Merck 2010 Annual Report Download - page 93

authorization application. Merck had appealed this decision. In January 2011, the European
regulatory authorities issued a final negative opinion. Additionally, there is the danger that unde-
sirable side effects of a pharmaceutical product could remain undetected until after approval or
registration, which could result in a restriction of approval or withdrawal from the market.
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Although Merck is exposed to product liability risks, these are minimized by means of quality
controls along the entire value chain. This starts with the qualification of our suppliers.
Comprehensive quality requirements for raw materials, purchased semifinished products and
plants must be mentioned, as well as long-term strategic alliances in the case of supply- and
price-critical precursor products. Overstocking and possible shelf-life risks associated with this
are avoided by means of demand-driven production. This risk cannot be completely excluded
because of production lead times, which are substantial in some cases. Total revenues and the
operating result of the Merck Group depend on a large number of pharmaceutical and chemical
products for various industries. This diversification lowers risk since the markets differ in their
structure and economic cycles. This is also an expression of the Merck strategy to remain an
integrated pharmaceutical and chemical company.
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As a company that operates internationally and due to its presence in the capital market, Merck
is exposed to various financial risks. These are primarily liquidity, default, currency and market-
price risks, as well as risks of changing fair values of tangible and intangible assets, and
fluctuations in the valuation of pension obligations.
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In order to ensure its continued existence, a company must be able to fulfill its commitments
from operating and financial activities at all times. A central Group-wide liquidity management
reduces potential liquidity risks. In addition, we have a EUR 2 billion syndicated multicurrency
credit facility, which expires in 2014. This ensures Merck’s continuing solvency in case there
should be any liquidity bottlenecks in spite of the Group’s positive operating cash flow. As
our loan agreements do not contain any financial covenants, these agreed credit lines can be
accessed even if Merck’s credit rating should deteriorate. In 2009, Merck set up a debt issuance
program that forms the contractual basis for the issue of bonds. In 2010, the volume of this
program was doubled from EUR 5 billion to EUR 10 billion.
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