictions may prevent Merck or Schering-Plough from pursuing otherwise attractive business opportunities and making other changes to their businesses that may arise before the merger is completed or the merger agreement is terminated.

Merck, Schering-Plough and, subsequently, the combined company must continue to retain, motivate and recruit executives and other key employees, which may be difficult in light of uncertainty regarding the merger, and failure to do so could negatively affect the combined company.

For the merger to be successful, during the period before the merger is completed, both Merck and Schering-Plough must continue to retain, motivate and recruit executives and other key employees. Moreover, the combined company must be successful at retaining and motivating key employees following the completion of the merger. Experienced employees in the pharmaceutical industry are in high demand and competition for their talents can be intense. Employees of both Merck and Schering-Plough may experience uncertainty about their future role with the combined company until, or even after, strategies with regard to the combined company are announced or executed. These potential distractions of the merger may adversely affect the ability of Merck, Schering-Plough or, following completion of the merger, the combined company, to retain, motivate and recruit executives and other key employees and keep them focused on applicable strategies and goals. A failure by Merck, Schering-Plough or, following the completion of the merger, the combined company, to attract, retain and motivate executives and other key employees during the period prior to or after the completion of the merger could have a negative impact on the business of Merck, Schering-Plough or the combined company.

Because directors and executive officers of Schering-Plough have interests in seeing the merger completed that are different than those of Schering-Plough’s other shareholders, directors of Schering-Plough have potential conflicts of interest in recommending that Schering-Plough shareholders vote to approve the merger agreement.

Schering-Plough’s directors have arrangements or other interests that provide them with interests in the merger that are different than those of Schering-Plough’s other shareholders. For example, the merger agreement provides that three directors of Schering-Plough will become directors of New Merck after the merger. While other Schering-Plough directors will not become directors of New Merck after the merger, New Merck will indemnify and maintain liability insurance for each of the Schering-Plough directors’ services as directors of Schering-Plough before the merger. In addition, the executive officers of Schering-Plough have employment, indemnification, equity award, incentive and bonus, pension and severance arrangements.

Failure to complete the merger could negatively impact the stock price and the future business and financial results of Merck and Schering-Plough.

If the merger is not completed, the ongoing businesses of Merck and Schering-Plough may be adversely affected and, without realizing any of the benefits of having completed the merger, Merck and Schering-Plough will be subject to a number of risks, including the following:

• Schering-Plough may be required to pay Merck a termination fee of up to $1.25 billion if the merger agreement is terminated under certain circumstances (plus, in certain circumstances, Schering-Plough also would be obligated to reimburse Merck up to $250 million of Merck’s actual expenses incurred in connection with the merger), or Merck may be required to pay Schering-Plough a termination fee of $1.25 billion if the

5

merger agreement is terminated under certain other circumstances (and, in certain circumstances, Merck also would be obligated to reimburse Schering-Plough up to $150 million of Schering-Plough’s actual expenses incurred in connection with the merger), all as described in the merger agreement;

• Merck will be required to pay Schering-Plough a termination fee of $2.5 billion and reimburse Schering-Plough’s expenses up to a maximum of $150 million if either Merck or Schering-Plough terminates the merger agreement because the drop-dead date, as it may be extended, has occurred and the merger has not been consummated because the proceeds of the financing are not available in full;

• Merck and Schering-Plough will be required to pay certain costs relating to the merger, whether or not the merger is completed; and

• matters relating to the merger (including integration planning) may require substantial commitments of time and resources by Merck and Schering-Plough management, which could otherwise have been devoted to other opportunities that may have been beneficial to Merck and Schering-Plough as independent companies, as the case may be.

Merck and Schering-Plough also could be subject to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against Merck or Schering-Plough to perform their respective obligations under the merger agreement. If the merger is not completed, these risks may materialize and may adversely affect Merck’s and Schering-Plough’s business, financial results and stock price.

Because the market price of Merck common shares will fluctuate, Schering-Plough shareholders cannot be certain of the value of the merger consideration that they will receive in the transaction.

In the Schering-Plough merger, each outstanding share of Schering-Plough common stock will be converted into the right to receive 0.5767 of a share of New Merck common stock and $10.50 in cash. The 0.5767 exchange ratio is fixed and will not be adjusted for changes in the market price of either Merck common stock or Schering-Plough common stock. The market value of the New Merck common stock that Schering-Plough shareholders will be entitled to receive in the Schering-Plough merger will depend on the market value of Merck common stock immediately before that merger is completed and could vary significantly from the market value on the date of the announcement of the merger agreement, the date that the joint proxy statement/prospectus relating to the merger was mailed to shareholders of Merck and Schering-Plough or the date of Merck’s and Schering-Plough’s special meetings of their shareholders relating to the merger. The merger agreement does not provide for any price-based termination right. For example, Merck’s closing common stock price on March 6, 2009, the last trading day prior to the execution of the merger agreement, was $22.74 and, therefore, if the transaction had closed on that date, the value of the merger consideration that Schering-Plough shareholders would have received for each share of common stock, including the $10.50 in cash consideration, would have been $23.61. On June 5, 2009, Merck’s closing common stock price was $26.07, and, therefore, if the transactions had closed on that date, the value of the merger consideration that Schering-Plough shareholders would have received for each share of common stock, including the $10.50 in cash consideration, would have been $25.53. Moreover, the market value of the New Merck common stock will likely fluctuate after the completion of the merger.

Fluctuations in the share price of Merck, or New Merck following the merger, could result from changes in the business, operations or prospects of Merck or Schering-Plough prior to the merger or New Merck following the merger, regulatory considerations, general market and economic conditions and other factors both within and beyond the control of Merck or Schering-Plough. The merger may be completed a considerable period after the date of the Merck and Schering-Plough special meetings of their shareholders. As such, at the time of the special meetings, Merck and Schering-Plough shareholders will not know the value of the merger consideration that Schering-Plough shareholders will receive in the Schering-Plough merger for each share of Schering-Plough common stock.

6

Risks Related to New Merck After Completion of the Merger

The indebtedness of New Merck following the completion of the merger will be substantially greater than Merck’s indebtedness on a stand-alone basis and greater than the combined indebtedness of Merck and Schering-Plough existing prior to the transaction. This increased level of indebtedness could adversely affect New Merck, including by reducing funds available for other business purposes.

The indebtedness of Merck and Schering-Plough as of March 31, 2009 was approximately $6.7 billion and $7.9 billion, respectively. New Merck’s pro forma indebtedness as of March 31, 2009, after giving effect to the merger, would be approximately $23.4 billion. As a result of the substantial increase in debt and the cost of that debt, the amount of cash required to service New Merck’s increased indebtedness levels and thus the demands on New Merck’s cash resources may be significantly greater than the percentages of cash flows required to service the indebtedness of Merck or Schering-Plough individually prior to the transaction. The increased levels of indebtedness could reduce funds available for New Merck’s investment in research and development as well as capital expenditures and other activities, and may create competitive disadvantages for New Merck relative to other companies with lower debt levels.

