UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

     For the quarterly period ended March 31, 2004

OR

     For the transition period from           to          

Commission File No. 1-3305

MERCK & CO., INC.

P. O. Box 100
One Merck Drive
Whitehouse Station, N.J. 08889-0100
(908) 423-1000

The number of shares of common stock outstanding as of the close of business on April 30, 2004:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Table of Contents

Part I - Financial Information

Item 1. Financial Statements

MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited, $ in millions except per share amounts)

*Amount does not add as a result of rounding.

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

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MERCK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2004 AND DECEMBER 31, 2003
(Unaudited, $ in millions)

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

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MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited, $ in millions)

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

Notes to Consolidated Financial Statements

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Notes to Consolidated Financial Statements (continued)

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Notes to Consolidated Financial Statements (continued)

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Notes to Consolidated Financial Statements (continued)

     A summary of the employee severance liability is as follows:

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Notes to Consolidated Financial Statements (continued)

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Notes to Consolidated Financial Statements (continued)

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Notes to Consolidated Financial Statements (continued)

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Notes to Consolidated Financial Statements (continued)

Other profits are primarily comprised of miscellaneous corporate profits as well as operating profits related to divested products or businesses and other supply sales. Adjustments represent the elimination of the effect of double counting certain items of income and expense. Equity income (loss) from affiliates includes taxes paid at the joint venture level and a portion of equity income that is not reported in segment profits. Other expenses, net, include expenses from corporate and manufacturing cost centers and other miscellaneous income (expense), net.

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

Operating Results

Earnings per share for the first quarter of 2004 were $0.73, a 7% increase over earnings per share from continuing operations* in the same period in 2003. Net income was $1,618.6 million, compared to income from continuing operations of $1,545.0 million in the first quarter of last year. Worldwide sales were $5.6 billion for the quarter.

Total sales increased 1% for the quarter, reflecting strong growth in Merck’s major in-line franchises, offset by lower revenues from Merck’s relationship with AstraZeneca LP, which were primarily driven by generic competition for Prilosec. Merck’s major in-line franchises collectively grew 11%. Overall, first-quarter sales performance included a 5-point favorable effect from foreign exchange. Sales outside of the United States accounted for 42% of first-quarter sales, compared to 38% of sales for the first quarter of 2003.

The Company’s gross margin was 80.2% in the 2004 first quarter compared to 80.6% in the first quarter of 2003, reflecting the impact of changes in product mix.

Marketing and administrative expenses increased 6% compared to the first quarter of 2003. Excluding the impact of $34 million for restructuring costs related to position eliminations, marketing and administrative expenses increased 4% for the quarter. The Company is on track to eliminate 4,400 positions worldwide. Approximately 3,800 positions had been eliminated as of March 31. This program, which was announced in October 2003, will be completed by the end of 2004.

Also contributing to Merck’s results in the first quarter was Other Income of $241 million, which includes a $177 million gain on the sale of Merck’s 50-percent equity stake in Johnson & Johnson/MSD Europe and realized gains on the Company’s investment portfolios.

The effective tax rate of 30.9% in the first quarter reflects the impact of product mix, changes in the Company’s tax reserve position and the nondeductibility of the acquired research expense in connection with the Aton acquisition.

Merck complements its internal research program with an aggressive licensing and external alliance strategy across the entire spectrum of collaborations from early research to late-stage compounds, as well as new technologies and targeted acquisitions. Research and development expenses increased 23% during the first quarter, reflecting acquired research resulting from the acquisition of Aton Pharma, Inc. (Aton), as well as licensing activities, including the Company’s collaboration with H. Lundbeck A/S (Lundbeck).

In February, Merck and Lundbeck entered into an agreement for the exclusive U.S. development and commercialization of gaboxadol, a compound currently in Phase III development for the treatment of sleep disorders. Under the terms of the agreement, Lundbeck received an initial payment of $70 million and may receive up to $200 million in additional milestone payments. Merck and Lundbeck will jointly complete the ongoing Phase III clinical program, with Merck funding the majority of the remaining development activities. The companies anticipate that Merck will file a New Drug Application (NDA) with the U.S. Food and Drug Administration (FDA) between late 2006 and mid-2007. Following FDA approval, the companies plan to co-promote gaboxadol in the United States. Lundbeck will receive a share of gaboxadol sales in the United States.

