                                   MERCK

                                  2/14/94

                      Stock     Price      52 week     YTD Pr    Div  Gross
                      Rating     2/11   --- Range ---    Chg     Rate Yield
Merck & Co.             MP      34.88       41-28         1      1.12  3.2

                                 Est.        - Interim EPS -    -EBITDA 94-
          FY/IP       EPS93     EPS94 PE94   --Next- -YrAgo-    per/sh  p/e
MRK       12/01Q      2.39R      2.40 14.5      0.60    0.53      n/a   n/a

Merck's two day analyst meeting with securities analysts to further
elaborate on its vertical integration strategy was an informative
introduction to the rapid changes in the pharmaceutical industry.  Key
points are as follows:

1.  There is potential to revise earnings estimates upward if the
accelerated integration of Medco into Merck is accomplished within the next
30-60 days as was optimistically targeted.  If so, the 5%-10% dilution
targeted for 1994 maybe near the low end of the range.

2. While analysts feel that Merck has indeed implemented change rapidly (to
react to the demands of the market based/managed care reform as well as the
threat of generic competition), change that will make it a survivor and a
stable earnings growth company longer-term, they await the strategies of the
other companies which may affect Merck-Medco.  If the other companies
pursue a similar acquisition strategy, Merck was first; it bought the
biggest PBM; Merck's a leader; others are followers; and Merck's stock may
therefore trade up.

If, however, other companies form consortia and these consortia contract
with one or more PBM's or incorporate them into the consortia, and the
mechanics of these consortia are uncomplicated and can be valued, then
Merck may have to address its dilution and strategy.

3.  Merck believes that their vertical integration/acquisition strategy is
the best alternative; that one company (Medco) has to sacrifice its margins
for Merck's margins; that for all practical purposes, you have to give away
service to maximize market share and volume of patient flow.

Thus, the pressure on Medco's margins should take Merck from the highest
margin to the lowest margin company within the drug industry.  While that
appears to be a concern in the near-term as the company's and the
industry's earnings statement is being rewritten, it bodes well for Merck
longer-term as the restructured/revised margins will again be expanding
rather than contracting.

Merck recognizes that its profitability and that of the entire drug
industry will be reduced, and that profitability in a world of capitation
is difficult to estimate today.  Merck's strategy is to capture as much
market share of patient flow to drive top line growth, and that, coupled
with aggressive cost cuts and strict financial discipline, should support
earnings growth.

4.  Merck challenged the formation of consortia on the grounds that
manufacturers and PBMs have opposing goals.  Manufacturers want to maximize
market share and prescription volume, and PBM's want to maximize earnings
and minimize prescription flow; that manufacturers may not get access to
payors as PBM's do; and independent PBM's will not have a detail force pull
through effect of influencing compliance of their products.  While the
forementioned supports Merck's acquisition of Medco, it is the first step
only.

In so far as new information Merck announced:

1.  R&D would increase 12% to $1.3 billion in 1994.  We believe that this
number incorporates outcomes research as well as other marketing
strategies.

2.  Merck announced that 5 manufacturers have signed up with the merged
company as they are `convinced' that Merck-Medco has demonstrated that they
can move market share.

It remains to be seen if these five manufacturers have entered into an
exclusive, semi-exclusive or non-exclusive arrangement with Merck/Medco.
If it is non-exclusive, and the goal is to secure market share, then it is
possible that other manufacturers, with or without a consortia may contract
with multiple PBM's to accelerate access to market share.  Other
manufacturers are expected to announce their strategies, whether it is the
formation of consortia, or arrangements with multiple PBM's to garner
market share within the first half of 1994.