New Merck will face intense competition from lower-cost generic products.

In general, both Merck and Schering-Plough face increasing competition from lower-cost generic products and New Merck will face the same challenge after the merger. The patent rights that protect Merck’s and Schering-Plough’s products are of varying strengths and durations. In addition, in some countries, patent protection is significantly weaker than in the United States or the European Union. In the United States, political pressure to reduce spending on prescription drugs has led to legislation that encourages the use of generic products. Generic challenges to our products could arise at any time, and we may not be able to prevent the emergence of generic competition for our products.

Loss of patent protection for a product typically is followed promptly by generic substitutes, reducing sales of that product. Availability of generic substitutes for the combined company’s drugs may adversely affect its results of operations and cash flow. In addition, proposals emerge from time to time in the United States and other countries for legislation to further encourage the early and rapid approval of generic drugs. Any such proposal that is enacted into law could increase the substantial negative impact on Merck’s, Schering-Plough’s, and, after the completion of the merger, New Merck’s sales, business, cash flow, results of operations, financial position and prospects resulting from the availability of generic substitutes for products.

New Merck will face intense competition from new products.

New Merck’s products will face intense competition from competitors’ products. This competition may increase as new products enter the market. Competitors’ products may be safer or more effective or more effectively marketed and sold than New Merck’s products. Alternatively, in the case of generic competition, they may be equally safe and effective products that are sold at a substantially lower price than New Merck’s products. As a result, if New Merck fails to maintain its competitive position, this could have a material adverse effect on New Merck’s business, cash flows, results of operations, financial position and prospects.

7

Key Merck and Schering-Plough products generate a significant amount of Merck’s and Schering-Plough’s profits and cash flows, and subsequent to the merger, will generate a significant amount of New Merck’s profits and cash flows, and any events that adversely affect the markets for these products could have a material and negative impact on results of operations and cash flows.

Merck’s and Schering-Plough’s ability to generate profits and operating cash flow depends largely upon the continued profitability of Merck’s key products including, without limitation, Singulair, Cozaar/Hyzaar, Januvia and Gardasil and Schering-Plough’s and Merck’s cholesterol franchise, consisting of Vytorin and Zetia, and other Schering-Plough key products including, without limitation, Remicade, Temodar, Nasonex, and PegIntron. As a result of Merck’s and Schering-Plough’s dependence on key products, any event that adversely affects any of these products or the markets for any of these products could have a significant impact on results of operations and cash flows of both companies and of the combined company after the merger. These events could include loss of patent protection, increased costs associated with manufacturing, generic or OTC availability of Merck’s and Schering-Plough’s product or a competitive product, the discovery of previously unknown side effects, increased competition from the introduction of new, more effective treatments and discontinuation or removal from the market of the product for any reason.

Merck and Schering-Plough are involved in arrangements with third parties that may restrict Merck’s and Schering-Plough’s, and subsequently New Merck’s, ability to sell, market, promote and develop products in certain markets.

Merck and Schering-Plough are each party to numerous co-promotion, development, licensing and other agreements and arrangements with third parties, some of which may contain provisions limiting Merck’s or Schering-Plough’s ability to sell, market, promote and/or develop products in specified markets. Following the completion of the transaction, products previously marketed by either Merck or Schering-Plough may fall under the parameters of these restrictions by virtue of the combination of the two companies. If it is determined that any of New Merck’s products are subject to these restrictions, New Merck may be required to divest, license or otherwise cease marketing these products in various geographic territories, potentially worldwide, and may or may not be entitled to retain passive revenue in connection with actions taken to comply with any such restriction. In the event any product captured by these restrictions as a result of the transaction contributes significantly to sales, the divesture of rights to market the product could have an adverse effect on New Merck’s business, cash flows, results of operations, financial position and prospects.

Merck faces significant litigation related to Vioxx and, if the merger is consummated, New Merck will face that litigation.

On September 30, 2004, Merck voluntarily withdrew Vioxx, its arthritis and acute pain medication, from the market worldwide. As of March 31, 2009, approximately 10,625 product liability lawsuits, involving approximately 25,675 plaintiff groups, alleging personal injuries resulting from the use of Vioxx, have been filed against Merck in state and federal courts in the United States. Merck is also a defendant in approximately 242 putative class actions related to the use of Vioxx. (All of these suits are referred to as the Vioxx Product Liability Lawsuits.) On November 9, 2007, Merck announced that it had entered into an agreement (the Settlement Agreement) with the law firms that comprise the executive committee of the Plaintiffs’ Steering Committee of the federal multidistrict Vioxx litigation as well as representatives of plaintiffs’ counsel in the Texas, New Jersey and California state coordinated proceedings, to resolve state and federal myocardial infarction (MI) and ischemic stroke (IS) claims filed as of that date in the United States. The Settlement Agreement, which also applies to tolled claims, was signed by the parties after several meetings with three of the four judges overseeing the coordination of more than 95% of the current claims in the Vioxx product liability litigation. The Settlement Agreement applies only to U.S. legal residents and those who allege that their MI or IS occurred in the United States.

As of October 30, 2008, the deadline for enrollment in the Settlement Program, more than 48,100 of the approximately 48,325 individuals who were eligible for the Settlement Program and whose claims were not (1) dismissed, (2) expected to be dismissed in the near future, or (3) tolled claims that appear to have been abandoned had submitted some or all of the materials required for enrollment in the Settlement Program. This

8

represents approximately 99.8% of the eligible MI and IS claims previously registered with the Settlement Program. Under the terms of the Settlement Agreement, Merck could exercise a right to walk away from the Settlement Agreement if the thresholds and other requirements were not met. Merck waived that right as of August 4, 2008. The waiver of that right triggered Merck’s obligation to pay a fixed total of $4.85 billion. Payments will be made in installments into the settlement funds. The first payment of $500 million was made in August 2008 and an additional payment of $250 million was made in October 2008. Payments of $12 million and $3 million were made in February and March 2009, respectively, into the IS Settlement Fund. In addition, in April 2009, payments of $110 million and $12 million were made into the MI and IS Settlement Funds, respectively. Interim payments to IS claimants began on February 27, 2009. Additional payments will be made on a periodic basis going forward, when and as needed to fund payments of claims and administrative expenses. During 2009, Merck anticipates that it will make total payments of $3.4 billion into the Vioxx settlement funds pursuant to the Settlement Agreement. However, if the pending merger with Schering-Plough is completed in 2009, as expected, Merck expects it will also pay the remaining approximately $700 million into the IS Settlement Fund.

Of the plaintiff groups described above, most are currently in the Vioxx Settlement Program. As of March 31, 2009, approximately 70 plaintiff groups who were otherwise eligible for the Settlement Program have not participated and their claims remained pending against Merck. In addition, the claims of 400 plaintiff groups who are not eligible for the program remained pending against Merck. A number of these 400 plaintiff groups are subject to motions to dismiss for failure to comply with court-ordered deadlines.

