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Executive Summary

MERCK HEALTH PRODUCT PRICE INCREASES IN 1989 ADDED 3% to worldwide sales for the second consecutive year as Merck's price increases begin to show a flattening trend. The company's 1989 annual report says sales growth worldwide in human and animal health products was 11%: unit growth alone contributed 11%; increased prices added 3% and currency exchange adjustments cut 3%. The relatively small effect of price increases worldwide across Merck's health product line stems in part from the practices of the U.S. drug business, MS&D. In that division, Merck held price increases across the product line in the 5% range. MS&D Executive Director of National Customers & Policy Robert Hills noted at a March 14 Capitol Hill seminar on "The Affordability of Medicines" that "last year Merck and a couple of other companies in our industry had price increases that were down around 5%." The seminar was sponsored by the Institute for Alternative Futures. Merck has been one of the most active companies in the dialogue with Capitol Hill on rising drug prices. Top MS&D execs have met at least once with Senate Aging Committee staffers to discuss general pricing topics, and the company has been showing concern in its public statements for the diminishing public image of the industry from the above-inflation price increases of the 1980s. With its product line dominated by successful new introductions, Merck is in a comfortable position for dealing with price increases on its older mature products. In that regard, the company has a little more flexibility than some of the other drug firms. One senior MS&D exec reportedly told a recent pharmacy meeting that the company would aim to keep close to the 5% price increases during the first part of the new decade. Hills suggested to the Capitol Hill seminar that "we may well be seeing that the economic forces in our industry, competition and other factors, are making what had become a very troublesome problem, go away." The initial government figures for 1990 do not show a major cutback in price increases throughout the industry. The Producer Price Index figures for February, released on March 15, show a 10.3% increase in the price index for prescription pharmaceuticals from February 1989 to February 1990. The one-month change from January was 1.8% compared to a 0.5% drop for industrial goods.

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