Merck 2008 Annual Report Download - page 68

MANAGEMENT REPORT OF THE MERCK GROUP 63
60 Corporate and Other
61 Risk report
64 Report on expected developments
64 Subsequent events
12 Overall economic situation
14 Economic development
of Merck
15 Financial position and results
of operations
24 Responsibility
26 Merck shares
30 Pharmaceuticals business sector
50 Chemicals business sector
Assessment by independent rating agencies
The capital market makes use of the assessments published by independent rating
agencies in order to assist debt providers in estimating the risks attaching to a financial
instrument. Merck is currently rated by the agencies Standard & Poor’s and Moody’s.
Since June 30, 2008, Standard & Poor’s has given Merck a long-term rating of A-, with
a stable outlook. The short-term rating by this agency is A-2. Since December 16, 2008,
Moody’s has given Merck an improved long-term rating of A3, with a positive outlook.
Moody’s short-term rating for Merck is P-2. Moody’s decision to upgrade our long-term
rating was founded on the rapid retirement of debt following the Serono acquisition
and the solid cash flow that Merck generates. Thus, both agencies confirm a stable
investment grade rating for us.
Legal risks
Merck is engaged in legal proceedings and government investigations, the outcome of
which cannot currently be predicted. We also continue to bear the risks from certain
proceedings against companies of the Generics group that we sold to Mylan in 2007.
Thus Merck continues to be responsible for example for risks arising from cases con-
cerning drug pricing in the United States. In addition, the Merck Serono division is
involved in a licensing dispute in Israel as well as a dispute with a former sales partner
in Italy. The company has taken all possible measures to protect its own legal position.
(More details can be found starting on page 115).
Should individual products of the Merck Group prove to be defective and/or display
undesirable side effects, this could lead to possible compensation claims and legal
proceedings owing to product liability.
As a research-based company, Merck has a valuable portfolio of industrial property
rights, such as patents and brand names. This can become the target of attacks and
infringements. We have taken the necessary precautions to identify threats and defend our
rights where necessary. Generally, Merck endeavors to prevent legal risks from arising.
A compliance program applies for our employees worldwide, which enjoins them to
comply with laws and guidelines, and provides them with the relevant training and
support. The core of the program is the Merck Code of Conduct, which defines ethical
behavior guidelines. This is complemented by a training and testing program as well
as a global network of compliance officers.
Insofar as possible and sensible, the company limits liability and damage risks
through insurance coverage, the type and scope of which is continually adjusted to
current requirements.
Human resource risks
Merck’s success is significantly influenced by the competence and dedication of its
employees. The search for qualified specialists, particularly for fields of activity specific
to the pharmaceutical sector, is subject to increasingly intensive competition with other
companies. We are countering this development by continuously advancing our interna-
tional personnel marketing measures.
Merck minimizes the consequences of personnel turnover among qualified specialists
and executives by means of a Talent & Succession Management Process established
throughout the Group. This helps to identify both key positions and talents, thus
enabling appropriate vacancies to be quickly filled with suitable employees as a result
of targeted selection. Short-term vacancies are managed by means of clearly defined,
appropriate deputizing arrangements.
Moody’s upgrades Merck’s
long-term rating.
Compliance program is bind-
ing on all Merck employees.