Claims of certain individual third-party payors remain pending in the New Jersey court, and counsel purporting to represent a large number of third-party payors has threatened to file numerous additional such actions. Discovery is currently ongoing in these cases, and a status conference with the court took place in January 2009 to discuss scheduling issues, including the selection of early trial pool cases.

There are also pending in various U.S. courts putative class actions purportedly brought on behalf of individual purchasers or users of Vioxx and claiming either reimbursement of alleged economic loss or an entitlement to medical monitoring. The majority of these cases are at early procedural stages. On June 12, 2008, a Missouri state court certified a class of Missouri plaintiffs seeking reimbursement for out-of-pocket costs relating to Vioxx. The plaintiffs do not allege any personal injuries from taking Vioxx. The Missouri Court of Appeals affirmed the trial court’s certification of a class on May 12, 2009. Merck is preparing a combined motion for rehearing and application to transfer the case to the Missouri Supreme Court. In New Jersey, the trial court dismissed the complaint in the case of Sinclair, a purported statewide medical monitoring class. The Appellate Division reversed the dismissal, and the issue was appealed to the New Jersey Supreme Court. That court heard argument on October 22, 2007. On June 4, 2008, the New Jersey Supreme Court reversed the Appellate Division and dismissed this action. Plaintiffs also have filed a class action in California state court seeking certification of a class of California third-party payors and end-users. The court denied the motion for class certification on April 30, 2009.

In addition to the Vioxx Product Liability Lawsuits, various putative class actions and individual lawsuits have been brought against Merck and several current and former officers and directors of Merck alleging that Merck made false and misleading statements regarding Vioxx in violation of the federal and state securities laws (all of these suits are referred to as the Vioxx Securities Lawsuits). On April 12, 2007, Judge Chesler granted defendants’ motion to dismiss the complaint with prejudice. Plaintiffs appealed Judge Chesler’s decision to the United States Court of Appeals for the Third Circuit. On September 9, 2008, the Third Circuit issued an opinion reversing Judge Chesler’s order and remanding the case to the District Court. On September 23, 2008, Merck filed a petition seeking rehearing en banc, which was denied. The case was remanded to the District Court in October 2008, and plaintiffs have filed their Consolidated and Fifth Amended Class Action Complaint. Merck filed a petition for a writ of certiorari with the United States Supreme Court on January 15, 2009. On March 23, 2009, plaintiffs filed a response to Merck’s petition and, on April 7, 2009, Merck filed a reply brief. Merck expects to file a motion to dismiss the Fifth Amended Class Action Complaint. In addition, various putative class actions have been brought against Merck and several current and former employees, officers, and directors of Merck alleging violations of ERISA. (All of these suits are referred to as the Vioxx ERISA Lawsuits.) In addition, shareholder derivative suits that were

9

previously filed and dismissed are now on appeal and several shareholders have filed demands with Merck asserting claims against Merck Board members and Merck officers. (All of these suits and demands are referred to as the Vioxx Derivative Lawsuits and, together with the Vioxx Securities Lawsuits and the Vioxx ERISA Lawsuits, the Vioxx Shareholder Lawsuits.) Merck has also been named as a defendant in actions in various countries outside the United States. (All of these suits are referred to as the Vioxx Foreign Lawsuits.) Merck has also been sued by ten states, five counties and New York City with respect to the marketing of Vioxx. Merck anticipates that additional lawsuits relating to Vioxx may be filed against it and/or certain of its current and former officers and directors in the future.

The SEC is conducting a formal investigation of Merck concerning Vioxx. Merck has received subpoenas from the U.S. Department of Justice requesting information related to Merck’s research, marketing and selling activities with respect to Vioxx in a federal health care investigation under criminal statutes. This investigation includes subpoenas for witnesses to appear before a grand jury. 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. There are also ongoing investigations by local authorities in certain cities in Europe in order to determine whether any criminal charges should be brought concerning Vioxx. Merck is cooperating with authorities in all of these investigations. (All of these investigations are referred to as the Vioxx Investigations.) Merck cannot predict the outcome of any of these investigations; however, they could result in potential civil and/or criminal liability.

Juries have now decided in favor of Merck twelve times and in plaintiffs’ favor five times. One Merck verdict was set aside by the court and has not been retried. Another Merck verdict was set aside and retried, leading to one of the five plaintiffs’ verdicts. There have been two unresolved mistrials. With respect to the five plaintiffs’ verdicts, Merck filed an appeal or sought judicial review in each of those cases. In one of those five, an intermediate appellate court overturned the trial verdict and directed that judgment be entered for Merck, and in another, an intermediate appellate court overturned the trial verdict, entering judgment for Merck on one claim and ordering a new trial on the remaining claims.

The outcomes of these Vioxx Product Liability trials should not be interpreted to indicate any trend or what outcome may be likely in future Vioxx trials.

A trial in a representative action in Australia commenced on March 30, 2009, in the Federal Court of Australia. The named plaintiff, who alleges he suffered a MI, seeks to represent others in Australia who ingested Vioxx and suffered a MI, thrombotic stroke, unstable angina, transient ischemic attack or peripheral vascular disease. On November 24, 2008, Merck filed a motion for an order that the proceeding no longer continue as a representative proceeding. During a hearing on December 5, 2008, the court dismissed that motion and, on January 9, 2009, issued its reasons for that decision. On February 17, 2009, Merck’s motion for leave to appeal that decision was denied and the parties were directed to prepare proposed lists of issues to be tried. On March 11, 2009, the full Federal Court allowed Merck’s appeal of that part of the trial judge’s order that had declined to specify the matters to be tried and directed further proceedings on remand on that issue. On March 30, 2009, the trial judge entered an order directing that, in advance of all other issues in the proceeding, the issues to be determined during the trial are those issues of fact and law in the named plaintiff’s individual case, and those issues of fact and law that the trial judge finds, after hearing the evidence, are common to the claims of the group members that the named plaintiff has alleged that he represents.

Merck currently anticipates that one U.S. Vioxx Product Liability Lawsuit will be tried in 2009. Except with respect to the product liability trial being held in Australia, Merck cannot predict the timing of any other trials related to the Vioxx Litigation. Merck believes that it has meritorious defenses to the Vioxx Product Liability Lawsuits, Vioxx Shareholder Lawsuits and Vioxx Foreign Lawsuits (collectively, the Vioxx Lawsuits) and will vigorously defend against them. Merck’s insurance coverage with respect to the Vioxx Lawsuits will not be adequate to cover its defense costs and any losses.

