Joint Ventures and Other Equity Method Affiliates

9 Months Ended

Sep. 30, 2011

Joint Ventures and Other Equity Method Affiliates [Abstract]

Joint Ventures and Other Equity Method Affiliates

8. Joint Ventures and Other Equity Method Affiliates

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in millions)	2011		2010		2011		2010
AstraZeneca LP	$	141	$	192	$	318	$	357
Other (1)		20		44		36		60
	$	161	$	236	$	354	$	417

⁽¹⁾ Primarily reflects results from Sanofi Pasteur MSD, as well as Johnson & Johnson°Merck Consumer Pharmaceuticals Company (which was divested in September 2011).

AstraZeneca LP

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

     In connection with the 1998 restructuring, Astra purchased an option (the “Asset Option”) for a payment of $443 million, which was recorded as deferred income, to buy Old Merck’s interest in the KBI products, excluding the gastrointestinal medicines Nexium and Prilosec (the “Non-PPI Products”). In April 2010, AstraZeneca exercised the Asset Option. Merck received $647 million from AstraZeneca, representing the net present value as of March 31, 2008 of projected future pretax revenue to be received by Old Merck from the Non-PPI Products, which was recorded as a reduction to the Company’s investment in AZLP. The Company recognized the $443 million of deferred income in the second quarter of 2010 as a component of Other (income) expense, net. In addition, in 1998, Old Merck granted Astra an option (the “Shares Option”) to buy Old Merck’s common stock interest in KBI and, therefore, Old Merck’s interest in Nexium and Prilosec, exercisable in 2012. The exercise price for the Shares Option will be based on the net present value of estimated future net sales of Nexium and Prilosec as determined at the time of exercise, subject to certain true-up mechanisms. The Company believes that it is likely that AstraZeneca will exercise the Shares Option.

     Summarized financial information for AZLP is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in millions)	2011		2010		2011		2010
Sales	$	1,124	$	1,200	$	3,460	$	3,790
Materials and production costs		464		605		1,524		1,864
Other expense, net		357		224		1,004		679
Income before taxes (1)	$	303	$	371	$	932	$	1,247

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

Johnson & Johnson°Merck Consumer Pharmaceuticals Company

     In September 2011, Merck sold its 50% interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company (“JJMCP”) joint venture to J&J. The venture between Merck and J&J was formed in 1989 to develop, manufacture, market and distribute certain over-the-counter (“OTC”) consumer products in the United States and Canada. Merck received a one-time payment of $175 million and recognized a pretax gain of $136 million in the third quarter of 2011 reflected in Other (income) expense, net. Merck’s rights to the Pepcid brand outside the United States and Canada were not affected by this transaction. Following the transaction, J&J owns the venture’s assets which include the exclusive rights to market OTC Pepcid, Mylanta, Mylicon and other local OTC brands where they are currently sold in the United States and Canada. The partnership assets also included a manufacturing facility.