On April 28, 2004, Merck and Bristol-Myers Squibb Company announced that the companies have entered into a global collaborative agreement for muraglitazar, Bristol-Myers Squibb’s dual PPAR (peroxisome proliferator-activated receptor) agonist, currently in Phase III clinical development for use in treating both blood glucose and lipid abnormalities in patients with type 2 diabetes. Under the terms of the agreement, Bristol-Myers Squibb will receive a $100 million upfront payment and $275 million in additional payments based upon the achievement of certain regulatory milestones. The companies will jointly develop the clinical and marketing strategy for muraglitazar and share equally in future development and commercialization costs. Both companies will co-promote the product to physicians on a global basis, and Merck will receive payments based on net sales levels. It is expected that muraglitazar will be submitted within the next nine to 12 months for U.S. regulatory approval. In addition, Merck received rights to co-develop and jointly commercialize a back-up compound to muraglitazar, which is entering Phase II clinical trials for the treatment of diabetes.

In March, Merck acquired Aton, a privately held biotechnology company focusing on the development of novel treatments for cancer and other serious diseases. The acquisition resulted in $125 million of acquired research expense in the first quarter. Former shareholders of Aton will receive additional payments which are contingent upon regulatory filing, approval, and sale of certain Aton products.

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In March, Merck completed its acquisition of Banyu Pharmaceutical Co., Ltd. Full ownership of Banyu enhances Merck’s position in Japan, the world’s second-largest pharmaceutical market, while simultaneously strengthening the Company’s position as one of the world’s largest research-based pharmaceutical companies. The acquisition of Banyu expands the Company’s network of wholly owned operations to every major market of the world.

Also in March, Merck completed the sale of its 50-percent equity stake in Johnson & Johnson/MSD Europe, a non-prescription pharmaceuticals joint venture, to Johnson & Johnson. In addition to an upfront payment, Merck will continue to benefit through royalties on certain products. Merck has also regained the rights to potential future products that switch from prescription to over-the-counter status in Europe. Johnson & Johnson/Merck Consumer Pharmaceuticals Co., a 50/50 joint venture between Johnson & Johnson and Merck that operates in the United States and Canada, is unaffected by this transaction.

Merck’s largest products, which continue to benefit from ongoing clinical studies and new treatment options, drove the Company’s sales. Each of Merck’s major in-line franchises ranks either No. 1 or 2 in its class, in terms of sales, worldwide.

Merck implemented a new U.S. wholesaler distribution program during the fourth quarter of 2003. As a result of the program, inventory levels at key wholesalers for each of the major products approximate two to three weeks of supply. Implementation of the program had an estimated $100 million overall residual buy-out effect on first-quarter 2004 revenues.

Zocor, Merck’s statin for modifying cholesterol, achieved worldwide sales of $1.3 billion in the first quarter, an increase of 10% from the comparable prior year period. U.S. mail-order-adjusted prescription levels for Zocor increased by approximately 5% during the quarter. Merck continues to promote the landmark Heart Protection Study (HPS) to physicians and consumers. The HPS demonstrated that Zocor 40 mg, along with diet, is the first and only cholesterol-lowering medicine proven to reduce the risk of heart attacks and stroke in people with heart disease or diabetes, regardless of cholesterol level.

During the first quarter of 2004, Fosamax continued as the most-prescribed medicine worldwide for the treatment of postmenopausal, male and glucocorticoid-induced osteoporosis, with $759 million in global sales, a decrease of 4% from the comparable prior year period. U.S. mail-order-adjusted prescription levels for Fosamax increased by 3% during the quarter.

Results from the longest prospective clinical trial in the treatment of postmenopausal osteoporosis were published in March in the New England Journal of Medicine. The study showed that postmenopausal women taking Fosamax maintained or continued to experience increases in bone mineral density at the hip and spine through 10 years of treatment.