10

During the first quarter of 2009, Merck spent approximately $54 million in the aggregate in legal defense costs worldwide related to (1) the Vioxx Product Liability Lawsuits, (2) the Vioxx Shareholder Lawsuits, (3) the Vioxx Foreign Lawsuits, and (4) the Vioxx Investigations (collectively, the Vioxx Litigation). In addition, in the first quarter of 2009, Merck paid an additional $15 million into the settlement funds in connection with the Settlement Program. Consequently, as of March 31, 2009, the aggregate amount of Merck’s total reserve for the Vioxx Litigation (the Vioxx Reserve) was approximately $4.310 billion. The amount of the Vioxx Reserve allocated to defense costs is based on certain assumptions, and is the best estimate of the minimum amount that Merck believes will be incurred in connection with the remaining aspects of the Vioxx Litigation; however, events such as additional trials in the Vioxx Litigation and other events that could arise in the course of the Vioxx Litigation could affect the ultimate amount of defense costs to be incurred by Merck and, if the merger is consummated, New Merck.

Merck is not currently able to estimate any additional amount of damages that it may be required to pay in connection with the Vioxx Lawsuits or Vioxx Investigations. These proceedings are still expected to continue for years and Merck has very little information as to the course the proceedings will take. In view of the inherent difficulty of predicting the outcome of litigation, particularly where there are many claimants and the claimants seek unspecified damages, Merck 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 Vioxx Lawsuits not included in the Settlement Program. Merck has not established any reserves for any potential liability relating to the Vioxx Lawsuits not included in the Settlement Program or the Vioxx Investigations.

A series of unfavorable outcomes in the Vioxx Lawsuits or the Vioxx Investigations, resulting in the payment of substantial damages or fines or resulting in criminal penalties, in excess of the Vioxx Reserve, could have a material adverse effect on Merck’s and, if the merger is completed, New Merck’s business, cash flows, results of operations, financial position and prospects.

Merck faces and, if the merger is completed prior to resolution of the litigation, New Merck will face, patent litigation related to Singulair.

In February 2007, Merck received a notice from Teva Pharmaceuticals, Inc. (Teva), a generic company, indicating that it had filed an Abbreviated New Drug Application (ANDA) for montelukast and that it is challenging the U.S. patent that is listed for Singulair. On April 2, 2007, Merck filed a patent infringement action against Teva. The lawsuit automatically stays United States Food and Drug Administration (FDA) approval of Teva’s ANDA until August 2009 or until an adverse court decision, if any, whichever may occur earlier. A trial in this matter was held in February 2009. Merck is awaiting the court’s decision which Merck expects to receive before the stay expires in August 2009. Patent litigation and other challenges to Merck’s Singulair patents are costly and unpredictable and may deprive Merck and, if the merger is completed, New Merck, of market exclusivity. If Singulair loses patent protection, sales of Singulair are likely to decline significantly as a result of generic versions of it becoming available. An unfavorable outcome in the Singulair litigation, could have a material adverse effect on Merck’s and, if the merger is completed, New Merck’s business, cash flows, results of operations, financial position and prospects.

Government investigations involving Merck or Schering-Plough, or New Merck after completion of the merger, could lead to the commencement of civil and/or criminal proceedings involving the imposition of substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs, which could give rise to other investigations or litigation by government entities or private parties.

We cannot predict whether future or pending investigations to which Merck or Schering-Plough, or New Merck after completion of the merger, may become subject would lead to a judgment or settlement involving a significant monetary award or restrictions on its operations.

11

The pricing, sales and marketing programs and arrangements and related business practices of Merck, Schering-Plough and other participants in the health care industry are under increasing scrutiny from federal and state regulatory, investigative, prosecutorial and administrative entities. These entities include the Department of Justice and its U.S. Attorneys’ Offices, the Office of Inspector General of the Department of Health and Human Services, the FDA, the Federal Trade Commission and various state Attorneys General offices. Many of the health care laws under which certain of these governmental entities operate, including the federal and state anti-kickback statutes and statutory and common law false claims laws, have been construed broadly by the courts and permit the government entities to exercise significant discretion. In the event that any of those governmental entities believes that wrongdoing has occurred, one or more of them could institute civil or criminal proceedings which, if resolved unfavorably, could subject Merck or Schering-Plough, or New Merck after completion of the merger, to substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs. In addition, an adverse outcome to a government investigation could prompt other government entities to commence investigations of Merck or Schering-Plough, or New Merck after completion of the merger, or cause those entities or private parties to bring civil claims against it. We also cannot predict whether any investigations will affect marketing practices or sales. Any such result could have a material adverse impact on Merck’s or Schering-Plough’s, or New Merck’s after completion of the merger, results of operations, cash flows, financial condition or business.

Regardless of the merits or outcomes of any investigation, government investigations are costly, divert management’s attention from our business and may result in substantial damage to our reputation.

There are other legal matters in which adverse outcomes could negatively affect New Merck’s results of operations, cash flows, financial condition or business.

Unfavorable outcomes in other pending litigation matters, or in future litigation, including litigation concerning product pricing, securities law violations, product liability claims, ERISA matters, patent and intellectual property disputes, and antitrust matters could preclude the commercialization of products, negatively affect the profitability of existing products and subject New Merck to substantial fines, penalties and injunctive or administrative remedies, including exclusion from government reimbursement programs. Any such result could materially and adversely affect New Merck’s results of operations, cash flows, financial condition or business.

Further, aggressive plaintiffs counsel often file litigation on a wide variety of allegations whenever there is media attention or negative discussion about the efficacy or safety of a product and whenever the stock price is volatile; even when the allegations are groundless, we may need to expend considerable funds and other resources to respond to such litigation.

12

New Merck and third parties acting on New Merck’s behalf will be subject to governmental regulations, and the failure to comply with, as well as the costs of compliance with, these regulations may adversely affect New Merck’s results of operations, cash flow and financial position.

New Merck’s manufacturing and research practices and those of third parties acting on New Merck’s behalf must meet stringent regulatory standards and are subject to regular inspections. The cost of regulatory compliance, including that associated with compliance failures, could materially affect New Merck’s results of operations, cash flow and financial position. Failure to comply with regulations, which include pharmacovigilance reporting requirements and standards relating to clinical, laboratory and manufacturing practices, could result in suspension or termination of clinical studies, delays or failure in obtaining the approval of drugs, seizure or recalls of drugs, suspension or revocation of the authority necessary for the production and sale of drugs, withdrawal of approval, fines and other civil or criminal sanctions.

New Merck will also be subject to other regulations, including environmental, health and safety, and labor regulations.

Certain of Schering-Plough’s and Merck’s major products are going to lose patent protection in the near future and, when that occurs, we expect a significant decline in sales of those products.

Each of Schering-Plough and Merck depends upon patents to provide it with exclusive marketing rights for its products for some period of time. As patents for several of its products have recently expired, or are about to expire, in the United States and in other countries, Schering-Plough and Merck and, if the merger is consummated, New Merck will each face strong competition from lower-priced generic drugs. Loss of patent protection for a product typically leads to a rapid loss of sales for that product, as lower-priced generic versions of that drug become available. In the case of products that contribute significantly to sales, the loss of patent protection could have a material adverse effect on each of Schering-Plough’s and Merck’s and, if the merger is consummated, New Merck’s business, cash flows, results of operations, financial position and prospects.

Both Merck and Schering-Plough are dependent on our patent rights, and if our patent rights are invalidated or circumvented, our business, and the business of New Merck if the merger is completed, would be adversely affected.

Patent protection will be of material importance in our marketing of human health products in the United States and in most major foreign markets. Patents covering products that have been or will be introduced normally provide a period of market exclusivity, which is important for the successful marketing and sale of our products. We seek patents covering each of our products in each of the markets where we intend to sell the products and where meaningful patent protection is available.

Even if we succeed in obtaining patents covering our products, third parties or government authorities may challenge or seek to invalidate or circumvent our patents and patent applications. It will be important for our business to defend successfully the patent rights that provide market exclusivity for our products. We are often involved in patent disputes relating to challenges to our patents or infringement and similar claims against us. We aggressively defend our important patents both within and outside the United States, including by filing claims of infringement against other parties, however, there can be no guarantee that our efforts will be successful. In particular, manufacturers of generic pharmaceutical products from time to time file ANDAs with the FDA seeking to market generic forms of our products prior to the expiration of relevant patents owned by us. We normally respond by vigorously defending our patent, including by filing lawsuits alleging patent infringement. Patent

13

litigation and other potential challenges to our patent portfolio will be costly and unpredictable. An adverse determination by a court may deprive us of market exclusivity for our patented products or, in some cases, third-party patents may prevent us from marketing and selling products in a particular geographic area and may lead to significant financial damages for past and ongoing infringement. Due to the uncertainty surrounding patent litigation, parties may settle patent disputes by obtaining a license under mutually agreeable terms in order to decrease risk of an interruption in manufacturing and/or marketing of their products.

Additionally, certain foreign governments have indicated that compulsory licenses to patents may be granted in the case of national emergencies, which could diminish or eliminate sales and profits from those regions and negatively affect our results of operations. Further, recent court decisions relating to other companies’ U.S. patents, potential U.S. legislation relating to patent reform, as well as regulatory initiatives may result in further erosion of intellectual property protection.

If one or more important products lose patent protection in profitable markets, sales of our products will likely decline significantly as a result of generic versions of those products becoming available. Our results of operations may be adversely affected by the lost sales unless and until we successfully launch commercially successful proprietary replacement products.

New Merck’s research and development efforts may not succeed in developing commercially successful products and New Merck may not be able to acquire commercially successful products in other ways, and consequently, New Merck may not be able to replace sales of successful products that have lost patent protection.

Like other major pharmaceutical companies, in order to remain competitive, New Merck must be able to launch new products each year. Declines in sales of products after the loss of marketing exclusivity mean that New Merck’s future success is dependent on New Merck’s pipeline of new products, including new products that New Merck develops through joint ventures and products that it is able to obtain through license or acquisition. To accomplish this, New Merck will commit substantial effort, funds and other resources to research and development, both through New Merck’s own dedicated resources, and through various collaborations with third parties. To support its research and development efforts New Merck must make ongoing, substantial expenditures, without any assurance that the efforts it is funding will result in a commercially successful product. New Merck must also commit substantial efforts, funds and other resources to recruiting and retaining high-quality scientists and other personnel with pharmaceutical research and development expertise.

There is a high rate of failure inherent in the research to develop new drugs to treat diseases. As a result, there is a high risk that funds invested by Merck or Schering-Plough or New Merck following the merger in research programs will not generate financial returns. This risk profile is compounded by the fact that this research has a long investment cycle. To bring a pharmaceutical compound from the discovery phase to market may take a decade or more and failure can occur at any point in the process, including later in the process after significant funds have been invested.

Each phase of testing is highly regulated, and during each phase there is a substantial risk that New Merck will encounter serious obstacles or will not achieve its goals, and accordingly New Merck may abandon a product in which it has invested substantial amounts of time and money. Some of the risks encountered in the research and development process include the following: pre-clinical testing of a new compound may yield disappointing results; clinical trials of a new drug may not be successful; a new drug may not be effective or may have harmful side effects; a new drug may not be approved by the FDA for its intended use; it may not be possible to obtain a patent for a new drug; manufacturing costs or other factors may make marketing a new product economically unfeasible; proprietary rights of others may preclude our commercialization of a new product; or sales of a new product may be disappointing.

14

In that connection, on June 5, 2009, Merck announced that the preliminary results for its pivotal Phase III study of rolofylline, an investigational medicine for the treatment of acute heart failure, indicated that rolofylline did not meet the primary or secondary endpoints of the study. The primary hypothesis of the study, called PROTECT, was that rolofylline would improve symptoms of acute heart failure compared to placebo. The secondary endpoints were that rolofylline would reduce the risk of death or cardiovascular or renal re-hospitalization within 60 days of treatment, and would reduce the risk of persistent kidney impairment.

Merck and Schering-Plough cannot state with certainty when or whether any of Schering-Plough’s or Merck’s products now under development will be approved or launched; whether New Merck will develop, license or otherwise acquire compounds, product candidates or products; or whether any products, once launched, will be commercially successful. New Merck must be able to maintain a continuous flow of successful new products and successful new indications or brand extensions for existing products sufficient both to cover substantial research and development costs and to replace sales that are lost as profitable products lose patent protection or are displaced by competing products or therapies. Failure to do so in the short term or long term could have a material adverse effect on New Merck’s business, cash flows, results of operations, financial position and prospects.

Issues concerning Vytorin and the ENHANCE and SEAS clinical trials could have a material adverse effect on sales of Vytorin and Zetia in the U.S., which in turn could have a material adverse effect on New Merck’s financial condition.

Schering-Plough and Merck sell Vytorin and Zetia through our joint venture company, referred to herein as the Merck/Schering-Plough cholesterol partnership. Upon consummation of the merger, the Merck/Schering-Plough cholesterol partnership would be wholly owned by New Merck. On January 14, 2008, the Merck/Schering-Plough cholesterol partnership announced the primary endpoint and other results of the ENHANCE trial. ENHANCE was a surrogate endpoint trial conducted in 720 patients with Heterozygous Familial Hypercholesterolemia, a rare condition that affects approximately 0.2% of the population. The primary endpoint was the mean change in the intima-media thickness measured at three sites in the carotid arteries (the right and left common carotid, internal carotid and carotid bulb) between patients treated with ezetimibe/simvastatin 10/80 mg versus patients treated with simvastatin 80 mg alone over a two year period. There was no statistically significant difference between treatment groups on the primary endpoint. There was also no statistically significant difference between the treatment groups for each of the components of the primary endpoint, including the common carotid artery.