Global sales of Merck’s antihypertensive medicines, Cozaar and Hyzaar**, reached $629 million for the quarter, a decrease of 1% from the comparable prior year period. Cozaar and Hyzaar compete in the fastest-growing class in the antihypertensive market, angiotensin II antagonists (AIIA). Cozaar is the second-most-frequently prescribed AIIA in the United States and the largest-selling AIIA in Europe. U.S. mail-order-adjusted prescription levels for Cozaar and Hyzaar increased by 8% during the quarter.

Worldwide sales of Singulair, a once-a-day oral medicine indicated for the treatment of chronic asthma and the relief of symptoms of seasonal allergic rhinitis, reached $623 million in the first quarter, an increase of 34% from the comparable prior year period. U.S. mail-order-adjusted prescription levels for Singulair increased by 32% during the quarter.

Sales in the first quarter were driven by strong performance in the asthma market, as well as in the seasonal allergic rhinitis market. Singulair continues to be the second-most-prescribed product in the overall respiratory market in the United States and the largest-selling asthma controller brand in pediatrics worldwide.

Worldwide sales of Vioxx, Merck’s arthritis and pain medicine, reached $661 million for the first quarter of 2004, an increase of 30% from the comparable prior year period. U.S. mail-order-adjusted prescription levels for Vioxx decreased by 3% during the quarter. In markets outside of the United States, Vioxx continues to be the best-selling arthritis and pain medicine.

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On March 26, the FDA approved a supplemental New Drug Application (sNDA) for Vioxx for the acute treatment of migraine attacks with or without aura in adults. Vioxx is the first and only coxib approved to relieve migraine pain and associated migraine symptoms. During the first quarter, the FDA also accepted for filing another sNDA for Vioxx based on studies in juvenile rheumatoid arthritis, and has granted an additional six months of marketing exclusivity in the United States for Vioxx based on that filing. Indications for Vioxx for migraine and juvenile rheumatoid arthritis also are being sought outside of the United States.

Global sales of Arcoxia reached $30 million in the first quarter of 2004. To date, Arcoxia has been launched in 44 countries outside of the United States, most recently in Italy, Portugal and Belgium. Additional launches will continue in other countries throughout the year.

On March 12, the FDA accepted for filing Merck’s NDA for Arcoxia. The NDA seeks indications for Arcoxia for the treatment of osteoarthritis, rheumatoid arthritis, chronic low-back pain, acute pain, dysmenorrhea, acute gouty arthritis and ankylosing spondylitis. No other coxib currently has indications for chronic low-back pain, acute gouty arthritis or ankylosing spondylitis.

Results from a new acute gouty arthritis study for Arcoxia were published in the February issue of Arthritis & Rheumatism. The study showed that Arcoxia 120 mg once daily provided the same degree of pain relief as indomethacin (50 mg three times daily) – the standard treatment for acute gouty arthritis – and confirmed earlier findings showing Arcoxia offered a similar clinical benefit to indomethacin.

Sales of Merck’s other promoted medicines and vaccines during the first quarter were $1.2 billion, compared to $1.1 billion for the same period of last year. These products treat or prevent a broad range of conditions.

Global sales of Zetia (branded “Ezetrol” outside of the United States), the cholesterol absorption inhibitor developed and marketed by Merck/Schering-Plough Pharmaceuticals, reached $190 million in the first quarter of 2004. More than 7.5 million prescriptions have been written in the United States since the U.S. launch of Zetia in mid-November 2002, according to IMS Health. Zetia currently accounts for more than 5 percent of new prescriptions in the cholesterol-lowering class and is now reimbursed for nearly 90 percent of all patients in managed care plans across the United States. To date, Ezetrol has been launched in more than 40 countries outside of the United States. More markets are expected to launch Ezetrol in 2004 upon completion of pricing/reimbursement national processes.