As previously disclosed, we have received several letters addressed to both Merck and Schering-Plough from the House Committee on Energy and Commerce, its Subcommittee on Oversight and Investigations (O&I), and the Ranking Minority Member of the Senate Finance Committee, collectively seeking a combination of witness interviews, documents and information on a variety of issues related to the ENHANCE clinical trial, the sale and promotion of Vytorin, as well as sales of stock by corporate officers. In addition, since August 2008, we have received three additional letters from O&I, including one dated February 19, 2009, seeking certain information and documents related to the SEAS clinical trial, which is described in more detail below. Merck and Schering-Plough have each received subpoenas from the New York and New Jersey State Attorneys General Offices and a letter from the Connecticut Attorney General seeking similar information and documents. In addition, Merck has received six Civil Investigative Demands (CIDs) from a multistate group of 34 State Attorneys General who are jointly investigating whether the companies violated state consumer protection laws when marketing Vytorin. Finally, in September 2008, Merck received a letter from the Civil Division of the DOJ informing it that the DOJ is investigating whether the companies’ conduct relating to the promotion of Vytorin caused false claims to be submitted to federal health care programs. We are cooperating with these investigations and working together to respond to the inquiries. In addition, Merck has become aware of, or been served with, approximately 145 civil class action lawsuits alleging common law and state consumer fraud claims in connection with the Merck/Schering-Plough cholesterol partnership’s sale and promotion of Vytorin and Zetia. Certain of those lawsuits allege personal injuries and/or seek medical monitoring.

15

Also, as previously disclosed, on April 3, 2008, a Merck shareholder filed a putative class action lawsuit in federal court in the Eastern District of Pennsylvania alleging that Merck and its Chairman, President and Chief Executive Officer, Richard T. Clark, violated the federal securities laws. This suit has since been withdrawn and re-filed in the District of New Jersey and has been consolidated with another federal securities lawsuit under the caption In re Merck & Co., Inc. Vytorin Securities Litigation. An amended consolidated complaint was filed on October 6, 2008 and names as defendants Merck; Merck/Schering-Plough Pharmaceuticals, LLC; and certain of Merck’s officers and directors. Specifically, the complaint alleges that Merck delayed releasing unfavorable results of a clinical study regarding the efficacy of Vytorin and that Merck made false and misleading statements about expected earnings, knowing that once the results of the Vytorin study were released, sales of Vytorin would decline and Merck’s earnings would suffer. On April 22, 2008, a member of a Merck ERISA plan filed a putative class action lawsuit against Merck and certain of its 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 have been consolidated under the caption In re Merck & Co., Inc. Vytorin ERISA Litigation. An amended consolidated complaint was filed on February 5, 2009, and names as defendants Merck and various members of Merck’s board of directors and members of committees of Merck’s board of directors.

In addition, Schering-Plough continues to respond to existing and new litigation, including several putative shareholder securities class action lawsuits (where several officers are also named defendants) alleging false and misleading statements and omissions by Schering-Plough and its representatives related to the timing of disclosures concerning the ENHANCE results; a putative shareholder securities class action lawsuit (where several officers and directors are also named), alleging material misstatements and omissions related to the ENHANCE results in the offering documents in connection with Schering-Plough’s 2007 securities offerings; several putative class action suits alleging that Schering-Plough and certain officers and directors breached their fiduciary duties under ERISA; a shareholder derivative action alleging that the board of directors breached its fiduciary obligations relating to the timing of the release of the ENHANCE results; and a letter on behalf of a single shareholder requesting that the board of directors investigate the allegations in the litigation described above and, if warranted, bring any appropriate legal action on behalf of Schering-Plough.

In January 2009, the FDA announced that it had completed its review of the final clinical study report of ENHANCE. The FDA stated that the results from ENHANCE did not change its position that an elevated LDL cholesterol is a risk factor for cardiovascular disease and that lowering LDL cholesterol reduces the risk for cardiovascular disease. The FDA also stated that, based on current available data, patients should not stop taking Vytorin or other cholesterol lowering medications and should talk to their doctor if they have any questions about Vytorin, Zetia, or the ENHANCE trial.

In July 2008, efficacy and safety results from the SEAS study were announced. SEAS was designed to evaluate whether intensive lipid lowering with Vytorin would reduce the need for aortic valve replacement and the risk of cardiovascular morbidity and mortality versus placebo in patients with asymptomatic mild to moderate aortic stenosis who had no indication for statin therapy. Vytorin failed to meet its primary endpoint for the reduction of major cardiovascular events. There also was no significant difference in the key secondary endpoint of aortic valve events; however, there was a reduction in the group of patients taking Vytorin compared to placebo in the key secondary endpoint of ischemic cardiovascular events. In the study, patients in the group who took Vytorin had a higher incidence of cancer than the group who took placebo. There was also a statistically nonsignificant increase in deaths from cancer in patients in the group who took Vytorin versus those who took placebo. Cancer and cancer deaths were distributed across all major organ systems.

In August 2008, the FDA announced that it was investigating the results from the SEAS trial. In this announcement, the FDA also cited interim data from two large ongoing cardiovascular trials of Vytorin — the Study of Heart and Renal Protection (referred to as SHARP) and the IMPROVE-IT clinical trials — in which there was no increased risk of cancer with the combination of simvastatin plus ezetimibe. The SHARP trial is expected to be completed in 2010. The IMPROVE-IT trial is scheduled for completion around 2012. The FDA determined that, as of that time, these findings in the SEAS trial plus the interim data from ongoing trials should not prompt patients to stop taking Vytorin or any other cholesterol lowering drug.

16

In 2008, following the announcements of the ENHANCE and SEAS clinical trial results, sales of Vytorin and Zetia declined in the U.S. These issues concerning the ENHANCE and SEAS clinical trials have had an adverse effect on the Merck/Schering-Plough cholesterol partnership’s sales of Vytorin and Zetia and could continue to have an adverse effect on the sales of the combined company. If sales of such products are materially adversely affected, Merck’s, Schering-Plough’s and, consequently, the combined company’s businesses, cash flows, results of operations, financial positions and prospects could also be materially adversely affected. In addition, unfavorable outcomes resulting from the government investigations or the litigation concerning the sale and promotion of these products could have a material adverse effect on Merck’s, Schering-Plough’s and, consequently, the combined company’s businesses, cash flows, results of operations, financial positions and prospects.

Schering-Plough’s, Merck’s and, if the merger is completed, New Merck’s products, including products in development, cannot be marketed unless regulatory approval is obtained and maintained.

Our business activities, including research, preclinical testing, clinical trials and manufacturing and marketing of products, are and will continue to be subject to extensive regulation by numerous federal, state and local governmental authorities in the United States, including the FDA, and by foreign regulatory authorities. In the United States, the FDA is of particular importance, as it administers requirements covering the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of prescription pharmaceuticals. In many cases, FDA requirements have increased the amount of time and money necessary to develop new products and bring them to market in the United States. Regulation outside the United States also is primarily focused on drug safety and effectiveness and, in many cases, cost reduction. The FDA and foreign regulatory authorities have substantial discretion to require additional testing, to delay or withhold registration and marketing approval and to mandate product withdrawals.

Even if Merck, Schering-Plough and, if the merger is completed, New Merck, are successful in developing new products, they will not be able to market any of those new products unless and until they have obtained all required regulatory approvals in each jurisdiction where they propose to market the new products. Once obtained, Merck, Schering-Plough and, if the merger is completed, New Merck must maintain approval as long as they plan to market their new products in each jurisdiction where approval is required. Merck’s, Schering-Plough’s and, if the merger is completed, New Merck’s failure to obtain approval, significant delays in the approval process, or their failure to maintain approval in any jurisdiction will prevent Merck, Schering-Plough and, if the merger is completed, New Merck from selling the new products in that jurisdiction until approval is obtained, if ever. Merck, Schering-Plough and, if the merger is completed, New Merck will not be able to realize revenues for those new products in any jurisdiction where they have not obtained such required approvals.

Developments following regulatory approval may adversely affect sales of Merck’s, Schering-Plough’s and, if the merger is completed, New Merck’s products.

Even after a product reaches market, certain developments following regulatory approval, including results in post-marketing Phase IV trials, may decrease demand for our products, including the following: re-review of products that are already marketed; new scientific information and evolution of scientific theories; recall or loss of marketing approval of products that are already marketed; changing government standards or public expectations regarding safety, efficacy or labeling changes; and greater scrutiny in advertising and promotion.

In the past several years, clinical trials and post-marketing surveillance of certain marketed drugs of competitors within the industry have raised safety concerns that have led to recalls, withdrawals or adverse labeling of marketed products. Clinical trials and post-marketing surveillance of certain marketed drugs also have raised

17

concerns among some prescribers and patients relating to the safety or efficacy of pharmaceutical products in general that have negatively affected the sales of such products. In addition, increased scrutiny of the outcomes of clinical trials have led to increased volatility in market reaction. Further, these matters often attract litigation and, even where the basis for the litigation is groundless, considerable resources may be needed to respond.

In addition, following the wake of product withdrawals of other companies and other significant safety issues, health authorities such as the FDA, the European Medicines Agency (EMEA) and the Pharmaceuticals and Medical Device Agency (PMDA) have increased their focus on safety when assessing the benefit/risk balance of drugs. Some health authorities appear to have become more cautious when making decisions about approvability of new products or indications and are re-reviewing select products that are already marketed, adding further to the uncertainties in the regulatory processes. There is also greater regulatory scrutiny, especially in the U.S., on advertising and promotion and, in particular, direct-to-consumer advertising.

In that connection, on June 12, 2009, the FDA announced that it had completed its review of neuropsychiatric events possibly related to drugs that act through the leukotriene pathway, including Singulair. As part of its review, the FDA reviewed post-marketing reports and also requested that manufacturers submit all available clinical trial data for these products. The FDA has requested that manufacturers include a precaution related to neuropsychiatric events (agitation, aggression, anxiousness, dream abnormalities and hallucinations, depression, insomnia, irritability, restlessness, suicidal thinking and behavior (including suicide), and tremor) in the drug prescribing information.

If previously unknown side effects are discovered or if there is an increase in negative publicity regarding known side effects of any of our products, it could significantly reduce demand for the product or require Merck, Schering-Plough or New Merck following the merger to take actions that could negatively affect sales, including removing the product from the market, restricting its distribution or applying for labeling changes. Further, in the current environment in which all pharmaceutical companies operate, Merck, Schering-Plough and New Merck following the merger are at risk for product liability claims for their products.

We face pricing pressure with respect to our products.

Our products will be subject to increasing price pressures and other restrictions worldwide, including in the United States. In the United States, these include (1) practices of managed care groups and institutional and governmental purchasers and (2) U.S. federal laws and regulations related to Medicare and Medicaid, including the Medicare Prescription Drug Improvement and Modernization Act of 2003 (2003 Act). The 2003 Act included a prescription drug benefit for individuals, which first went into effect on January 1, 2006, and has resulted in an increased use of generic products. In addition, the increased purchasing power of entities that negotiate on behalf of Medicare beneficiaries could result in further pricing pressures on our, and consequently New Merck’s, products.

Outside the United States, numerous major markets have pervasive government involvement in funding healthcare, and in that regard, fix the pricing and reimbursement of pharmaceutical and vaccine products. Consequently, in those markets, we, and consequently New Merck, will be subject to government decision-making and budgetary actions with respect to our products.

In addition, a number of intermediaries are involved between drug manufacturers, such as Merck and Schering-Plough, and patients who use the drugs. These intermediaries impact the patient’s ability, and their prescribers’ ability, to choose and pay for a particular drug, which may adversely affect sales of a particular drug. These intermediaries include health care providers, such as hospitals and clinics; payors and their representatives, such as employers, insurers, managed care organizations and governments; and others in the supply chain, such as pharmacists and wholesalers. Examples include: payors that require a patient to first fail on one or more generic, or less expensive branded drugs, before reimbursing for a more effective, branded product that is more expensive; payors that are increasing patient co-payment amounts; hospitals that stock and administer only a generic product to

18

in-patients; managed care organizations that may penalize doctors who prescribe outside approved formularies, which may not include branded products when a generic is available; and pharmacists who receive larger revenues when they dispense a generic drug over a branded drug. Further, the intermediaries are not required to routinely provide transparent data to patients comparing the effectiveness of generic and branded products or to disclose their own economic benefits that are tied to steering patients toward, or requiring patients to use, generic products rather than branded products.

We expect pricing pressures to increase in the future.

Merck is experiencing difficulties and delays in the manufacturing of certain of its products.

As previously disclosed, Merck has experienced difficulties in manufacturing certain of its vaccines and other products. Merck is working on these issues, but there can be no assurance of when or if these issues will be resolved.

Merck, and consequently New Merck, may experience difficulties and delays inherent in manufacturing its products, such as (1) its failure, or the failure of vendors or suppliers to comply with Current Good Manufacturing Practices and other applicable regulations and quality assurance guidelines that could lead to manufacturing shutdowns, product shortages and delays in product manufacturing; (2) construction delays related to the construction of new facilities or the expansion of existing facilities, including those intended to support future demand for its products; and (3) other manufacturing or distribution problems including changes in manufacturing production sites and limits to manufacturing capacity due to regulatory requirements, changes in types of products produced, or physical limitations that could impact continuous supply. Manufacturing difficulties can result in product shortages, leading to lost sales.

Pharmaceutical products can develop unexpected safety or efficacy concerns.

Unexpected safety or efficacy concerns can arise with respect to marketed products, whether or not scientifically justified, leading to product recalls, withdrawals, or declining sales, as well as product liability, consumer fraud and/or other claims.

Biologics carry unique risks and uncertainties, which could have a negative impact on future results of operations.

Schering-Plough has significant biologics operations, including animal health vaccines, and the biologics business will represent a significant part of the operations of New Merck after the merger. The successful development, testing, manufacturing and commercialization of biologics, particularly human and animal health vaccines, is a long, expensive and uncertain process. There are unique risks and uncertainties with biologics, including:

• There may be limited access to and supply of normal and diseased tissue samples, cell lines, pathogens, bacteria, viral strains and other biological materials. In addition, government regulations in multiple jurisdictions such as the U.S. and European states within the EU, could result in restricted access to, or transport or use of, such materials. If Schering-Plough, or New Merck after the merger, loses access to sufficient sources of such materials, or if tighter restrictions are imposed on the use of such materials, we may not be able to conduct research activities as planned and may incur additional development costs.