Results from the EASE (Ezetimibe Add-On to Statin for Effectiveness) trial of 3,030 patients, which were presented at the American College of Cardiology (ACC) meeting in March, showed that adding 10 mg of Zetia to ongoing stable statin therapy lowered LDL (“bad cholesterol”) by an additional 26 percent, compared to the 3 percent decrease seen in patients continuing their stable dose of statin monotherapy over the course of the six-week trial. These results were consistently seen across a number of pre-specified treatment groups such as age, gender and the medical conditions diabetes and metabolic syndrome.

Merck/Schering-Plough Pharmaceuticals submitted an NDA for Vytorin (ezetimibe/simvastatin) to the FDA on September 24, 2003. The filing was accepted by the FDA for standard review on November 23, 2003. Vytorin is the first product to target the body’s two sources of cholesterol through dual inhibition – inhibiting both cholesterol production in the liver and absorption in the intestine. Vytorin (branded “Inegy” in many countries outside of the United States) has recently been launched in Germany and Mexico.

Results from clinical trials conducted in support of Vytorin, also presented at the ACC meeting, demonstrated that patients taking ezetimibe with simvastatin, the active ingredients in Vytorin, achieved reductions in LDL ranging from 46 to 61 percent. Moreover, the studies demonstrated that patients taking ezetimibe with simvastatin achieved significantly greater reductions in LDL than with Lipitor or Zocor across the dosage ranges.

Financial Guidance for 2004

Worldwide net sales will be driven by the Company’s major in-line products, including the impact of new studies and indications. Sales forecasts for those products for 2004 are as follows: Zocor $4.9 to $5.1 billion, Fosamax $3.0 to $3.2 billion, Cozaar and Hyzaar $2.7 to $2.9 billion, coxibs (Vioxx and Arcoxia) $2.6 to $2.8 billion, and Singulair $2.4 to $2.7 billion.

Under an agreement with AstraZeneca (AZN), Merck receives revenue at predetermined rates on the U.S. sales of certain products by AZN, most notably Prilosec and Nexium. In 2004, Merck anticipates these revenues to be approximately $1.6 to $1.8 billion.

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The income contribution related to the Merck and Schering-Plough collaboration is expected to be positive in 2004. Equity income from affiliates includes the results of the Merck and Schering-Plough collaboration combined with the results of Merck’s other joint venture relationships. Equity income from affiliates is expected to be approximately $800 to $900 million for 2004.

Merck continues to expect that manufacturing productivity will offset inflation on product costs.

Product gross margin percentage is estimated to be approximately 80% to 81% as a result of changes to the sales mix.

Research and development expense (which excludes joint ventures) is anticipated to increase at a high-teens percentage growth rate over the full-year 2003 level. This guidance includes acquired research and development expenses in 2003 and 2004.

Consolidated marketing and administrative expense is estimated to be at the same level as the full-year 2003 expense. This guidance excludes restructuring costs in 2003 and 2004.

The consolidated 2004 tax rate is estimated to be approximately 28% to 29%.

Merck plans to continue its stock buyback program in 2004. As of March 31, $9.3 billion remains under the current buyback authorizations approved by Merck’s Board of Directors.

The Company is on track to eliminate 4,400 positions worldwide. Approximately 3,800 positions had been eliminated as of March 31. This program, which was announced in October 2003, will be completed by the end of 2004. Restructuring costs for full-year 2004 are expected to be approximately $75 to $125 million. When complete, the cost reductions are expected to generate annual savings of payroll and benefits costs of $250 to $300 million starting in 2005.

Given these guidance elements, and including the effect of the restructuring, Merck anticipates full-year 2004 earnings per share (EPS) of $3.11 to $3.17 and second-quarter EPS of $0.78 to $0.82.

Cash provided by operations continues to be the Company’s primary source of funds to finance operating needs and capital expenditures. Net cash provided by operating activities totaled $1.8 billion and $1.7 billion for the three months ended March 31, 2004 and 2003, respectively.

Capital expenditures for the three months totaled $322.8 million and $421.1 million in 2004 and 2003, respectively. Capital expenditures for the full year 2004 are expected to approximate $1.9 billion.

Dividends paid to stockholders totaled $822.4 million and $808.3 million for the first three months of 2004 and 2003, respectively. In February 2004, the Board of Directors declared a quarterly dividend of 37 cents per share on the Company’s common stock for the second quarter of 2004.