19

• The development, manufacturing and marketing of biologics are subject to regulation by the FDA, the EMEA and other regulatory bodies. These regulations are often more complex and extensive than the regulations applicable to other pharmaceutical products. For example, in the U.S., a Biologics License Application, including both preclinical and clinical trial data and extensive data regarding manufacturing procedures, is required for human vaccine candidates and FDA approval for the release of each manufactured lot.

• Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies to handle living micro-organisms. Each lot of an approved biologic must undergo thorough testing for identity, strength, quality, purity and potency. Manufacturing biologics requires facilities specifically designed for and validated for this purpose, and sophisticated quality assurance and quality control procedures are necessary. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. When changes are made to the manufacturing process, we may be required to provide pre-clinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes.

• Biologics are frequently costly to manufacture because production ingredients are derived from living animal or plant material, and most biologics cannot be made synthetically. In particular, keeping up with the demand for vaccines may be difficult due to the complexity of producing vaccines.

The use of biologically derived ingredients can lead to allegations of harm, including infections or allergic reactions, or closure of product facilities due to possible contamination. Any of these events could result in substantial costs.

Product liability insurance for products may be limited, cost prohibitive or unavailable.

As a result of a number of factors, product liability insurance has become less available while the cost has increased significantly. Merck 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, including liability for products first sold after that date. Schering-Plough maintains insurance coverage with such deductibles and self-insurance to reflect market conditions (including cost and availability) existing at the time it is written, and the relationship of insurance coverage to self-insurance varies accordingly. With respect to product liability insurance, Schering-Plough self-insures substantially all of its risk, as the availability of commercial insurance has become more restrictive. Merck, Schering-Plough, and if the merger is completed, New Merck, will continually assess the most efficient means to address their insurance needs; however, there can be no guarantee that insurance coverage will be obtained or if obtained, will be sufficient to fully cover product liabilities that may arise.

Changes in laws and regulations could adversely affect our business and the business of New Merck.

All aspects of our respective businesses, and consequently the business of New Merck, including research and development, manufacturing, marketing, pricing, sales, litigation and intellectual property rights are, or in the case of New Merck, will be, subject to extensive legislation and regulation. Changes in applicable federal and state laws and agency regulations, as well as the laws and regulations of foreign jurisdictions, could have a material adverse effect on our respective businesses, and consequently the business of New Merck.

20

The recent financial crisis and current uncertainty in global economic conditions could negatively affect our operating results and consequently the operating results of New Merck.

Merck, Schering-Plough and New Merck following the merger have exposure to many different industries and counterparties, including commercial banks, investment banks, suppliers and customers (which include wholesalers, managed care organizations and governments) that may be unstable or may become unstable in the current economic environment. Any such instability may impact these parties’ ability to fulfill contractual obligations to Merck, Schering-Plough or New Merck, following the merger, or they might limit or place burdensome conditions upon future transactions with New Merck. Customers may also reduce spending during times of economic uncertainty. Also, it is possible that suppliers may be negatively impacted. In such events, there could be a resulting material and adverse impact on operations and results of operations.

Further, the current conditions have resulted in severe downward pressure on the stock and credit markets, which could further reduce the return available on invested corporate cash, reduce the return on investments held by the pension plans and thereby potentially increase funding obligations, all of which if severe and sustained could have material and adverse impacts on New Merck’s results of operations, financial position and cash flows.

The current financial crisis and uncertainty in global economic conditions have resulted in substantial volatility in the credit markets and a low level of liquidity in many financial markets. These conditions may result in a further slowdown to the global economy that could affect our business and consequently the business of New Merck by reducing the prices that drug wholesalers and retailers, hospitals, government agencies and managed health care providers may be able or willing to pay for our or New Merck’s products or by reducing the demand for our products, which could in turn negatively impact our or New Merck’s sales and revenue generation and could result in a material adverse effect on our or New Merck’s business, cash flows, results of operations, financial position and prospects.

Although none of Schering-Plough, Merck or New Merck after the merger currently has plans to access the equity or debt markets to meet capital or liquidity needs, constriction and volatility in these markets may restrict future flexibility to do so if unforeseen capital or liquidity needs were to arise.

Merck, Schering-Plough and, subsequently, the combined company may be subject to changes in tax laws, including those outlined by President Obama in his Fiscal Year 2010 Revenue Proposal.

In May 2009, President Obama’s administration proposed significant changes to the U.S. international tax laws, including changes that would limit U.S. tax deductions for expenses related to un-repatriated foreign-source income and modify the U.S. foreign tax credit and “check-the-box” rules. We cannot determine whether these proposals will be enacted into law or what, if any, changes may be made to such proposals prior to their being enacted into law. If these or other changes to the U.S. international tax laws are enacted they could have a significant impact on the financial results of Merck, Schering-Plough and, subsequently, the combined company.

As a result of the merger, New Merck will have significant global operations, which expose it to additional risks, and any adverse event could have a material negative impact on New Merck’s results of operations.

The extent of New Merck’s operations outside the U.S. will be significant due to the fact that the majority of Schering-Plough’s operations are outside the U.S. Risks inherent in conducting a global business include:

• changes in medical reimbursement policies and programs and pricing restrictions in key markets;

• multiple regulatory requirements that could restrict New Merck’s ability to manufacture and sell its products in key markets;

21

• trade protection measures and import or export licensing requirements;

• diminished protection of intellectual property in some countries; and

• possible nationalization and expropriation.

In addition, there may be changes to New Merck’s business and political position if there is instability, disruption or destruction in a significant geographic region, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest; and natural or man-made disasters, including famine, flood, fire, earthquake, storm or disease.

Reliance on third party relationships and outsourcing arrangements could adversely affect our, and consequently New Merck’s, business.

We depend on third parties, including suppliers, alliances with other pharmaceutical and biotechnology companies and third party service providers, for key aspects of our businesses including development, manufacture and commercialization of our products and support for our information technology systems. Failure of these third parties to meet their contractual, regulatory and other obligations to us or the development of factors that materially disrupt our relationships with these third parties, could have a material adverse effect on our, and consequently New Merck’s, business.

We are and, after the merger is completed, New Merck will be, increasingly dependent on sophisticated information technology and infrastructure.

We are, and New Merck will be, increasingly dependent on sophisticated information technology and infrastructure. Any significant breakdown, intrusion, interruption or corruption of these systems or data breaches could have a material adverse effect on our, and consequently New Merck’s, business. As previously disclosed, Merck has been proceeding with a multi-year implementation of an enterprise-wide resource planning system, which includes modification to the design, operation and documentation of Merck’s internal controls over financial reporting. The planned completion and implementation of the enterprise-wide resource planning systems may be complicated and/or delayed by the integration of Schering-Plough’s operations under these systems. Any material problems in the implementation could have a material adverse effect on our, and consequently New Merck’s, business.

22