During the first quarter, the Company purchased $227.9 million of its Common Stock (4.9 million shares) for its Treasury. The Company has approximately $9.3 billion remaining under the July 2002 treasury stock purchase authorization.

Other Matters

The IRS has substantially completed its examination of the Company’s tax returns for the years 1993 to 1996 and on April 28, 2004 issued a preliminary notice of deficiency with respect to a partnership transaction entered into in 1993. Specifically, the IRS is proposing to disallow certain royalty and other expenses claimed as deductions on the 1993-1996 tax returns of the Company. The Company anticipates receiving a similar notice for 1997-1999, shortly. If the IRS ultimately prevails in its positions, the Company’s income tax due for the years, 1993-1999, would increase by approximately $970 million plus interest to date of approximately $490 million. The IRS will likely make similar claims for years subsequent to 1999 in future audits with respect to this transaction. The potential disallowance for these later years, computed on a similar basis to the

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1993-1999 disallowances, would be approximately $540 million plus interest to date of approximately $40 million. The IRS has proposed penalties on the Company with respect to all periods that have been examined and the Company anticipates the IRS would seek to impose penalties on all other periods.

The Company vigorously disagrees with the proposed adjustments and intends to aggressively contest this matter through applicable IRS and judicial procedures, as appropriate. Although the final resolution of the proposed adjustments is uncertain and involves unsettled areas of the law, based on currently available information, the Company has provided for the best estimate of the probable tax liability for this matter. While the resolution of the issue may result in tax liabilities which are significantly higher or lower than the reserves established for this matter, management currently believes that the resolution will not have a material effect on the Company’s financial position or liquidity. However, an unfavorable resolution could have a material effect on the Company’s results of operations or cash flows in the quarter in which an adjustment is recorded or the tax is due or paid.

Legal Proceedings

As previously disclosed, the Company is a party in claims brought under the Consumer Protection Act of 1987 in the United Kingdom, which allege that certain children suffer from a variety of conditions as a result of being vaccinated with various bivalent vaccines for measles and rubella and/or trivalent vaccines for measles, mumps and rubella, including the Company’s M-M-R II. In early September 2003, the Legal Services Commission announced its decision to withdraw public funding of the litigation brought by the claimants. This decision was confirmed on appeal by the Funding Review Committee on September 30, 2003. The claimants’ application for judicial review of the decision to withdraw public funding has been dismissed. The lead claimants have decided not to apply to the Court of Appeal for permission to appeal that decision. The April 2004 trial date has been vacated and each claimant has been ordered to indicate by May 14 whether he or she intends to discontinue or proceed with their claim. Directions from the Judge for the future conduct of the litigation will be made at a case management hearing in July. The Company believes that these lawsuits are without merit and will vigorously defend against them.

In March 2004, two shareholder derivative actions were filed in federal court in New Orleans naming the Company and certain members of the Board (past and present), together with certain executive officers, as defendants. The complaints arise out of substantially the same factual allegations that are made in the Vioxx-related federal securities putative class actions filed against the Company, which principally allege that the Company made false and misleading statements regarding Vioxx. The derivative suits, which are purportedly brought to assert rights of the Company, assert claims against the Board members and officers for breach of fiduciary duty, waste of corporate assets and unjust enrichment. The court has consolidated the shareholder derivative actions with the securities actions. The Company believes that the lawsuits are without merit.

Item 4. Controls and Procedure

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures. Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective. There have been no significant changes in internal control over financial reporting, for the period covered by this report, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

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

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The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors described in the Company’s filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and 8-K (if any). In Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed on March 10, 2004, the Company discusses in more detail various important factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties.

Part II — Other Information

Item 1. Legal Proceedings

Information with respect to certain legal proceedings is incorporated by reference from Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part 1 of this report.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Issuer purchases of equity securities for the three month period ended March 31, 2004 is as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

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     During the three-month period ending March 31, 2004, the Company:

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Signatures

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

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EXHIBIT INDEX